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AT&T Beholden to Steve & the iPhone? Seems like!

Updated: AT&T (s T) has reported its fourth-quarter 2008 results, and they show how dependent the company is on Apple (s AAPL) and the iPhone for its future growth. For instance, AT&T added 2.1 million new wireless subscribers during the quarter. Nearly 1.9 million 3G iPhones were activated during the three-month period, and 40 percent, or about 760,000, were new to AT&T. That works out to a whopping 36 percent of total new customers for the company that has been bleeding landline customers and is facing serious problems because of the economic downturn. AT&T points out in the press release: “iPhone exclusive continues to deliver high-value subscribers with ARPU approximately 1.6 times higher and churn rates significantly lower than the company’s overall postpaid subscriber base.”

Update: However, the iPhone subsidies cost AT&T about $1.3 billion in 2008. AT&T is banking on those subscribers both buying expensive plans and sticking around long enough to make up for the subsidy. A quick look at fourth quarter numbers show that iPhone subsidies cost about $450 million for about 760,000 new subscribers. Those subscribers need to stick around for more than 10 six months (given the Q4 average revenue per user of $59.59 $95.34 for iPhone users) to offset the subsidy. Think of it as indentured servitude.

13 Responses to “AT&T Beholden to Steve & the iPhone? Seems like!”

  1. Definitely true that iPhone is playing a big part in AT&T’s growth. (See latest article at for survey data leading to that conclusion.) However, even without iPhone, AT&T added 1.14m new subscribers in the quarter, which is just a tad less than Verizon Wireless.

    To those who commented:
    – The $450m charge is specifically related to iPhone subsidies.
    – The basic plan for iPhone (single-user) is 39.99, not 59.99. But the use of AT&T’s ARPU figure is better.

  2. Actually to figure out how long the customer needs to stick around, you need to calculate the monthly profit (before selling costs), not monthly revenue, and divide that into the amount of the subsidy. The customer is only worth what they deliver to the bottom line. Quick and dirty shows a profit before selling costs of 46% for their wireless biz (2007 annual report). So 46% of $95.34 is $43.85, and dividing that into your total makes it more like 13+ months. This is probably generous as I took out G&A as well. So your point is even stronger!

  3. I believe your math is wrong – the ARPU for an iPhone customer is something like $100, since you need to have the $30 data plan and be on at least a $59.99 calling plan. So the subsidy is for closer to 5-6 months at most.

    • I believe there is one more item to consider in the iPhone ARPU number. The $59.59 ARPU includes the iPhone ARPU, so you have to exclude the iARPU contribute to get your true ARPU and then multiply by the 1.6.

  4. thoughtaful1

    So it is a negative thing that you sold twice as much as you did last quarter and gained market share while everyone else was tanking. Apple haters need to get over their second guessing. AT&T has done well by this deal and their new customers spend more and are less likely to switch. Get over Apple hatred. They ain’t going away.

  5. I am sure their RIM selection helps also – but it would worry me a bit as a company to rely SO much on this one trick – particularly when a guy like Jobs is the horse trainer. But ride it while they can…..but make sure you remember what happened to Motorola…..