AT&T's Long Wait for iPhone Break-Even

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News Posted: Fri, Oct 9 2009 11:53 PM
A new report by the Yankee Group focuses on the subsidies wireless carriers pay to device manufacturers. In particular, as C|Net found, despite the fact that AT&T's bottom line has been heavily boosted by the iPhone, it takes a long time for the company to make back it's money from the bandwidth-sucking Apple device.

The report is titled "The Golden Subsidy Egg's Goose is Cooked: Welcome to the Brave New Subsidy-Free World." Most consumers know about mobile phone subsidies, which wireless carriers provide to customers lower prices on the latest phones, smart or not. The problem is, as the Yankee Group noted, as more consumers buy bandwidth-hogging devices, it takes longer for carriers to make back their money.

According to the Yankee Group, it takes AT&T 17 months out of the typical two-year contract to go from "in the red" to "in the black" with the iPhone.  With Android devices and webOS devices coming out on all networks, you can imagine that soon other networks, along with AT&T, are going to feel the crunch.

And despite what people may think, it's unclear that the Verizon network could handle something that sucks as much bandwidth as an iPhone. As the Yankee Group posits, as more of these devices arrive, carriers are going to have to either reduce their subsidies, or face the prospect of going further into a two-year contract before a device pays off. The choice will be to raise prices on devices, or raise prices on services. Either way, the consumer will feel the pinch.
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3vi1 replied on Sat, Oct 10 2009 8:51 AM

That still means they have you locked in for 7 months where they make money on you. That means that by the end of the contract, they make $82 in profit just from the phone itself... and if you don't cancel at the end of your contract, you keep paying for it forever.

I don't see how this is a financial problem for them.

This sounds more like another Paid-for-by-AT&T study that's announcing:  "We're going to raise your rates if you let Google Voice on the iPhone, because we want to keep the business model where we get to gouge you on the prices of the voice services instead of charging a reasonable amount for data." .

What part of "Ph'nglui mglw'nafh Cthulhu R'lyeh wgah'nagl fhtagn" don't you understand?

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gibbersome replied on Sat, Oct 10 2009 10:23 AM

I agree. The article makes it seems like AT&T doesn't have a choice. What about creating a better, faster network. The technology is there and there's no reason AT&T should not be able to revamp and upgrade its data service. I guess they'll have to once 4G becomes standard on phones.

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I thought they'd make more money considering the high price of the iPhone service.  But I suppose the bandwith usage is pretty high.  Maybe they don't charge as ridiculous amount as I thought, but it's still too expensive for me.

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realneil replied on Sat, Oct 10 2009 1:30 PM

I don't believe that they're not making any money off of us until then.

Corporations aren't known for their forthrightness and honesty either, remember Big Tobacco and their lies? Who's paying for these studies and surveys?

They'll be limiting people's bandwidth soon, citing overloaded networks.

Then, they'll offer a 'Premium' service that is unlimited but cost the consumer scads of cash.

While all of this is happening they're barking at the FCC for more free bandwidth and what they REALLY need to do is develop new technology that makes better use of what they do have.

Don't part with your illusions. When they are gone you may still exist, but you have ceased to live.

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Jeremy replied on Sun, Oct 11 2009 6:59 PM

My only question is: how much of the subscription cost is counted towards overcoming the subsidy for the provider? In the case of AT&T and the iPhone, there's the base subscription, which ranges from $40 to $100, plus the required data package at $30 a month, plus whatever text message plan you get on which ranges from $0 to $20 per month. Total cost of the subscription to the user is between $70 and $150 a month, but the study might have used any number from $40 to $150 in their math.

Which number did the study use to calculate how long it takes AT&T to overcome the cost of the subsidy? I can't find that information.

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