Filed under: Apple Financial, iPhone
How much is your iPhone contract worth to Apple?
How much is your iPhone contract worth to Apple? Today, we got a concrete answer. It's worth €600. According to MacRumors, Deutsche Telekom will start selling an unlocked iPhone for €999 as well as the locked €399 version that comes with a two year contract. For those who don't want to jump over to google, that €600 is equivalent to $879.48 at today's exchange rate. That's very, very close to the New York Time's estimate of $831 late last month. I worked up a little math based on these costs and our recent options coverage. At the going American rates, you pay $399 for the iPhone. Add to that either $1440, $1920, or $2400 for the individual 2-year costs and clearly Apple is getting a huge chunk of that money. If you go the contract-free way that I did, those costs drop to $1200 for the least expensive plan, assuming a 2-year period of use. If you then, as I did, go ahead and drop your data plan, that number drops even lower, to $719.76. In other words, I just became a loss to AT&T if they have to fork over the full normal value to Apple for two years. What do you think? Is AT&T sending a fixed amount or a percentage of the monthly fees?
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Reader Comments (Page 1 of 1)
Gerry said 5:39PM on 11-21-2007
I'm from Canada, so I don't have an AT&T contract, but thanks to you and your buddies, I have an unlocked iPhone with many apps! Thanks! AT&T might just be taking the loss on non-data subscribers just to gain more market share, or it may be the reverse in that iPhone customers might start with non-data then having seen how well the iphone would work with data, they upgrade their plans. (yes, i'm craving affordable unlimited data, Rogers do you hear me?)
On a semi-related note, Erica, will having Apple-unlocked iPhones help 3rd party unlock developers? I'd assume that Apple will have to release firmware specifically for those phones that do not lock the baseband, or something along those lines.
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Mo said 5:55PM on 11-21-2007
Maybe I'm losing my marbles, but wasn't it stated somewhere that the iPhone *wasn't* subsidised? All of this, on the other hand, tells us that the iPhone very much is.
I can't help but think that Apple should have just sold the unlocked iPhone at the higher cost from the outset (giving the consumer the choice)—but then, how close are we to the “Apple should sell Mac OS X for PCs” debate when we start considering that?
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Alex said 6:13PM on 11-21-2007
Um, tell me WHERE exactly in all the releases it says that the extra 600 euros for the unlocked iphone go DIRECTLY to apple???? How do you know that tmobile or whatever carrier isn't getting a cut of this as part of the revenue sharing deal??????
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Jim Danner said 6:13PM on 11-21-2007
As to Erica's question about AT&T sending a fixed amount or a percentage of the monthly fees, I think it's almost certainly a percentage. Though Steve Jobs's business smart is often trumpeted, we should not forget that AT&T and other phone companies aren't stupid either. They will have thought about how they could set the right incentives for Apple to keep fighting against unlocks, VoIP programs on the iPhone, and anything else that would decrease AT&T's profits. The best and easiest way to so that is, of course, to pay Apple a share of revenues.
This explains, by the way, why Apple has broken unlocks at every update so far: in the 1.1.1 version by including new baseband firmware, and with the new phones by including a new baseband bootloader. They are exactly where AT&T wants them.
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Adam Rice said 6:13PM on 11-21-2007
I wouldn't discount the possibility that Tmo is taking a slice out of that €600 surcharge for themselves. In fact, that seems more likely than not.
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Zeke said 6:19PM on 11-21-2007
@Mo-
I don't think that this means that the iPhone is "subsidized" by the carrier in the normal way that cell phone plans work. In most cases, an OEM (say, Motorola) may charge $250 for a phone. The carrier will pay the carrier full price to the maufacturer, and sell the phone for, say, $99 (or even free) to the customer because they will recoup that cost over two years when the customer is locked into a contract.
Apple and the carriers are treating the iPhone differently. Almost all of the $399 in sales goes right to Apple. Also, because this is such a high-demand product, the carriers are paying a fat chunk of their monthly rates to Apple for the right to carry this phone exclusively in their market.
So from Apple's perspective, the iPhone means $399 to them up-front as well as about $18 per month over two years. An unlocked iPhone does not guarantee that monthly payment, so that is why they want to charge so much for an unlocked phone.
I'm not saying that I agree with how they're doing things, but it's very different from the subsidies paid to other phone manufacturers, who set high retail prices (often just as high as Apple's $399 retail) but never see another dime of it.
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Ron Green said 7:41PM on 11-21-2007
Who cares?
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Lastof said 8:02PM on 11-21-2007
Your values also fail to take account of Germany's 19% VAT. Taking that into account, the increase T-Mobile/Apple is getting is just €486, or $716.61, which is about $100, more than 10% less than the Times' estimate.
Still a lot of money, but your maths is a little off.
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Christina Warren said 8:44PM on 11-21-2007
I think that there is no way in hell Apple is getting a flat rate for each contract - it's gotta be a percentage - because AT&T knows that a percentage of contracts default before reaching fruition anyway.
And like Zeke said, the iPhone is NOT subsidized - at least, not for consumers. From a production front, I doubt it's subsidized either (since the Touch sells for the same price), what is happening is that AT&T & Apple are in a very, very strange cellular arrangement. Typically, the carrier makes next to nothing off of the phone anyway (because they basically give it away, or at least heavily discount it for new customers), it's like selling razors -- the difference in price between a Gillette Fusion with the base and two blades is basically the same price as a pack of 4 replacement blades. Gillette gives the base away and makes its money on the refills -- same thing with printers/ink cartridges. With this deal, Apple is still recouping full MSRP from the iPhones (less whatever percentage they have to fork over to AT&T - I'm sure the profit sharing goes both ways) and AT&T is willing to gamble that the number of new contracts (and contracts at at least $60 a month) that come in as result of exclusive iPhone sales will end up being worth giving Apple a percentage of those monthly plans. It's a risky proposition for AT&T, though it certainly looks to be paying off in the short term -- but for too many reasons to list here, this is type of deal could only work with a company like Apple that isn't a real phone manufacturer. The big players like Motorola, Samsung, Nokia, would never get this sort of thing - and I doubt they would want it.
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Christina Warren said 8:44PM on 11-21-2007
I think that there is no way in hell Apple is getting a flat rate for each contract - it's gotta be a percentage - because AT&T knows that a percentage of contracts default before reaching fruition anyway.
And like Zeke said, the iPhone is NOT subsidized - at least, not for consumers. From a production front, I doubt it's subsidized either (since the Touch sells for the same price), what is happening is that AT&T & Apple are in a very, very strange cellular arrangement. Typically, the carrier makes next to nothing off of the phone anyway (because they basically give it away, or at least heavily discount it for new customers), it's like selling razors -- the difference in price between a Gillette Fusion with the base and two blades is basically the same price as a pack of 4 replacement blades. Gillette gives the base away and makes its money on the refills -- same thing with printers/ink cartridges. With this deal, Apple is still recouping full MSRP from the iPhones (less whatever percentage they have to fork over to AT&T - I'm sure the profit sharing goes both ways) and AT&T is willing to gamble that the number of new contracts (and contracts at at least $60 a month) that come in as result of exclusive iPhone sales will end up being worth giving Apple a percentage of those monthly plans. It's a risky proposition for AT&T, though it certainly looks to be paying off in the short term -- but for too many reasons to list here, this is type of deal could only work with a company like Apple that isn't a real phone manufacturer. The big players like Motorola, Samsung, Nokia, would never get this sort of thing - and I doubt they would want it.
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Jim Danner said 3:57AM on 11-22-2007
@Ron Green: Who reads an article he doesn't care about, and then posts a comment? What a waste of time.
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Gary said 11:29AM on 11-22-2007
The purpose of the EUR999 price tag is not to compensate Apple for lost revenue, but to discourage consumers from buying an unlocked iPod.
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Nedsta said 4:57PM on 11-22-2007
I think Ron Green is on to something about this Web site. In absence of real news, they just revert to parsing the minutia about iPhones. (It's not a blog unless someone is posting every other minute to keep it fresh!) Thank God they've got a staffed iPhone jailbreaker to keep the minutia rolling! As a proud Mac user (since 1987), iPhone owner and fan of this site - I'd love to see these junk posts go away.
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TAOJONES said 8:27AM on 11-23-2007
At&t is perhaps the worst move apple ever made in terms of customer relations ! those contracts are traps that allow At&t to ignore customer service and that reflects on apple the corporate culture is just lousy. i think the high German price has nothing to do with Apples contracts its just an end run around the sprit of the german law. making it available but not affordable means all the Berliners (i know that means hamburger) will cue up for the contract. im buying more apple stock friday! To Illustrate i went to an at&t store and arrived before they opened i had to use a bathroom and 15 minutes later i was hooked to a tow truck 260 dollars later i was unhooked when i complained to At&t the answer was "since i did not make a purchase on that day i was not a customer and the tow was legit. only an old boy corporation could find logic that convoluted . Apple has learned just how much customer satisfaction is worth . the two cultures do not mix (letters to each company were sent I got a call from Steve Jobs office ,AT&T came in a week later with the quote above . they lost in small claims and i got my 260 back .
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Brian said 2:24AM on 11-24-2007
Apple gets $11 a month for new customers brought to At&t and $4 a month from existing customers that bought an iPhone. Thats the current arrangement they have with At&T. The arrangements they made in Europe are different but similar. the Euro is also worth $1,50 to 1 now.
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