The Homa Files

Excerpted from the New York Times, “Even AT&T Is Startled by Cost of iPhone Partnership”, by Laura M. Holson, October 22, 2008

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AT&T’s successful relationship with Apple comes at a price: $900 million.

That is the amount of money AT&T paid to Apple for the 2.4 million iPhones the phone company sold in the third quarter. It is a number that surprised even AT&T, which did not anticipate such huge demand for the smartphone.

The company said that it expected to make up the difference in iPhone-related revenue over the two-year contracts of the iPhone buyers. Users of smartphones, like the iPhone, are heavy users of the Internet and text messaging, which are more profitable for AT&T than voice calls. Those customers also tend to spend more than customers who use their telephones just to make calls.

“We are winning share at the high end,” Ralph de la Vega, the executive overseeing AT&T’s wireless operations, said in a conference call with analysts. Same-store traffic to AT&T retail centers has increased 15 percent, largely because of interest in Apple’s phone, he said. With the iPhone, he said, “there is a significant halo effect.”

Investors, though, might be forgiven if they missed any halo after watching AT&T’s shares drop Wednesday by $1.95, or 7.6 percent, to close at $23.78. Analysts said the iPhone’s negative impact on earnings caught them and investors off guard.

There is also uncertainty — if sales of the iPhone continue at this pace — about how much more AT&T will have to pay Apple next quarter.

But Roger Entner, a senior vice president at IAG Research, which studies market trends, said iPhone sales made now would pay off in the long term because they provide AT&T with more predictable earnings.

“That is a short-sighted view,” Mr. Entner said of concerns about iPhone sales. “It is a nice problem to have.”

Edit by DAF

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Full article:
http://www.nytimes.com/2008/10/23/technology/companies/23phone.html?ref=business

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This entry was posted on November 17, 2008 at 6:30 am and is filed under Mktg - Customer Acquisition. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.