Why AT&T Is Desperately Addicted to the iPhone

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.

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