The iPhone is a nightmare for carriers

It seems as though the only company making out selling iPhones is no doubt Apple $AAPL.  According to this CNN Money article the carriers are the ones who are suffering margin erosion.  Apple sells an iPhone to the carriers for just about $600 per phone.  I know that most people certainly do not pay that retail price so the difference in price is subsidized by the carriers which destroys their margin.  There is a really good video clip which gives a bit more detail into the actual cost per iPhone in this piece as well.


From the article, full read here

• Between 2009 and 2010, Verizon $VZ averaged EBITDA service margin of 46.4% per quarter. In the first quarter that the iPhone went on sale, that fell to 43.7%. Last quarter, when Verizon sold a record 4.2 million iPhones, its margin plunged to 42.2%.
• AT&T  $T and Sprint $S suffered an even worse fate. AT&T posted a stunning 28.7% EBITDA service margin last quarter, compared with 37.6% a year earlier. One contributing factor: AT&T sold nearly twice as many iPhones as Verizon last quarter.
• "A logical conclusion is that the iPhone is not good for wireless carriers," says Mike McCormack, an analyst at Nomura Securities. "When we look at the direct and indirect economics that Apple has managed to extract from the carriers, the carrier-level value destruction is quite evident."
• Sprint CEO Hesse said the No. 1 reason why customers had left Sprint prior to October was because it had no iPhone.  "It comes down to, 'Do you want to be with them or bet against them?'" he said. "Apple is arguably the best global brand in the tech space."

Full disclosure we own Apple & AT&T in the fund.  I own personal shares in Verizon