The iPhone is a nightmare for carriers

[OS]

Learn to read financial data. A 45% "EBITDA service margin" is NOT profit.

Verizon Wireless has a 2% profit Margin. Is 2% too much?
http://finance.yahoo.com/q/ks?s=VZ+Key+Statistics

ATT has a 3% profit margin.
http://finance.yahoo.com/q/ks?s=T+Key+Statistics

minor nitpick but i think those numbers are for the entire corporation/enterprise, which the wireless divisions are a subdivision of.

i think from VZW Q3 release they said they typically make about $20 per customer off data alone. Presumably that is per quarter.

edit here is engadgets article but i think they got it incorrect also;

http://www.engadget.com/2011/10/21/verizons-q3-earnings-on-track-with-revenues-up-5-4-percent-to/

 

[alent1234]

That's revenue, not profit

 

[Binky]

The only consumer rape I see in the wireless industry is AAPL. The others are struggling and making very slim margins by almost any measure.

 

[TheStu]

The only consumer rape I see in the wireless industry is AAPL. The others are struggling and making very slim margins by almost any measure.

So because they are turning in really great profits they are somehow raping consumers? They aren't charging people any more than what Samsung is, or HTC is, or anything like that, they are just better at it.

 

[OS]

The only consumer rape I see in the wireless industry is AAPL. The others are struggling and making very slim margins by almost any measure.

which might be fair, but the carrier cost of retaining an Apple product lineup is apparently being passed onto all consumers, iphone users or not.

so in effect i took the route of boycotting all carriers that sold apple products.

 

[OS]

So because they are turning in really great profits they are somehow raping consumers? They aren't charging people any more than what Samsung is, or HTC is, or anything like that, they are just better at it.

If prior to carrying apple products, customers were allowed 1 year contracts, and post iphone ALL customers were being forced into 2 year contracts, yes you are being screwed by apple.

 

[Binky]

So because they are turning in really great profits they are somehow raping consumers? They aren't charging people any more than what Samsung is, or HTC is, or anything like that, they are just better at it.

I agree, and I think companies should be able to make whatever profit they can without forcing a monopoly. I was responding to the comment that wireless carriers are raping the consumers. When you actually look at their financials (Verizon Wireless, AT&T), they aren't making much from their high monthly fees (which sound exorbitant on the surface). However, the cost to support those networks is huge, leaving very small margins with huge capital investments. I'd be pissed if I ran a company making 2-3% net margins. That very low and in the realm of the grocery industry (i.e. commodities).

Apple should be commended for the absurd profitability. I won't give them any of my money, but there are enough lemmings for them to get those huge profits.

 

[preslove]

I just left VZW for Tmo $30/mo prepaid myself.
My VZW smartphone plan was costing $75/mo even with a corporate discount, and I never used anywhere near the allocated minutes/data.

Before I sucked it up because VZW had 1 year contracts, so i got a new phone every year.
VZW obviously killed that. I don't know how much the salespeople actually know but atleast one of them told me VZW killed their 1 year contract and best discounts to pay for the iphone.
When I pointed out that means even non-iphone customers are subisidizing iphone users, the sales guy tried to backpedal, but it's true.

Anyways eff verizon and eff apple.
I don't need to be locked into a $75/mo for two years, locked into an expensive and rapidly depreciating device so i can surf facebook. I was a VZW smartphone customer for 3-4 years and blew $1k/yr on these plans, but the terms are even more onerous now.

Tmo data coverage is not as good, but like i said, i don't do anything important on my phone. Voice coverage no problems so far.

smartphones, contracts and data plans are massive consumer rape.

I'm looking to jump to tmo month-to-month or virgin mobile when my tmo contract is $50 to break (the 90 days left mark). I use more than 100 minutes a month though. How much are minutes over 100? I've tried looking online, but they don't state it anywhere (it's really, really annoying). I can deal with 10c a minute (I never use more than 300 minutes a month). I'd rather get tmo than virgin (tmo coverage is better where I am), but I might go with virgin because it's cheaper.

Honestly, I don't see the point in spending so much money to get the latest, greatest phone. I'd rather save the money and spend it on gadgets that don't have huge recurring costs. 10 months of savings can buy me an iPad 3 😀

 

[manly]

If prior to carrying apple products, customers were allowed 1 year contracts, and post iphone ALL customers were being forced into 2 year contracts, yes you are being screwed by apple.

Personally I think you're giving Apple too much "credit" here. They originally tried to take market control away from the carrier with an unsubsidized iPhone, but realized that strategy wasn't working.

Just because you see a correlation doesn't prove causation. I could plausibly argue Verizon's LTE investments for a select few early adopters is being subsidized by all VZW customers, including 3G-using iPhoners.

By my guesstimation, the $450 iPhone 4S subsidy is recouped by Verizon in about a year. Sure they need good cash flow to subsidize the iPhone and it reduces net income for a few quarters but over the 2-year contract, there's no question in my mind they come out ahead.

 

[Dulanic]

there are features that the low cost carriers don't offer, they are serving a niche

no night/weekned minutes
no free minutes on the same carrier
no roaming

and the only reason they offer unlimited data is they only offer phones that don't use that much data.

Who needs free nights and weekends when it's unlimited? Prepaid are much cheaper specifically because they do not need to subsidize phones and especially iphones.

 

[TheStu]

I agree, and I think companies should be able to make whatever profit they can without forcing a monopoly. I was responding to the comment that wireless carriers are raping the consumers. When you actually look at their financials (Verizon Wireless, AT&T), they aren't making much from their high monthly fees (which sound exorbitant on the surface). However, the cost to support those networks is huge, leaving very small margins with huge capital investments. I'd be pissed if I ran a company making 2-3% net margins. That very low and in the realm of the grocery industry (i.e. commodities).

Apple should be commended for the absurd profitability. I won't give them any of my money, but there are enough lemmings for them to get those huge profits.

See, comments like that are why can't have nice things in this sub-section.

They aren't a lemming for getting an iPhone anymore than someone is a lemming for buying a Dell/HP/Apple/Whatever instead of building their own. They made a choice. Whether or not it was fully informed is beside the point. They may have been deluded into buying the phone in the first place, but after that point they then continue to use the devices (not returning them) and then they buy more of them. The iDevices don't exude mind control vapors, people are not buying iPhones to replace iPhones because they have been tricked, but because they have been convinced.

The exact same can be said of Android, BB and WinPho7. The only person I can think of that might be drinking any kool-aid would be my friend that hated his android phone and replaced it with an android phone (though after he rooted it and installed CM he thinks it is significantly better).

And OS... if I remember the 1yr contract correctly, if a phone was $99 for 2yr, it was usually $199 or more for the 1yr contract. Other than being able to switch phones or carriers more frequently, what benefit am I overlooking? I must be overlooking it for it to have been something that Apple evidently forced the carriers into removing which has evidently really messed with you.

 

[OS]

I didn't just see it, VZW sales people told me that.
Now how accurate that is i don't know.

 

[OS]

I'm looking to jump to tmo month-to-month or virgin mobile when my tmo contract is $50 to break (the 90 days left mark). I use more than 100 minutes a month though. How much are minutes over 100? I've tried looking online, but they don't state it anywhere (it's really, really annoying). I can deal with 10c a minute (I never use more than 300 minutes a month). I'd rather get tmo than virgin (tmo coverage is better where I am), but I might go with virgin because it's cheaper.

Honestly, I don't see the point in spending so much money to get the latest, greatest phone. I'd rather save the money and spend it on gadgets that don't have huge recurring costs. 10 months of savings can buy me an iPad 3 😀

it's .10/min after the first 100 minutes.
Thats enough for most of my personal calls, my company also gave me a work cellphone.

i think Tmo also has a small biz $40/mo 1000 min, unlimited data plan, but you have to again sign a 2 yr contract.

i just had enough with both contracts and high fees.
Either alone i can deal with, but being contractually obligated to pay $2K over 2 years to surf facebook is stupid.

 

[OS]

And OS... if I remember the 1yr contract correctly, if a phone was $99 for 2yr, it was usually $199 or more for the 1yr contract. Other than being able to switch phones or carriers more frequently, what benefit am I overlooking? I must be overlooking it for it to have been something that Apple evidently forced the carriers into removing which has evidently really messed with you.

Did you go to college? My school had a class that taught how to convert cash flow into a present lump sum.

A 1 year contract at $75/month is actually almost the same as signing yourself into $900 of debt.
A 2 year is then about equivalent to $1800 upfront.

You don't see a problem here?

 

[TheStu]

it's .10/min after the first 100 minutes.
Thats enough for most of my personal calls, my company also gave me a work cellphone.

i think Tmo also has a small biz $40/mo 1000 min, unlimited data plan, but you have to again sign a 2 yr contract.

i just had enough with both contracts and high fees.
Either alone i can deal with, but being contractually obligated to pay $2K over 2 years to surf facebook is stupid.

It sounds to me like your beef is less about the iPhone taking away the 1yr contract (allegedly) and more about the push towards smartphones from both carriers and manufacturers.

 

[Binky]

Did you go to college? My school had a class that taught how to convert cash flow into a present lump sum.

A 1 year contract at $75/month is actually almost the same as signing yourself into $900 of debt.
A 2 year is then about equivalent to $1800 upfront.

You don't see a problem here?

You seem to be ignoring the fact that you'd probably pay for the service on a monthly basis anyway. The $75/month that you are contractually obligated to pay less the $75/month you would pay anyway is zero. You're mixing the cost of the service with the subsidy for the hardware.

I you want smartphone service and it truly costs the carrier a lot per month to provide that service, YOU are choosing to pay them a good chunk of change every month to be connected.

 

[ImDonly1]

there are features that the low cost carriers don't offer, they are serving a niche

no night/weekned minutes
no free minutes on the same carrier
no roaming

and the only reason they offer unlimited data is they only offer phones that don't use that much data.

Except getting unlimited talk, text is common on prepaid. Data is the hard part. The only thing prepaid doesn't have is roaming (Straight Talk does have some roaming I think) and bad customer service.

Lots of prepaid providers offer BYOD, buy the SIM and use whatever phone you want.

 

[hans007]

the main problem is that the apple phones have bigger subsidies because apple can command whatever they want because people will leave your carrier and the carrier will have less "prestige" if the iphone is not on there.

verizon / att / sprint obviously make less per apple customer than per android customer.

sprint doesnt EVER make money so they just lose MORE per customer.

i mean assuming every iphone and android customer all use generally the same data / text / minutes plan on average. then the monthly is the same but apple gets larger subsidies.

so yes, apple either makes them less, or in sprints case loses them more net at the end of the day.


now the main reason for it being particularly bad in q4 is that iphone releases the iphone in q4 so that is when all the subsidy costs are booked. if you smooth the subsidy out over 4 quarters (given they release one iphone per year, and presumeably this large capital expense would only happen once) then its more indicative of how to compare it against say android users.

i mean the phone subsidy has to be made back over 20 months or whenever the next subsidy has to be paid to keep said user. just apple releasing their main phone all in one quarter (unlike android releases which tend to be spread out all year) makes a huge surge in subsidy costs all during 1 quarter as well.


its the opposite of the whole apple sales argument. the quarter the telcos all have to book the subsidy expense is always the quarter that apple has the largest profits. of course apple sales will be much less in the other 3 quarters, and subsidy expenses will be less in the other 3 as well (they will still sell phones in other quarters, but just not the typical apple release surge in the quarter of release).


that said, apple still commands a high subsidy. and since all users pay the same for monthly service, the apple users are getting a good deal relative to android users. so they raise prices on EVERYONES phone plans / upgrade plans.

in reality they should just charge apple users more for the same plan, or subsidize their phones less. the phone companies havent been able to do this as of yet, because before they were competing just to be able to offer the phone. now that all 3 of them have the iphone i bet you'll see them raise prices on iphone upfront or whatever depending on how much they care to actually keep the apple less profitable apple users.

i mean in the end, the only company not subsidizing apple users is t-mobile. if t-mobile had an equivalent network, in theory t-mobile given they have only the more profitable android users could offer phones for less, or cheaper service. AND THEY DO.

sprint i am not even sure has an actual business plan. paying 20 billion to get a bunch of relatively unprofitable users given their slim margins doesnt seem to do very much for them, unless they eventaully convince those users to stay WHILE increasing prices. who knows how sticky users are, or if they are willing to just hop providers . sprint's network sucks so i suppose the only way they will keep them is if they improve their network, and then maybe they can justify a price increase to the equivalent of verizon/att . i mean if you only wanted an iphone , were already on sprint and sprint's network was hypothetically as good as verizons in every single way, then in theory sprint could charge just as much as verizon right? i would assume long term that is their plan, because it would be pointless to sign on the iphone and just lose money on it ...

 

[Ns1]

i mean assuming every iphone and android customer all use generally the same data / text / minutes plan on average. then the monthly is the same but apple gets larger subsidies.

this is not true at all, at least on ATT.

iPhone users have higher txt messaging costs cuz we have different plans.

 

[MrX8503]

Contracts are there to mainly protect the carrier, but its also there to subsidize your smartphone. A smartphone doesn't cost $200, it actually costs $600-$700. Obviously a good majority of smartphone users aren't willing to pay that kind of upfront costs.

If you don't like contracts, then buy an unlocked phone or go prepaid. For my uses, I stay with a phone and carrier for two years normally anyway, so the contract doesn't bother me.

 

[Pliablemoose]

If you really want to get your money's worth out of a contract, get the hottest subsidized phone sell it, and then score a used phone that's not on the bleeding edge off craigslist.

 

[StrangerGuy]

Here in Singapore people usually pay $400 upfront for their subsidized iPhones (subsidy = $300) while subbing the $660 2-year 12GB contract, so the carrier only earns $360 out of the whole deal.

http://www.macrumors.com/2011/10/06...-4s-service-plans-for-att-sprint-and-verizon/

For the same cheapest 12GB ATT plan in the U.S I would have to pay a whopping $185 x 24 months = $4440! I have no idea how much U.S carriers subsidizes their iPhones but that is still at least $3K difference no matter how you cut it. Sure, U.S is a huge country so the infrastructure would be more expensive to operate but an extra $3k per pax and yet still complaining not profitable? Are-u-kidding-me?

If that is not correct or I'm missing something I'll be happy to hear it.

 

[lupi]

don't think many people fully read and understood the article before posting.

 

[Brian Stirling]

pretty sure this is a troll thread from the OP but w/e



http://9to5mac.com/2012/02/08/forty...8-million-iphone-sales-were-to-new-customers/

Nope, not trolling, just reporting what I saw on CNN...


And to all the folks that were quick to jump at the 45% EBITDA and claiming that as profit -- what the heck are you thinking -- if the PROFIT margins were that high every company in the world would be switching into the cellular industry.

That carriers have to pony up a big chunk of change upfront for each iPhone is well known and not in dispute. The average iPhone user hammers the net harder than the average cellular user but maybe not more than the average smart phone user. The bottom line is that the carriers have to shell out up front cast that they hope to reclaim and as the market for iPhones and other smart phones is continuing to increase you have a kind of ponzi scheme in reverse. The carriers will make a profit over the 2 year contract but with new customers hitting them for upfront cash it will take a while.

For a board with folks that are supposed to be smart too many chose to be dumb...


Brian

 

[MrX8503]

Carriers pay a lot for the iPhone in hopes of recouping the costs from 2 year contracts. This has worked for ATT for nearly 5 years plus on top of any substantial exclusive fees that Apple required.

Considering the knockout sales of iPhones and getting brand new customers for the carriers, I don't think any of them are losing sleep over it.

Quite frankly, carriers already have too much of a stranglehold on everyone, its nice to see them pay for a change.