AT&T's iPhone "sales" versus "activations": Doing the Math
Love Apple gear? Like math? TUAW's Doing the Math series examines the numbers and the science behind the hardware and software.
Several sites -- including TUAW -- reported yesterday that 80% of all smartphones AT&T sold in Q411 were iPhones, based on AT&T's quarterly earnings report. On closer inspection, however, there's a subtle but important detail that we overlooked in AT&T's wording. It reported "9.4 million smartphone sales" but "7.6 million iPhone activations" (emphasis mine).
So, consider the following series of events. Alice buys an iPhone 3GS back in 2009 on a two-year contract. In late 2011, she treats herself to a new iPhone 4S -- that's both a sale and an activation for AT&T. She gives the 3GS to her husband, the long-suffering Bob, who can finally ditch his flip phone.
Bob needs service though. His "new" 3GS is locked to AT&T -- unlike in many other countries around the world, most American carriers won't voluntarily unlock even out-of-contract handsets. Even if it were unlocked, though, it's not compatible with either the CDMA networks used by Verizon and Sprint, nor the oddball 3G frequencies used by T-Mobile USA. Finally, AT&T refuses to support iPhones on its pay-as-you-go GoPhone plan (although if Bob read TUAW he'd know he could work around this). So, with no other choices, Bob rings up AT&T and starts an iPhone contract so he can use the old handset as more than just an oddly-shaped iPod touch.
At the end of this process, AT&T has closed one new sale -- but counted two activations, one for Alice's new iPhone 4S and one for Alice's old iPhone 3GS in Bob's name. This means the 7.6 million activations includes some double counting, and can't directly be compared to sales.
We reached out to AT&T's Seth Bloom to confirm whether our reasoning was true. He said "You're right that activations are a bit different than sales -- and activations includes things like gifted iPhones as you suggest." However, he also added that "In this quarter, the number of activations from things like gifted iPhones doesn't change the math much. We aren't sharing a number, but gifted phones is a relatively small portion of total activations."
How much might a "relatively small portion" be?
Let's revisit those numbers: 9.4 million smartphone sales and 7.6 million iPhone activations. Suppose that 10% of all those iPhone activations were to used handsets. In other words, out of all of those brand-new iPhone sales AT&T made in the last three months, about one in ten of them (a virtual cookie to any commenter who spots why I had to say "about" there) were made to a person who a) already had an older iPhone and b) then proceeded to sell or give that handset away to someone else, who reconnected it back to AT&T's network. That would mean that AT&T activated 6.84 million new iPhones and 760,000 old ones. In turn, that means that the iPhone took 73% of AT&T's overall smartphone sales. The other 27% will be split between Android, Blackberry, and Windows Phone 7.
More generally, we can plot a graph of how the iPhone's market share changes as a function of the recycle factor or the proportion of activations which went to reused handsets:
If we revisit AT&T's statement we can also see that "82 percent of postpaid sales were smartphones." This means, remarkably, that unless 25% of iPhone activations went to reused handsets (which seems unlikely in light of Bloom's comments) then over half of all contract phones AT&T sold were iPhones. This story is repeated on Verizon too.
The bottom line is: Apple kicked all kinds of posterior in the smartphone market during the last three months of 2011. Can it continue to do so in 2012? It might not be able to maintain quite this stupendous a lead. The timing of the iPhone 4S launch (in autumn, versus the previous summer iPhone introductions) likely boosted sales by causing some greater-than-usual pent-up demand. Supporting this hypothesis, Tim Cook admitted that sales of the older models waned between July and September. It'll be fascinating to see what this massive quarter does to the overall smartphone market share of iOS versus Android in the coming months.
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