The biggest news from Apple is what Steve Jobs didn’t say: It has completely changed the basis of its deals with AT&T and other wireless carriers.
According to a news release from AT&T, the carrier will no longer give a portion of monthly usage fees to Apple. Instead carriers will pay Apple a subsidy for each phone sold, in order to bring the price from $399 down to $199 for the 8 Gigabyte model. The company did not specify the amount of the subsidy. Subsidies of $200 to $300 are common in the industry.
What is more, consumers will now pay $30 a month for unlimited data service from AT&T, compared with $20 under the plan introduced last year. So even though the phone will now cost $200, consumers will be out more cash at the end of a two-year contract compared with the previous deal.
Of course, that includes faster 3G data service, so the price increase may be worth it. But we should call it an iPhone price increase, not a cut.
Unlimited data service for business users will cost $45 a month.
AT&T says the shift to upfront subsidies will cut into profits to the tune of 10 cents to 12 cents a share, both this year and next. As the number of customers paying the higher monthly bills increases, the phone company says profit per share will start to increase in 2010.
AT&T also said in its release that it now has 3G data service in 280 metropolitan areas, and that will increase to 350 areas by the end of the year.
For Apple, this move to getting all its money up front has several advantages. By using the same economic model as every other cell phone maker, it makes it easier to bring the phone to carriers in every corner of the world.
It also should help insulate Apple from the cost of people who buy iPhones and unlock them to use on carriers that don’t pay Apple the monthly fee. Now Apple will get its money, say $500, up front and it no longer has to police what people do with them. Whether Apple will still keep penalizing users who unlock their phones is one of the many questions that remain to be answered.
Indeed, Apple has just filed a short disclosure with the Securities and Exchange Commission saying that outside of the United States and a few other countries, its deals with carriers are not exclusive.
Apple has signed multi-year agreements with carriers authorizing them to distribute and provide network services for iPhones in over 70 countries. These agreements are generally not exclusive with a specific carrier, except in the United States, United Kingdom, France, Germany, Spain, Ireland, and certain other countries. Under the vast majority of these agreements, Apple will not receive follow-on revenue generating payments from carriers for the new iPhone 3G beyond the purchase of the device by carriers or a commission on sales of the device by Apple. Apple will continue to receive payments from cellular network providers related to first-generation iPhones as long as they remain active on authorized networks.
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