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Brier Dudley's blog

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

June 9, 2008 at 2:40 PM

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

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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