AT&T's IPhone Dependence Could Be A Concern
NEW YORK - AT&T Inc.'s (T) Mobility unit might as well be called the "iPhone carrier."
That, essentially, is what it's become as nearly three-quarters of AT&T's new wireless contract customers last quarter were iPhone users - an extremely large amount of influence that one product has over AT&T. Being so closely tied to the iPhone carries risk should the phone lose its chic status or competitors catch up with similar bells and whistles.
In addition, the dependence illustrates how badly the telco needs to maintain its exclusivity agreement with Apple Inc. (AAPL), which expires next year. While it's unlikely to change near term, negotiations could get interesting when the iPhone steps up to fourth-generation wireless technology.
"AT&T needs to have a second leg," said Roger Entner, who runs the communications practice for Nielsen Co. "Right now, that one leg is very strong."
Typically, 40% of iPhone purchases come from new AT&T customers, the telecom giant has said. In the first quarter, AT&T switched on 1.6 million new iPhones, suggesting that 640,000 subscribers, or 73% of the company's 875,000 new post- paid customers, were iPhone buyers.
Apple reports its earnings later Wednesday. Shannon Cross of Cross Research says the number of iPhone activations by AT&T suggests 4.1 million iPhones were sold worldwide.
AT&T recently rose 4% to $26.28, while Apple rose 1.5% to $123.61.
Deal A Virtual Lock
The results could weigh into the negotiations between Apple and AT&T, which are reportedly working on extending their exclusivity agreement.
AT&T declined to comment on the discussions. An Apple spokesman wasn't immediately available.
The deal has been a boon to AT&T. While the carrier has to pay a hefty upfront payment to cover subsidies on the iPhone, it also attracts higher-tier customers willing to pay more each month. In the most recent quarter, AT&T's margins for its wireless business rose as it worked through the higher number of initial subsidy payments to Apple. It also resulted in higher customer loyalty and lower turnover.
"We're thrilled to have their product as part of our lineup," AT&T Chief Financial Officer Rick Lindner told analysts during a conference call on Wednesday.
It's unclear, however, who has the best bargaining position in the companies' ongoing negotiations. While AT&T clearly needs Apple, Apple has few other partners it can defect to.
Verizon Communications Inc. (VZ) Chief Executive Ivan Seidenberg said in a recent interview that he doesn't believe Apple would ever make an iPhone that is compatible with its current generation network. An iPhone 4G on Verizon's wireless network is possible, but isn't likely until at least 2011.
The only other option for Apple, T-Mobile USA, is too small and lacks a fast- enough network to handle the data-intensive smartphone.
Regardless of any posturing, the two are likely stuck together for the next few years.
Too Much iPhone?
Longer term, there is a risk associated with being tied too closely to one product. While Apple's iPhone has been a juggernaut for the past two years, its run could end with the entry of other flashy devices.
"Eventually, the competition is going to catch up," Entner said.
High-profile products such as the Palm Inc.'s (PALM) Pre and a range of devices from HTC Corp. (2498.TW) and Research in Motion Ltd. (RIMM) have garnered their share of hype.
Analysts did express some concern.
"Over time, it seems like it would be in their best interest to diversify," said William Powers, an analyst at Robert W. Baird & Co.
AT&T, however, dismisses the notion that it relies solely on the iPhone.
"The iPhone is important, but we have a great lineup of other devices," said AT&T spokesman Mark Siegel, pointing to the Blackberry Bold and Nokia Corp. ( NOK)'s E71x as other high-profile smartphones.
Todd Rosenbluth, an equity analyst at Standard & Poor's, noted that while the iPhone has been successful, AT&T isn't wholly dependent on its success like Sprint Nextel Corp. (S) is with the Pre.
Ultimately, it's not a major concern if AT&T maintains its exclusive arrangement.
"It's an issue for 2011," he said. "We still got some time."
source
That, essentially, is what it's become as nearly three-quarters of AT&T's new wireless contract customers last quarter were iPhone users - an extremely large amount of influence that one product has over AT&T. Being so closely tied to the iPhone carries risk should the phone lose its chic status or competitors catch up with similar bells and whistles.
In addition, the dependence illustrates how badly the telco needs to maintain its exclusivity agreement with Apple Inc. (AAPL), which expires next year. While it's unlikely to change near term, negotiations could get interesting when the iPhone steps up to fourth-generation wireless technology.
"AT&T needs to have a second leg," said Roger Entner, who runs the communications practice for Nielsen Co. "Right now, that one leg is very strong."
Typically, 40% of iPhone purchases come from new AT&T customers, the telecom giant has said. In the first quarter, AT&T switched on 1.6 million new iPhones, suggesting that 640,000 subscribers, or 73% of the company's 875,000 new post- paid customers, were iPhone buyers.
Apple reports its earnings later Wednesday. Shannon Cross of Cross Research says the number of iPhone activations by AT&T suggests 4.1 million iPhones were sold worldwide.
AT&T recently rose 4% to $26.28, while Apple rose 1.5% to $123.61.
Deal A Virtual Lock
The results could weigh into the negotiations between Apple and AT&T, which are reportedly working on extending their exclusivity agreement.
AT&T declined to comment on the discussions. An Apple spokesman wasn't immediately available.
The deal has been a boon to AT&T. While the carrier has to pay a hefty upfront payment to cover subsidies on the iPhone, it also attracts higher-tier customers willing to pay more each month. In the most recent quarter, AT&T's margins for its wireless business rose as it worked through the higher number of initial subsidy payments to Apple. It also resulted in higher customer loyalty and lower turnover.
"We're thrilled to have their product as part of our lineup," AT&T Chief Financial Officer Rick Lindner told analysts during a conference call on Wednesday.
It's unclear, however, who has the best bargaining position in the companies' ongoing negotiations. While AT&T clearly needs Apple, Apple has few other partners it can defect to.
Verizon Communications Inc. (VZ) Chief Executive Ivan Seidenberg said in a recent interview that he doesn't believe Apple would ever make an iPhone that is compatible with its current generation network. An iPhone 4G on Verizon's wireless network is possible, but isn't likely until at least 2011.
The only other option for Apple, T-Mobile USA, is too small and lacks a fast- enough network to handle the data-intensive smartphone.
Regardless of any posturing, the two are likely stuck together for the next few years.
Too Much iPhone?
Longer term, there is a risk associated with being tied too closely to one product. While Apple's iPhone has been a juggernaut for the past two years, its run could end with the entry of other flashy devices.
"Eventually, the competition is going to catch up," Entner said.
High-profile products such as the Palm Inc.'s (PALM) Pre and a range of devices from HTC Corp. (2498.TW) and Research in Motion Ltd. (RIMM) have garnered their share of hype.
Analysts did express some concern.
"Over time, it seems like it would be in their best interest to diversify," said William Powers, an analyst at Robert W. Baird & Co.
AT&T, however, dismisses the notion that it relies solely on the iPhone.
"The iPhone is important, but we have a great lineup of other devices," said AT&T spokesman Mark Siegel, pointing to the Blackberry Bold and Nokia Corp. ( NOK)'s E71x as other high-profile smartphones.
Todd Rosenbluth, an equity analyst at Standard & Poor's, noted that while the iPhone has been successful, AT&T isn't wholly dependent on its success like Sprint Nextel Corp. (S) is with the Pre.
Ultimately, it's not a major concern if AT&T maintains its exclusive arrangement.
"It's an issue for 2011," he said. "We still got some time."
source
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