Apple's lucrative iPhone revenue sharing goes away, replaced with "traditional" model
By Chris Ziegler 
posted June 9th 2008 6:15PM
posted June 9th 2008 6:15PM
AT&T (well, Cingular at the time) and Apple entered into a very peculiar marriage of convenience to bring the original iPhone to American airwaves whereby AT&T shelled out cash to Cupertino each and every month for iPhone subscribers on its network (the exact terms were never publicized). Very simply, Apple had something good; they knew it and leveraged it to the very maximum of their ability, dangling the tantalizing prospect of endless publicity and droves of new customers in exchange for the deal. That same logic left Apple struggling to find partners in Europe, though, ultimately deploying the 2.5G model in just five markets there under AT&T-like terms.Fast forward to July 2008 and the iPhone 3G, and the picture has changed just a bit. At least 70 countries will see the updated version before the year's out, but why the sudden change of heart by the world's carriers? Turns out the answer might lie in a revamped sales model that more closely mirrors the deals carriers set up with other manufacturers. AT&T has gone on the record saying that it'll take a huge revenue hit -- 10 to 12 cents per share both this year and next before finally planning on profitability in 2010 -- in order to deeply subsidize the phone on its own accord, taking Apple and its precious monthly kickbacks out of the picture. This is presumably the same kind of setup Apple is offering to carriers around the globe, a setup that they're already well acquainted with that provides a clear path to black ink (or so they would hope, anyway).
What does this mean for Apple, then? There's some chatter that the move away from a monthly revenue model will "force" Apple into charging for firmware updates much the way it does for the iPod touch, but that's not really a valid train of thought. We already know that Apple's committed to updating iPhones at no charge, something it can do by virtue of its accounting model where it recognizes revenue from the sales of devices over time. That accounting model was chosen precisely because it looked best on paper while Apple was continuing to churn out fee-free upgrades, not because of the original revenue model in place with AT&T. For what it's worth, they're still going to be rolling in the dough; carriers, on the other hand, are going to be waiting a while to dig out of that deep subsidy hole.
@jaxim:
I was wondering the same thing! I can only hope there's been some sort of mistake regarding the announcement of a 32GB phone (mistake, ha!).
I am more than willing to shell out $599 for that...
I'm definitely a bit disappointed in the price drop. If Apple really cares and wants to get it's products into everyones hands they'd be dropping the price of their laptops as well...I'm not looking forward to seeing every d-bag on the street with an iphone.
What are you smoking?
The question is, how much does the new iPhone 3G cost without any 2-year contract, and if it is possible to buy it without being in any way locked in with a carrier for a 2 year period?
In my opinion, $199 price doesn't mean much if that requires to sign a 2-year contract.
The first generation iPhone cost $1400-$2000 including the most basic carrier plans over the 2-year contracts. So if Apple has lowered the overall price to a minimum of around $1000, that is lower, but it's still ridiculously expensive considering the real Bill Of Material, thus the production cost of the iPhone probably is below $200.
Gosh, you think? Maybe that's because Apple is a business and not a charity. And ridiculously expensive compared to what? Other phones with 2 year plans that cost the same or more over 2 years?
What're you talking about? The iphone cost nowhere near 1200-1400 and it was impossible to buy without a 2yr contract in the states unless of course it was on the gray market. Apple made huge profits on the sale of each phone and they weren't subsidized at all.
you do realize that the 'cost' figures you're throwing around are for SERVICE, and not the hardware, right?
sort of... a... difference.
The $1400-$2000 cost is for the iPhone with the service, the service which you could not get any cheaper, so really, it's the minimum cost over 2 years of using the iPhone 1.
Now with iPhone 2, Apple is probably asking for a lot more then $199 to the cell phone carrier, which is then in turn subsidizing that purchase cost in return of locking in the customer for a 2-year period.
There are plenty of countries where you get the Nokia N95 for $1 if you sign up for a 2-year contract. Saying that the iPhone costs $199 does not mean anything if that requires a 2-year contract.
This sounds a lot like price gouging. Once the gov't has finished putting limits on how much oil companies can make they should call Apple up there and start limiting how much profit they can make too!
Well then what happens when you buy the phone in the Apple store instead of a store by the carrier? Are Apple going to make us sign a contract? Also what happens if you by the phone through Apple store online - surely you can't sign a contract there!
I'm also curious to see exactly how many phones they will allow one person to purchase? The iPhone v1 was 15 then 5 and then 2 only on credit card and then the card was blacklisted.
Apparently Apple will indeed require you to activate it in store (I imagine it will work like an authorized reseller, such as Best Buy, where you get the phone from them, and they activate it for you, but on the AT&T network)
Also, Apple has stated they will NOT be selling them online and AT&T will not be allowed to do so either. Here is the article my info. is coming from even though I have posted it multiple times in this thread already (I am in no way affiliated with them / know how legit their info. is but it seems on the up and up)
http://techblog.dallasnews.com/archives/2008/06/att-announces-voice-and-data-p.html
So does that mean one who's already on contract with AT&T will have to wait for the contract to end before they can get a subsidized iPhone?
Why does it have to be unlimited data or nothing? It would be much better if the iPhone plans offered more choice, like 200mb, 500mb, or 1gb of data per month at different price points. $70 a month just for my cell is a lot for a college student.
it's a lot for non-college students too!! getting ridiculous
Yeah, and for that same $70 sprint will throw in unlimited GPS Navigation, Sprint Music, Sprint TV®, BlackBerry® Internet Services (BIS), text, pictures, and video messeging.
Ok.. so does this mean that Apple wont be forcing unlimited data plans for the iPhone.. because if so, its practically unusable in Canada.. Rogers charges a premium for their Data plans.. Right now I pay on average $85 a month for voice/LIMITED Data/unlimited text on Telus with my Blackberry Pearl, I wouldn't switch over to rogers for the iPhone unless they gave me unlimited text and Data for roughly the same cost, as well as a voice plan..something like what ATT has right now would b perfect.. man.. Canadians always seem to get ripped off! haha
Does the 3-G help with improved connection on the phone? Or are we still going to have the most dropped calls of any carrier?
Anyone know if att will honor corporate discounts on the iphone plans now?
they are planning on making money through the app store. Duh?!
So if Apple isn't getting a cut of the monthly subscription fees any longer, of what benefit is it to them to continue with the AT&T lock-in?
the current deal runs through 2010 i believe.
Exactly what I was thinking. Why wouldn't they sell unlocked phones for the same price they're selling them to AT&T? Every other phone vendor does this.
not really (to my knowledge). you have to hunt online (ebay) for unlocked overseas GSM versions.
all phones sold by carriers in the USA are locked to their respective networks (unlocking them via subsidy codes is not hard.. getting the correct IMEI/ESN based # is the hard part).
@ ak:
So if the current "deal" runs until 2010, wouldn't the revenue sharing run until 2010?
It wouldn't seem likely to me that Apple would commit itself to AT&T for X years without a guarantee of revenue sharing for that same amount of time.
I'm confused as to why there has been such a dramatic price drop. Hope it holds true for Australia
apple are no longer getting kick backs from the telecommunications, yet they've dropped the retail price. I don't get it, they've lost revenue from the telecommunications company, so they decided to drop the price of the phone - it doesn't make sense to me.
Also, the new prices mentioned, would that be on a plan of some kind, or as an "unlocked" unit? Do you think you'll be able to buy a legit unlocked unit from Apple, even if it's more expensive?
And this one has proper GPS, the same as my TomTom?
I'm wondering if there's a catch some where because as it stands this is the (nearly) dream phone at a dream price
They are probably going to cut their losses with the appstore as there is no other way beside by jailbreaking to get app on the damn thing...
Apple have sacrificed the kickbacks so that's more money going to the network operators. They didn't drop the price of the iPhone, they simply allowed the operators to subsidise it, which they weren't doing before. Operators can afford to do that now without having to pay the kickbacks.
My hope is that people with current at&t plans will be able to get FAN discounts (corporate discounts) as well as a-la-carte data plans (like, I pay for tethering and PDA at this moment on a great corporate deal)
Here's to hoping.
I agree, maybe now that they dropped the revenue sharing we will be able to use corporate discounts on the iphone 2 for voice and data...
In reality the headlines should say:
"Slight Price Increase on iPhone" since the total cost of ownership amortized over two years is going up by $40. The gap widens by $10/month if you keep the phone beyond the minimum contract.
Apple have got a head start now which they have to use, they've got to get themselves established as the standard company for casual use touchscreen phones in the way that they're the standard for mp3 players. So what if they take a loss now for the sake of more customers, it'll make them more likely to keep customers in the long term. Can you think of any worse companies to have chasing you down than Microsoft and Google? Maybe Blackwater.
let me get this straight, so you can get data plan from at&t but your talktime from another carrier?
It's locked in to the AT&T 3G network, it will not work on CDMA networks.
man, and I was worried that the resale value on my iPhone1 was going to drop, but now it's just going to go up!
is anyone know that the Iphone 3g gonna be able to unlock and use in other countries??