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AT&T to take earnings hit from iPhone subsidies

AT&T to take earnings hit from iPhone subsidies

AT&T Inc.'s profits for the next two years will take a hit as it subsidizes the new low price of the latest iPhones, the company said Monday.
The news sent the carrier's stock down sharply. It closed down 65 cents, or 1.70 percent, at $37.56.
AT&T, which is the iPhone's exclusive U.S. carrier, put the cost at 10 cents to 12 cents per share for this year and next, or roughly $600 million per year.
The cheapest model of the new iPhone, announced by Apple Inc. on Monday, will cost $199 when it goes on sale July 11. A model with twice the memory will cost $299.
Carrier subsidies for expensive phones are usually around $200 each, and the cheapest model of the first-generation iPhone sold most recently for $399. That points to AT&T expecting to sell about 3 million of the new iPhones per year.
AT&T expects the new iPhone to add to revenue in 2010 since it will no longer be required to share monthly subscriber revenue with Apple. Analysts had estimated these monthly payments at $10 to $15.
The dissolution of the revenue sharing deal is the end of an experiment. Apple and AT&T are now adopting the standard model for the phone business: The carrier pays the handset maker for the phones, then subsidizes the phones to consumers in exchange for a two-year contract.
Consumers will be the winners in the short term, as the price of the feature-rich iPhone is cut in half. But AT&T is also raising the prices for service plans. It said its plans for the phone will start at $39.99 per month, plus $30 for unlimited data. That works out to be a $10 increase from the cheapest plan for the first-generation iPhone.
The new phone will use AT&T's third-generation, or 3G, network, which makes surfing and downloading about twice as fast as on the first iPhone.
Apple's revenue per iPhone will likely be cut, as it is deprived of residual payments from carriers. But its phone could see much wider adoption with a lower price point. When the iPhone first went on sale last June, the cheapest model sold for $499.


Updated : 2021-05-16 18:01 GMT+08:00