Crunching Numbers: AT&T profits
How much does AT&T make off of each wireless customer?
Before I tell you, go ahead and take a guess. The answer may come as a complete surprise to you.
AT&T had its quarterly earnings call yesterday morning in which it announced how many iPhones were activated, how many new customers were added and the total revenues and profits for the wireless segment. While I am not currently a stockholder, I am certainly interested to see how beneficial the iPhone is to AT&T.
First, a few facts. When a new customer or eligible current customer purchases the iPhone 3G, AT&T subsidizes $375 off each one. In other words, AT&T pays Apple $575 for a 8 GB iPhone 3G, yet only charges the new customer $199 with two-year contract. The normal subsidy for AT&T phones is roughly $150-200 at the most. The big moneymaker, in this case, is Apple.
Because of this large subsidy, AT&T didn’t expect to start profiting from the iPhone until around 2010. In fact, it was announced yesterday that AT&T suffered a $900 million drop in overall income due to the iPhone. But that was something the company was willing to do because it contributed to an additional 1.7 million customers, bringing the total to 74.9 million (still the leader — at least, until Verizon’s acquisition of Alltel is final).
Now to answer my first question: how much did AT&T make off of each customer?
Overall income was $2.322 billion for the quarter. Divide that by the 74.9 million customers, and it comes out to $31.001 per customer per quarter. That means per month, AT&T made an average of $10.30 from each customer.
I always thought these big companies made more than that, but I guess all those dumb fees they make you pay don’t actually go toward padding the stockholders’ wallets. I would love to see a more detailed list of exactly what kinds of costs are involved in maintaining the network, adding new customers, etc. It would certainly be an interesting look into where that $10 per month is coming from.
Questions:
What was your guess on how much AT&T makes?
Does this come as a shock?
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Comments
The subsidy doesn’t strike me as odd; the amount of the subsidy does. Of course every wireless company out there subsidizes phones but only half the amount AT&T did for the iPhone.
I sure doubt it will be the hottest phone — but people will still be in contracts until July 2010 at the earliest.
Here’s the way I look at contracts though. The amount of subsidy is FAR greater than cost of paying cancellation fee, so it’s still advantageous to sign up on one. And AT&T prorates their cancellation fees so the further you are through your contract, the less you have to pay. So if you don’t want to be in contract, it’s not killing the wallet to get out of it.
Why is the amount of subsidy surprising?
With the old iPhone, the price was $200 higher, AND, they were reportedly getting as much as $15 a month from AT&T. I thought that was high, at the time, and guessed more like $8 a month. Either way, if you multiply $8 or $15 times 24 months, you get, $192 to $360 in payments, on top of the $400 for a 8Gig iPhone, totalling, $592 to $760. That’s not far different than putting $375 on top of $200 for $575, is it?
I see what you’re saying. Instead of paying the $15/month, the subsidy is really paying for it all in one lump sum. But the reason it’s surprising to me is because every other phone is only given a $150-200 subsidy; even the other PDA phones that utilize a $30/month data plan have that same kind of subsidy. But, AT&T looks at the iPhone as a special phone.
I wonder how much ATT forecasted as their profits after their 3-year wait for their ROI. It must have been huge to go through with the deal. Hope it does not turn soar for them if and when iPhone gets replaced by another “greatest, hottest, phone around”.
WOW. I really thought it would have been a LOT more.
I find the whole subsidizing the iPhone thing a bit odd. I guess it locks them into the hottest phone out there. But they’re also banking on the fact that it will still be the hottest phone come 2010. A lot could happen in technology between now and then.
Interesting.