Wireless carriers hope to temper iPhone 5 margin pain
By Sinead Carew and Jeremy Wagstaff
NEW YORK/SINGAPORE (Reuters) - For mobile service providers like AT&T Inc, it's not enough that consumers came out in droves to buy the newest iPhone from Apple Inc.
They need people to dig more deeply into their wallets each month to pay for data services, such as mobile video, to cushion the impact of the iPhone's steep price tag on the carriers' bottom lines.
Wireless service operators typically subsidize the cost of smartphones, offering discounts to consumers to lock them into two-year service contracts. But the iPhone subsidy is as much as 60 percent higher than subsidies for Android smartphones, according to Barclays analyst James Ratcliffe.
He estimates the iPhone subsidy at about $400, compared with $250 to $300 for other smartphones. That means iPhone customers only start to become profitable for carriers about nine months after they buy the device, compared with a five- to six-month timeframe for other smartphones.
As a result, mobile operators' profit margins usually suffer in the months after an iPhone launch, when sales volumes are highest.
"We always say an Apple a day keeps the profits away," Neil Montefiore, chief executive of Starhub, said during the Singapore wireless service provider's August earnings conference call.
Be that as it may, mobile operators around the world still want to sell the iPhone because it helps retain subscribers and attract new ones. Apple is the only phone maker whose product launches are a cultural phenomenon -- on Friday, fans from all over the world queued around city blocks to get their hands on the new iPhone 5.
In Australia, service providers are trying to minimize the financial hit by varying the iPhone's price so that customers who pay more for data services get a bigger subsidy. Continued...