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Brier Dudley's Blog

Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

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June 9, 2008 2:40 PM

New iPhone: Cheaper is a relative term, especially if you own AT&T

Posted by Brier Dudley

The new iPhone looks great and it's finally within reach, price wise. Sort of.

Even with the price falling to $199 for the entry-level model, the iPhone is still a big investment -- at least $1,879 to join the club....

AT&T said the unlimited data plans will start at $30 a month for consumers and $45 for businesses. That's in addition to voice plans that start at $39.99 for consumers.

In other words, the minimum service plan will be $70 per month with a two-year commitment. That compares with $60 when the iPhone was launched last summer.

Your total outlay, not including taxes and additional fees, will therefore be $1,879. Figure $2,000 with taxes.

That's nothing compared with the huge cost AT&T shareholders are likely to foot, as the company and Apple change gears and start subsidizing the phone. It's a great device, a game-changer, but its disruptive effect on wireless phone subsidies in the U.S. has apparently ended.

The change will probably help Apple hit its 10 million sales target, but AT&T earnings are going to take the hit until 2010, according to its release:

In the near term, AT&T anticipates that the new agreement will likely result in some pressure on margins and earnings, reflecting the costs of subsidized device pricing, which, in turn, is expected to drive increased subscriber volumes. The company anticipates potential dilution to earnings per share (EPS) from this initiative in the $0.10 to $0.12 range this year and next, with a 2008 adjusted consolidated operating income margin of approximately 24 percent and a full-year 2008 wireless OIBDA margin in the 39-40 percent range. As recurring revenue streams build without any further revenue sharing required, AT&T expects the initiative to turn accretive in 2010.

AT&T diluted earnings per share were 1.94 cents per share in 2008, so the new iPhone subsidy will cost the equivalent of maybe 6 percent of its earnings. Better be some phone.

It's worth it, AT&T said, because it "anticipates that these offers will drive increased sales volumes and revenues among high-quality, data-centric customers. Currently, less than 20 percent of AT&T's postpaid subscribers have integrated devices capable of voice, Web and data applications. Based on the company's experience, average monthly revenues per iPhone subscriber are nearly double the average of the company's overall subscriber base."

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Posted by bvfh

6:57 PM, Jun 10, 2008

sdnkldghkl;d

Posted by T Shook

10:51 PM, Jun 10, 2008

Nice, but the AT&T bill in the mail will STILL be
as thick as a Harlequin novel!
:)

Posted by the truth

7:21 AM, Jun 11, 2008

I'm sorry....I didn't realize that everyone purchasing an iPhone 3G doesn't already own a cell phone and pay a minimum $39.99/mo. Oh wait, that's right...an extremely high percentage of them do!

People buying the iPhone are not buying their first cellphone and you can't account for the costs as if they are. Every cellular carrier charges $40 a month for their minimum service plans and $30/month for UNLIMITED 3G DATA? That's a steal in my opinion...you'll pay $35 from AT&T for that on your blackberry and won't get the internet quality of the iPhone.

So let's assume that the average consumer buying an iPhone already has a $40 a month bill with a $10 text messaging plan. Then lets assume that they'll keep the same $10 plan when they sign on with their new iPhone...

3G Data - $720 over 2 years (30/mo)

THAT's the increased cost...and from that you're also saving $200 off the price of the iPhone as of three days ago so cut that down to around $500.

AND, if you already own an iPhone, or you were waiting for this announcement to buy one...it's only $40 dollars more over two years....and if you do a present value calculation on the expenses over the next two years, you're saving.

And just to quell the two year agreement argument...fine, if you don't want a two year contract, enjoy never buying a cell phone for less than $200 again...'nuff said.

Posted by D. Rich

7:37 AM, Jun 11, 2008

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New iPhone: Cheaper is a relative term, especially if you own AT&T

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Gadgets and games | Fun stuff I've written about lately includes Apple's iPhone, Hewlett-Packard's HDX laptop and Microsoft's Halo3. Also on the radar are new digital video boxes such as the Tivo HD and the Vudu.