By Aldo Panessidi
We all agree that Apple’s iPhones are iconic. They have three models on the market compared to Android’s plethora of offerings with a multitude of manufacturers including the Samsung Galaxy S II, the HTC Amaze, the Motorola RAZR Droid and the LG Optimus 2X . But, Apple’s offerings have made it one of the most valuable companies in the world and has handed its partners a brilliantly branded and easily sold product. Add great activation figures every quarter for carriers that sell the smartphone and it sounds like a great partnership for both Apple and the carriers.
Alas, the reality paints more of a love-hate relationship. Carriers see the AT&T/iPhone exclusivity model and drool. No competition from unlocked phones, other carriers, and seemingly one-of-a-kind device fits into the highly controlled model carriers prefer. This explains why Sprint was willing to guarantee Apple $15.5 billion over four years to sell the iPhone. Then the mobile carrier posted a $1.3 billion financial loss last quarter. Then there is the bad blood with T-Mobile after failed negotiations over the iPhone which has resulted in the carrier offering iPhone users free microSIM cards to give up their 3G speeds and join their network.
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Recently Nomura Securities analyst Mike McCormack told CNNMoney, “A logical conclusion is that the iPhone is not good for wireless carriers […] When we look at the direct and indirect economics that Apple has managed to extract from the carriers, the carrier-level value destruction is quite evident.” This can be seen with Verizon’s drop in EBITDA service margin from 46.4% to 42.2% since adding the smartphone to its arsenal last year. Whether iPad sales and service plans can make up for that remains to be seen. However, they should be able to leverage the equally iconic and addicting Apple accessories.
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Alas, for now the iPhone is not going anywhere because of news like Sprint’s: best quarter in the past six years for net subscriber additions which can be attributed to the 720,000 new postpaid subscribers who changed to the carrier to get their hands on the iPhone. And by all accounts, the money should follow with increased price points and the newest iPhone release coming this year.