Apple may see royalties from Cingular subscriber growth
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.
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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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.]
I worked this out about 2 weeks ago and posted it.. as usual, Citigroup are late to the party, and yet again prove incapable of providing realistic estimates:
If Apple do have a revenue sharing arrangement with Cingular, and they do intend to sell 10m iPhones, then they will have to include guidance for such income in their Q-ahead numbers. If they get just $5/month per subscriber (which is about what RIMM get for their Blackberry email service from the networks), then as I've pointed out, that's 10m * $60 = $600m. That's pure profit - it will go straight into earnings - translating to about 40-50c in FY earnings in 2008/9 (or about a 15% boost to profits).
I can't stress this enough: 10m iPhones is a done deal or SJ wouldn't have mentioned the figure. That's $6 billion in revenue - about enough to add $1.50 to FY08 earnings - that's about 1 35-50% boost to profits - (or somewhat less if you assume a lot of those may be sold after the launch while still in FY07). On top of that, you can add another 50c from subscriber revenue sharing to FY08/09. So in total, the iPhone could be bringing in an additional $2 to FY08 earnings estimates - enough for a 65% earnings surprise for the year.
Its laughable - simply laughable - that this hasn't been more widely picked up in all the analysis. SJ would not just pluck anticipated sales out of thin air. Its a done deal, or as good as, or he wouldn't have mentioned it. Thus the earnings for FY08 are also a "done deal." You know what analysts are still estimating for FY08, having not adjusted their estimates after raising FY07 through the roof? A (sorry I'm giggling) 15% increase in earnings over FY07.
And that's if they only sell the expected 10m. What if they sell 15m? Or 20m?
Insane! I say a 60% earnings surprise for FY08 from here at a bare minimum. Possibly as high as 100%.
Yeah, when the market gets SO saturated with phones that damn near everyone has one, you might see a downturn in growth. I suppose pulling subscribers from another carrier (because you are the only service with the iPhone) might help.
I'm really wondering how successful this little device is going to be. I think it could be successful but take a long time -- possibly longer than the iPod took -- to get widely accepted. At that point, however, Cingular won't be the only carrier in town to sell them, I bet.
With that kind of money coming in from ATT I wish Apple had used a bit of it to moderate the price of the iPhone.
I realize it doesn't really work that way, profit is profit, but...... damn. $300 per subscriber on top of $600 for the phone? I can see why Radio Shack might get a cut for acting as a reseller, but they don't make phones.
Also, are their any more ominous words than "With fewer new subscribers to be found worldwide, carriers such as Cingular are also expected to focus on squeezing more revenue out of customers....."
This is what lock-in does. Once the era of rapid expansion of the subscriber base is over, carriers have no incentive to try and attract customers with improved services or lower prices because movement between carriers is artificially restricted.
So instead they figure out ways to nickel and dime you.
I'm really wondering how successful this little device is going to be. I think it could be successful but take a long time -- possibly longer than the iPod took -- to get widely accepted. At that point, however, Cingular won't be the only carrier in town to sell them, I bet.
I disagree, this is going to take off in a big time. I predict 18M worldwide will happen long before 2008 comes to a close.
The media jumped on this so much that even my parents know a good deal about the soon-to-be-released iPhone. Hell, even SNL had an iPhone skit less than a week after it was announced.
I, for one, am going back to Cingular (a carrier I used and despised several years ago) and I'm finally getting a "smartphone" (something I've never really had an overwhelming interest to buy) all because of the iPhone.
PS: I'm going to the WWDC this year. I can finally see a keynote in person. Yee-F@#king-Haw for me.
I'm really wondering how successful this little device is going to be. I think it could be successful but take a long time -- possibly longer than the iPod took -- to get widely accepted. At that point, however, Cingular won't be the only carrier in town to sell them, I bet.
I don't know. If the exclusivity is truly five years as reported and if AT&T/Cingular sells as many as they seem to think they will, they will have every incentive to re-up the exclusivity with Apple at the end of five years.
This could either be a head start for AT&T/Cingular or the beginning of a longterm exclusive alliance; I wouldn't just assume the other carriers will be on board in a few years.