In the United States, AT&T Inc. (NYSE:T) is subsidizing the iPhone substantially. Even though AT&T charges $50 for a basic minute plan, $30 for data, and $5-$15 per month for text message, the company is still struggling to profit from the iPhone. Without a minute plan, the iPhone retails for about $599 and AT&T sells the iPhone for $199 with a 2 year contract. By breaking the contract the cost is about $175-$200. So even if you buy an iPhone with AT&T and break the contract, the company loses about $200.
According to a report by the Yankee Group, AT&T does not actually start seeing any sort of profit from the subsidies until the 17th month of a 2 year contract. Although AT&T has been benefiting from a surge in customer base by subsidizing the iPhone, the company is still spending billions of dollars to pay for the data that is being consumed by smartphones. And this majorly affects margins and the bottom line.
Ralph de la Vega, the CEO of AT&T Mobility and Consumer Markets said wireless data usage has increased by about 5,000% between 2006 to 2009. Many iPhone users have complained about shoddy connections as a result and AT&T has had to ramp up their wireless infrastructure.
The report by the Yankee Group was put together by Andy Castonguay, an analyst at the company. The report was titled The Golden Subsidy Egg’s Goose is Cooked: Welcome to the Brave New Subsidy-Free World.