AT&T will pay a high price for iPhone 3G

The carrier may be paying as much as $425 in subsidies per unit to Apple, according to an analyst's estimate. If that's true, that's more than double what its competitors pay on average for other smart phones.

As a general rule, carriers usually pay subsidies are about $200 for smart phones. However in a research note, Oppenheimer financial analyst Yair Reimer believes AT&T is paying Apple $325 per phone for right of carriage.

What's more, if Apple sells the phone for AT&T, the carrier may be offering an additional $100 to the Cupertino company for its services. That means at maximum the company could be paying a stunning $624 for the 8 GB iPhone, and the $724 for the 16 GB model.


Based on expectations that Apple could sell millions of the devices here in the US through the end of 2008, the company's subsidies for the phone could run well above a quarter of a billion dollars in the first year alone, and possibly far more -- which makes the company's pronouncements of the iPhone causing a drag on earnings for years to come all the more believable.

Why is AT&T taking such a big financial risk? Reimer suggest that it is has a lot to do with higher average revenue per user (APRU). The company says that it has taken notice that iPhone users are spending more on higher priced rate plans compared to other customers.

This would assist AT&T in being able to still recoup its initial outlay through the term of the two-year contract, although if true, the carrier could be making very little profit from sales of the device if any.

(In addition, this could also explain AT&T's requirement of a completely new two-year contract when purchasing the iPhone 3G.)

It also shows that while the carriers have been successful in convincing Apple to abandon its revenue sharing agreement, the Cupertino company has been as equally successful in getting its partners to fork over a higher initial payment to sell the phone.

So, in other words, Apple may be no worse off financially in these new deals than it was before, say analysts.

Piper Jaffray analyst Gene Munster earlier echoed Reimer's claims, although he was a bit more conservative. In a note to his clients, he said Apple was receiving an average of $466 per iPhone sold.

11 Responses to AT&T will pay a high price for iPhone 3G

© 1998-2022 BetaNews, Inc. All Rights Reserved. Privacy Policy - Cookie Policy.