A few weeks ago, AT&T CEO Randall Stephenson told the Wall Street Journal that his company was interested in extending its exclusive contract with Apple through 2011. It was interesting to see a senior executive at one of world’s largest telecom companies tip his hand publicly. […]

A few weeks ago, AT&T CEO Randall Stephenson told the Wall Street Journal that his company was interested in extending its exclusive contract with Apple through 2011. It was interesting to see a senior executive at one of world’s largest telecom companies tip his hand publicly. Fast-forward to today, when Ma Bell reported its first-quarter 2009 earnings, and you start to get a handle on why AT&T is hooked on Apple and so desperately needs it to introduce new iPhone models. First a little math from their earnings release: AT&T added 875,000 new postpaid subscribers in the most recent quarter and 1.6 million iPhone activations, “more than 40 percent of them for customers who were new to the company.” That means roughly 640,000, or a whopping 73 percent of their total net new subscribers, came to AT&T because of Apple’s iPhone.

To better illustrate the growing Apple addiction at AT&T, let’s go back to AT&T’s fourth-quarter 2008 results. During that three-month period nearly 1.9 million 3G iPhones were activated, and 40 percent of them, or about 760,000, were new to AT&T. In other words, 36 percent of AT&T’s new customers signed up because of the iPhone.

From a revenue perspective, during the first quarter of 2009, the average iPhone user gave AT&T about $94.74 a month vs. an average postpaid AT&T customer, who spends about $59.21 a month with the company. (Actually if you took all iPhone monthly subscriptions out of the equation, that number would be even lower.) At $94.74 each, the 640,000 net new subscribers bring in about $60 million a month in additional revenues for AT&T. Given how drastically AT&T’s landline and business voice sales are tanking, it makes sense why AT&T is so desperately stuck on the iPhone.

“Those numbers underscore why the exclusivity and the refresh of the (iPhone) product line are pretty important for AT&T,” said John Hodulik, telecom analyst with UBS Research. Like most, he expects Apple to introduce new phones sometime this summer. We’ve heard rumors of both a new higher-end device as well as a lower-priced one. Whatever form they come in, they will be crucial for AT&T, which has even started to spend money on upgrading its pokey 3G networks to meet the data demand.

The AT&T and Apple relationship can be best summed up by the 80s pop band, Huey Lewis & the News:

We’ve had some fun, and yes we’ve had our ups and downs
Been down that rocky road, but here we are, still around
We thought about someone else, but neither one took the bait
We thought about breaking up, but now we know its much too late
We are bound by all the rest
Like the same phone number

All the same friends
And the same address

Yes, it’s true, (yes it’s true) I am happy to be stuck with you

Also: Saul Hansell at The New York Times outlines reasons on why AT&T needs to keep iPhone away from Verizon. He talks about LTE amongst many reasons.

  1. This is good, and fascinating. Thanks, Om.

  2. If Apple does renew a contract with AT&T, I just hope that this time around they show more leverage for the consumer with their negotiations. It is understandable why they did not have a native video app for the 2G and 3G models, the network is slow enough as it is and the video may have caused further problems. A commitment by AT&T to upgrade their network – http://gigaom.com/2009/04/20/att-to-boost-3g-speeds-network-capacity/ – in a VERY short time frame should be an absolute must.

    – Jason Nadaf

    1. Jason

      I think a live video app on a mobile sounds good in theory. The problem is seriously pathetic networks and lack of capacity. I think waiting till LTE to come around is prudent for mobile video push. With Verizon pushing to launch LTE networks by 2010, it wont be long before AT&T gets its 4G wireless networks rolled out as well. 2011-2012 is my guess on when mobile video really becomes pervasive.

      1. Until carriers build out fiber to the tower (Verizon, T-Miobile already deploying in most areas,) AT&T’s “peice-milled network will take forever to upgrade.

  3. If a single product did something of that sort for my own company, I would be just as addicted, haha. I can guarantee that AT&T is gonna have a lot of trouble keeping up with the 3G requirements of the iPhones, as well as the other phones on their network if they fail at those upgrades. I mean, upping to 7.2Mbps is better than the ~3 that there is now.

    Hmmmmmmm, I still love my iPhone since day one. :)

    1. 7.2Mbps? I read 21 Mbps would be next – why waste time with intermediate steps?

    2. Totally agree. What I don’t understand though is why Verizon (being such a large company) couldn’t offer a sweeter package to Apple to get the Iphone.

  4. Krishna Baidya Wednesday, April 22, 2009

    iphone came like a “single” miracle product that brought the much needed exuberance to ma bell, which otherwise probably be busy battling to compensate fixed line revenue decline. no wonder Randall is all ga ga about iphone. i guess now, Randall’s team should focus a bit more on the network side to enhance the user experience.

  5. [...] Addiction – Om Malik gives fascinating insight into Apple’s exclusive relationship with AT&T for the IPhone. How about this number – in [...]

  6. [...] Why AT&T Is Desperately Addicted to the iPhone [...]

  7. but Om you did not mention that Apple is equally beneficiary in this and Apple must also be enjoying its margins from AT&T.

  8. Christina Viering Thursday, April 23, 2009

    The iphone is so easy to use compared to imitators.

    1. Apple’s margins = margins of Corleones :-D

  9. Om,
    Couldn’t agree with you more. The extra money is all it matters.
    ATT probably is not spending much on expansion. They should use this money to build more towers.
    But the days of paying 90 bucks for data services on phone are numbered.
    Have you seen the pricing of boost mobile ?


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