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Monday, June 9, 2008

AT&T comments on 3G iPhone

Some pretty revelatory stuff in the AT&T release.

The new agreement between Apple and AT&T eliminates the revenue-sharing model
under which AT&T shared a portion of monthly service revenue with Apple. Under
the revised agreement, which is consistent with traditional equipment
manufacturer-carrier arrangements, there is no revenue sharing and both iPhone
3G models will be offered at attractive prices to broaden the market potential
and accelerate subscriber volumes. The phones will be offered with a two-year
contract and attractive data plans that are similar to those offered for other
smartphones and PDAs. AT&T anticipates that these offers will drive increased
sales volumes and revenues among high-quality, data-centric customers.

-- So the Apple model is changing. No more deferred subscriber revenue. It's all going to be up front. Concerning if you consider the $199 tag.

In the near term, AT&T anticipates that the new agreement will likely result
in some pressure on margins and earnings, reflecting the costs of subsidized
device pricing, which, in turn, is expected to drive increased subscriber

-- Hold on a sec! They're saying it's a subsidized model. So they'll be paying a subsidy to Apple. I'd speculate thats a $200 subsidy. So we're talking about Apple getting probably more like $399 a phone and being able to recognize all the revenue up front. The negative here is that the amount they collect going forward is nil. Furthermore, if they were getting $20 a month from AT&T as had been the speculation, they're only going to be getting somewhere in the neighborhood of $8.25 a month (if you amortize $200 over 24 months). Of course, they'll also be selling many many many more units at $199. Apple is also figuring out how to stick users with additional fees -- case in point, mobileme, which does over the air sync for iPhones for $99 a year. They'll probably be able to do a good recoup on some lost revenue like that.

The good news for consumers is $199 for a 3G iPhone is going to create some very affordable situations in non-iPhone models.

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