Carriers Decide to Slow iPhone Sales

By Gary Kim April 12, 2012

Smartphones have been very helpful for mobile service providers, boosting average revenue per user by driving mobile broadband subscriptions. But the subsidies generally used to spur sales are becoming a major drag on earnings, and change is coming.

Service providers will have to risk lower sales growth, and less mobile broadband revenue growth to limit handset subsidies. It might be a Faustian bargain. 

In fact, user behavior seems to have changed, with users upgrading those “expensive” smartphones faster than they had generally been, analysts at BTIG suggest.

As a result, U.S. mobile service providers plan to take steps to reduce handset upgrades as a way of raising operating margins. That is likely to affect sales of Apple iPhones, generally considered the most-expensive device to support. 

AT&T, Sprint, Deutsche Telekom, Vodafone, America Movil and Telefonica are among firms planning to take steps that will slow iPhone sales in the coming year. 

In the United States, BTIG expects iPhone sales to decline four million sequentially to nine million with the largest impact coming from AT&T, Apple’s largest customer.

AT&T represented 17 percent of iPhone sales in 2011, and 19 percent in the fourth quarter that year. Apple iPhones represent 37 percent of AT&T’s post-paid subscriber base and 47 percent of post-paid service revenue, according to the source. 

BTIG estimates 65 percent of AT&T’s post-paid customers either owns an iPhone or is in a family plan with at least one iPhone user. 

For AT&T, the financial impact of iPhone subsidies is clear. AT&T profit margins had grown for five straight years beginning in 2005, but reversed in 2010, apparently related to iPhone 4 demand and subsidies, BTIG says. 

In January of 2011, AT&T tightened its upgrade policy and eliminated the popular one-year upgrade offers for iPhone owners. BTIG argues the iPhone subsidies have reduced AT&T margins by at least 10 percent in 2011. 

So unless AT&T tightens its upgrade policies, company earnings per share would drop. In fact, AT&T says it has built its business model for 2012 around the idea that it will sell no more smart phones, overall, than it did in 2011 – about 25 million units.

BTIG analysis suggests something quite significant. Despite the importance of smartphone accounts for growth of key broadband revenue, AT&T has decided to cap smartphone sales to preserve its profit margins.

The impact should be clear: fewer iPhones sold by AT&T, and possibly fewer iPhones sold by other mobile services providers. That could lead to market share gains by other smartphone makes and models, or could spur Apple to produce lower-cost iPhones. 

What the carriers hope for is the ability to sustain average revenue per user growth, and higher profit margins. A corollary, though, is a possible slowdown in iPhone sales. 


Edited by Braden Becker

Contributing Editor

SHARE THIS ARTICLE
Related Articles

Is 5G a Spectrum-eating Monster that Destroys Competition?

By: Fred Goldstein    6/15/2018

To hear the current FCC talk about it, 5G mobile service is the be-all and end-all of not only mobile communications, but the answer to most of the co…

Read More

FX Group Makes the Red Carpet Shoppable with Blockchain-Based mCart Marketplace-as-a-Service

By: TMCnet News    6/14/2018

mCart by Mavatar announces the launch of the world's first blockchain-based decentralized mCart marketplace by the FX Group.

Read More

Judge Gives AT&T-Time Warner Deal Green Light

By: Paula Bernier    6/12/2018

Federal judge Richard Leon gave the $85 billion deal the green light today - and without any requirements to sell off any parts of the company. He als…

Read More

A New Foundation for Evolving Blockchain As a Fundamental Network Technology

By: Arti Loftus    6/12/2018

There are now thousands of blockchains, and unless you are a cryptophile, you won't recognize most of them.

Read More