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Monday, February 12, 2007, 12:00 pm

Apple may see royalties from Cingular subscriber growth

By Katie Marsal

Apple could see added perks from its exclusive iPhone distribution deal with Cingular, such as royalty payouts for helping to grow the wireless carrier's subscriber base.

According to Citigroup Investment Research analyst Michael Rollins, the Cupertino-based iPhone maker could receive as much as $250 - $300 for each subscriber it helps lure to Cingular's network beginning this June. The payouts would likely come over the life of the service contracts and represent very high-margin revenue for Apple, he said.

Rollins noted that the deal would be similar to an arrangement already in place between Cingular and Radio Shack, where the electronics retailer earns roughly $300 in total for closing new service contracts.

Although the terms of Apple's exclusive deal with Cingular have not been made public, the wireless carrier may be hoping to leverage such an incentive program with Apple to help offset expected declines in subscriber growth over the next few years.

After rising by an average of 25 percent in 2004, 2005 and 2006, global mobile phone subscriber growth is expected to fall to 12.8 percent in 2007, according to a research report released this week by iSuppli. The firm said the slowdown will continue in the years to come, with subscriber growth dropping to 9.6 percent in 2008, to 7 percent in 2009 and to 5.7 percent in 2010.

"The slowdown in new subscriber growth and the deceleration in mobile-phone sales translates directly into deteriorating market conditions for wireless carriers," said Dr. Jagdish Rebello, director and principal analyst for iSuppli. "Carriers and their mobile phone suppliers need new strategies to counter the impact of this phenomenon."

With fewer new subscribers to be found worldwide, carriers such as Cingular are also expected to focus on squeezing more revenue out of customers by offering enhanced services such as Internet access, mobile television and music playback capability.

For iPhone subscribers, some of these added costs are likely to arise in the form of monthly Internet data service packages, which will be required alongside standard service agreements and the initial cost of the $500+ device.
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