July 14th, 2008AT&T will lose money with the iphone data plan
The exact terms of the 5 year exclusivity agreement for AT&T to distribute the iPhone are unknown, but one certainty is that AT&T will struggle to make a profit with iphones. In the early days of wireless, carriers had an agenda of “growth at any cost”, and often incurred substantial losses in the process. Those days are over and the stockholders now have an agenda of “show me the money”. Customers and fellow bloggers may gripe at the $30 monthly data charge for the iphone, but even with that meager price increase, AT&T will still struggle to make money.
The evolution of AT&T’s data network has gone from GPRS to EDGE to UMTS to HSDPA, but they are all based on the TDMA (time division multiple access) protocol. Time slots can be configured by AT&T to be voice channels or data channels. While during a voice call, the phone is only capable of using a single voice channel, data usage on the iphone can occupy several data channels simultaneously. The exact RF network configuration for AT&T is unknown, and probably differs by region and area, but it is certainly feasible that a high data usage iphone customer can at times hog up 4 or even 8 simultaneous data channels. As data usage goes higher and higher, AT&T is forced to allocate more of those precious and expensive RF channels to data users, and thus forces them to spend more money building out additional voice channels.
Voice calls are charged on a per minute basis and AT&T can easily produce high margins with them. A typical 450 minute plan is charged out at $40 per month, or roughly 8.9 cents per minute. For those 450 minutes of voice calls, a user will only occupy 450 minutes of a single time slot dedicated to voice calls. The new 3G iphone data plan is charged out at $30 for unlimited data. Lets assume that an average iphone customer uses only 15 minutes of high bandwidth data per month, and that AT&T has their data network tuned to allow only 4 simultaneous data channels per customer. That iphone data customer is using the RF equivalent of 1800 minutes of voice calls, but at a cost of only $30 per month for the data plan. From my perspective, it appears that AT&T has re-adopted the “growth at any cost” agenda. Combined with the subsidized handsets, and the often rumored monthly kickbacks to Apple, I can’t see how AT&T will make any money on the iphone. The real winner on the iphone is Apple, and the real question to AT&T is how much money are they losing on the iphone.
July 14th, 2008 at 4:39 pm
They’ll only lose money if the cost of providing those 1800-minute-equivalents is greater than $30. Otherwise, it’s just a matter of what the profit margin is. They may make less profit off of the data than they do off of voice, but that doesn’t mean there’s no profit. (And, of course, they’ve been charging the same rates for other smartphones for a while now.)
July 14th, 2008 at 6:17 pm
The issue with the iphone in particular is that it is the first mobile device that makes it easy to suck up tons of the data pipe. Prior to the iphone, AT&T was happy to charge customers only $20 or $30 per month for unlimited data. Data usage was so inconvenient (WAP and other low quality browser experiences) that it followed the health club model – sell membership to people who try it out for a few days and then stop. Also, my assumption is based on 15 minutes of data usage a day. Most iphone customers I know are sucking up an hour of data usage per day.
July 15th, 2008 at 7:53 am
Possibly in the short term AT&T is not going to make a huge amount of profit from the $30 iPhone deal. But at the end of the day, you’ve gotta have customers to make any money and the name of the game in the cellular biz is a loyal subscriber base. Churn is a killer. It costs a lot more to get a customer than to keep a customer. And, voice ARPU is dropping across the board. Data is the future and will be even more so when 4G comes about with an architecture that is built to deliver data. But, it’s still somewhat a gamble as to when this will happen.
July 24th, 2008 at 6:59 am
They won’t loose money, but their profits will feel a cut.
Think about how little 1800mins of call-time is to the network. The mobile telephone business has always overcharged by several hundred percent, because if they work together, it’s a subtle monopoly.
August 13th, 2008 at 12:35 am
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April 23rd, 2009 at 2:25 am
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