Replace “Marcia” with iPhone
AT&T is reporting a boom in customer acquisition and, it seems, a bust in profits. According to a recent earnings report, the company activated 2.4 million iPhones but lost $900 million in third-quarter earnings as a result of all the data and voice blowing through Apple’s darling.
The iPhone, we see, is a double-edged sword. Because it goes out to early adopters and folks who understand mobile data, AT&T faces the same problems MVNOs like Helio faced in the U.S.: aim at heavy data users and get hit for data usage. While this is a testament to the majesty of Steve Jobs, it’s also a problem for AT&T. How can they keep making profits if they’re spending on their cash on network upgrades?
As we all know, all that data comes at a price. The high bills AT&T is sending out to 3G users attests to this and it will definitely be harder in the coming months to convince price-conscious consumers to pony up $175 or more just to get Facebook on the go.
AT&T’s third-quarter 2008 reported and adjusted margins and earnings reflect revenue growth and continued progress with previously outlined cost initiatives, offset by hurricane-related expenses and effects on wireless results from the iPhone 3G. Impacts from the company’s iPhone 3G initiative reduced pretax third-quarter earnings by approximately $900 million or $0.10 per share…
Based on third-quarter customer response, AT&T is optimistic regarding continued strong iPhone 3G activations and is confident in the long-term value created by this investment in acquiring high-value, data-centric wireless subscribers. As a result, AT&T expects its dilution associated with the iPhone 3G will run above its previous expectation, and AT&T now expects, depending on volumes, its full-year 2008 wireless service OIBDA margin to be better than 37 percent versus its previous outlook of 39 percent to 40 percent. AT&T expects its full-year adjusted consolidated operating income margin to be approximately 23 percent versus its previous outlook of approximately 24 percent.
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Now I just wish Rogers would get hit for their ridiculous data plans. Then I could sleep at night…
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No one said you had to go through school alone.
Secret Formula:
AT&T Reports loses –> lobby’s to get billions in government bailout checks
AT&T’s data plan sucks worse than a fat chick at a sorority party.
What if mac stop iPhone to sell?
I am agree with above post because we all know that iPhone is two sided sharp sword and can cut to any compititor.
Technology Guide
http://www.iboozi.com
At some point all providers will have to introduce an adjusted lower price for airtime in exchange for allowing ads on phones.
At+t could put and ad on your wall paper or below your browser and not have to raise rates. How else can they provide the same level of service for the same price?
hells no. any provider that tries that had better offer free service to go along with it.
“How can they keep making profits if they’re spending on their cash on network upgrades?”
That’s not really the issue. Making capital investments that will lead to higher ARPU in the future is what they should be doing, and those investments don’t affect their operating margins or reported earnings.
The problem seems to be pricing the plans correctly so that “all you can eat” doesn’t cut too deeply into those margins.
good point, daniel. Thanks for the fix.
I don’t think they should raise the data plan prices. They should have thought about that when they agreed to carry the iPhone. They should have expected this boom and prepared for it accordingly. Just my 2 cents.
What if apple told shareholders it can’t invest in R&D infrastructure because it would cut into margins. Isn’t this what at&t is doing right now by actually spending money on infrastructure that it should have years ago?
“The iPhone, we see, is a double-edged sword … How can they keep making profits if they’re spending on their cash on network upgrades?”
But according to Bloomberg and others:
“AT&T … is subsidizing the iPhone … AT&T sells the device at a loss and tries to recoup the money through a mandatory two-year service contract.”
The hit came not from network upgrades but from selling the cute little buggers below cost.
How can they keep making profits if they’re spending their cash on network upgrades?
A: Stop spending millions of lobbying.
This is complete bunk. Data is essentially free. That’s partly why everyone is getting pissed off with the combined cellular-industry’s high rates on text messages. At the rates we’re charged for text messages, 1mb of data costs thousands of dollars.
“As a result, AT&T expects its dilution associated with the iPhone 3G will run above its previous expectation, and AT&T now expects, depending on volumes, its full-year 2008 wireless service OIBDA margin to be better than 37 percent versus its previous outlook of 39 percent to 40 percent. AT&T expects its full-year adjusted consolidated operating income margin to be approximately 23 percent versus its previous outlook of approximately 24 percent.”
They are only 2-3 percent off their estimated OIBDA. Meanwhile, they have millions of new users paying $80+ per month for 2 years. I’m one of them. I had the 1st gen iPhone and then renewed my contract for another 2 years. They’ve got me by the nose for at least a total of 3 years. Anyone else who upgrades has the same thing. I haven’t heard about any people dropping their 1st gen phones and eating the contract costs to switch to a Razor.
Most of the $900 million they are complaining about was due to the cost of network upgrades. That’s mainly a one-time loss. Once they upgrade an area for 3G coverage, that’s not an upgrade they have to repeat next year for that area. Meanwhile, they will continue to get new users in areas that have been upgraded previously, further offsetting their “losses”.
Another commenter says that ATT is losing money due to subsidizing the iPhone. You pay the same amount of money for an iPhone whether you buy it from ATT or from Apple. There is no subsidization.
The cost of network upgrades doesn’t appear on the income statement — it’s capital expenditure and has no impact on operating margins or earnings.
1) data isn’t free (not even close). your statement represents a fundamental misunderstanding of how this all works. However, you’re right, the fees for text messages are outrageous.
2)the $900M loss is not related to the network upgrades. please refer back to the financial information released by ATT.
3)you are not stuck in your contract. if you’d like to leave ATT you can easily break the contract for a relatively small one-time fee that is actually prorated depending on the length of time left on your agreement.
4) just b/c the consumer pays the same amount for the phone regardless of where he buys it from doesn’t mean it isn’t subsidized. Again this represents a fundamental misunderstanding of how these things work. Maybe if you think really hard you’ll understand.
With all that said, I have no sympathy for ATT. They will eventually figure out how to efficiently operate their system and balance the needs of their users with their network’s capabilities. And they will make a ton of money.
“You pay the same amount of money for an iPhone whether you buy it from ATT or from Apple. There is no subsidization.”
But ATT’s total cost of buying the product from Apple and delivering it to a customer is not the same as Apple’s. It’s likely higher which would account for ATT stating, ” … year-over-year margin comparisons reflect approximately $900 million of pressure associated with the iPhone 3G.”
I have wifi at home and at work. As a result, I bare use the data network. I believe that ultimately the solution will be blanket wifi coverage over urban centers. Maybe this issue will serve as a catalyst for making it happen.
Just got back from Europe… same iPhone (jailbroken) on network there had way better reception + call quality.
I think you’re looking at it the wrong way: when selling products, if you run out of product, you stop selling… But ATT just kept on going and going when they knew very well they were “out of stock” because of the nature of a network and the impossibility for the users to see for sure they’re overselling…
They pretty much ripped us off selling air and now they’re bitching about it saying that we should pay more for what we already bought but still waiting to get…
Give me a break.
Is Google or TechCrunch turning evil? I read this post from Google Reader and below each post is a banner ad!
That’s obstructive in my opinion!
Anyone else noticed the ad?
Who inserted it? Google or TechCrunch?
You can view a screenshot here: http://picasaweb.google.com/chuenyang/Misc#5260011233663424674
It’s the relatively recent integration of Feedburner and AdSense. To add ads to your feed you need to migrate it from Feedburner to feedproxy.google.com.
All it is doing is pushing them to upgrade their networks sooner than they would have otherwise; therefore the increased expenditures. Also noted by the telco themselves, hurricane repairs. Did iPhone cause the hurricane?
It’s kinda crazee that you can spin just about anything 180 degrees! So, you’re telling me that even though AT&T just reported that iPhone sales buoy their bottom line, they are loosing money? So, which is it? Are they making money or are they loosing money? Bottom line? I mean, what business out there do you know that spends no money to make money? 5.5 percent boost in profits = loosing money…… hmmmmm, i hope you are not investing based on your own advice.
Oh com’on, can’t we just blame it on the fact that AT&T service absolutely sucks and their stores are manned with the most uneducated, worthless people alive!
-Oh com’on, can’t we just blame it on the fact that AT&T service absolutely sucks and their stores are manned with the most uneducated, worthless people alive!-
Oh, I don’t know - the lady that helped me pick out my iPhone was really hot.
I thought this might happen. When everyone got a new 3G at a subsidized price and took their old iphones off AT&T, the higher subsidy kicked in and lowered profits.
But as the ratio of new 3g iPhones declines, profits will go up.
That is, unless I have no idea how the accounting for these things works. Which is likely :-)
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F*ck I love that stock widget.
That iPhone 3G S really looks neat, just hope I can get a nice AT&T plan with it.