Analyst Calls the iPhone a Drug for Mobile Carriers
Apple’s (NASDAQ:AAPL) iPhones are a double-edged sword for mobile carriers such as AT&T (NYSE:T), Verizon (NYSE:VZ), and Sprint (NYSE:S). On one hand, the devices are quite pricey, so carriers are forced to fork out larger subsidies to make the products affordable for their subscribers, but on the other hand the carriers are rewarded with more loyal customers who are willing to pay a higher premium for services. Not to mention the price of being hip, because if you don’t offer the iPhone, you’re just not cool.
But every record-breaking quarter for Apple translates to big hits to carrier profits because of the high subsidies they are forced to pay. The carriers have tried to argue that the upfront costs are worth it in the long run, but unfortunately many iPhone owners are tech junkies who want to upgrade as soon as a new iPhone model hits the market, resulting in a vicious cycle of subsidy payments. But it’s too late to get out now, the carriers are already in bed with Apple.
CNET quoted Craig Moffett, an analyst for research company Sanford C. Bernstein, who said, “At this point, the iPhone is like a drug, and the carriers are hooked. The question isn’t whether it’s worth it. It’s whether they can get by without it.” Despite the hits to profit, Verizon continues to seem pleased with the subscriber growth driven by the iPhone. “The sales volumes in the fourth quarter exceeded our expectations, but obviously will create more opportunity for growth in 2012,” Chief Financial Officer Fran Shammo said during a conference call on Tuesday per CNET.