As the 3G iPhone was announced Monday, it was discovered that Apple has chosen to eliminate revenue sharing completely and subsidize the price of the new iPhone to half of the original cost. While this is yesterday’s news, it was reported this morning by MarketWatch that this move will end up costing AT&T nearly $1 billion this year and reduce earnings by 10 to 12 cents per share each of the next 2 years.
This approach is being affectionately called the “billion-dollar baby.” While AT&T plans on taking a hit for the next two years, it does expect a profit by 2010. AT&T is okay with this plan, however; analysts expect the new iPhone strategy to add anywhere from 3-5 million customers to AT&T’s network each year for the next 2 years.
Such a concept, if it comes true, will help AT&T get closer to regaining its title of #1 telecom company (number of total customers) in the US, a title it proudly held until last week when Verizon announced its acquisition of Alltel Wireless. With the purchase Verizon will lead with 80 million customers, an advantage of around 8 million over AT&T.
The huge increase in subscribers is expected not only because of the much-anticipated device, but also because of the price subsidies. Many customers refused to purchase the original iPhone because of the high costs out of pocket. Now the opportunity has arisen with lower costs and even more features than the first.
While the near-term costs seem rather high for just one phone, it makes a lot of sense when that one phone happens to be the iPhone.
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