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?

In the U.S. exclusive contracts between phone makers and carriers are nothing new. These agreements have been around for years. In late 2004, for example, the RAZR was an AT&T Wireless exclusive. It is a standard of competition between carriers.

Almost every article or opinion on the subject of exclusivity puts it in a very negative light. Most people feel it is a way to snub the consumer and force them to switch carriers.

Well, that’s the point.

Sorry folks — that’s just the hard truth of business. Each company is attempting to steal customers away from each other, and what better way to do it than offering a handset that cannot be purchased on any other mobile provider?

Competitive Advantage

It’s never really been a huge topic of conversation until the iPhone came out and became such a giant. Now the T-Mobile and Verizon customers who like their cell phone service have to make a choice: do we stick with what we know and like, or do we want the iPhone bad enough we’re willing to change our mobile provider?

The market in the US is completely saturated — in other words, every customer who wants a cell phone has one. In order to gain the edge, every carrier offers exclusive deals on certain phones in hopes that the unique offering will bring interested people. Outside the iPhone, we will witness such deals this year with the Blackberry Bold (AT&T) and the touchscreen Blackberry Thunder (Verizon). The Palm Centro had exclusive rights on Sprint for a few months.

In most cases these carriers will receive a few thousand new customers here and there that they may not have received without those deals, thus making it worth the agreement. The iPhone is the unique phone that has the potential to attract millions of new customers to AT&T.

Talk about a huge competitive advantage! That’s why AT&T was willing to do whatever Apple said in order to get the deal.

Exclusive is Like a Beta Test

Anyone who wants the iPhone but does not want to use AT&T is stuck right now. Resourceful T-Mobile customers could unlock the device and make it compatible with their EDGE network (not 3G…yet). But perhaps it’s not so bad.

Consider the exclusive time a great beta test for phones. Those that get the phones right away are the ones that find all the bugs, experience frustration, and discover how to fix it and make it work. Generally the phones come out of the exclusive period rolling and ready to go, without as many headaches from that point on.

Thus, when the time comes for the iPhone to be released on other carriers, everything will have been greatly tested and tried, all the bugs worked out and secrets figured out, and the new versions will be even better with greater capacity than the very first model.

Exclusivity forces innovation

My bold statement in this article is that exclusive deals force additional innovation. Innovation has been my theme the last couple weeks because I feel strongly that we need more of it in this industry!

In what way does it force additional innovation? Obviously if Sprint cannot sell the iPhone it will turn to other phone makers and demand something similar, yet different enough to entice customers.

This is what happened with the Samsung Instinct — instead of getting all down and sad from news of the first iPhone’s success, Sprint fought back. The extra competition forces each carrier to find a new way to get customers interested. The iPhone’s awesome, sure, but what other awesome phones are out there waiting to be discovered or invented? TONS.

Without competition, innovation takes a back seat. What’s the point of thinking of cool new stuff if people are satisfied with the status quo? Our market can stand a greater variety to choose from, and exclusive deals force the competition to get creative.

Is it healthy?

Some may argue that exclusive deals such as the iPhone deal only brings unhealthy competition. AT&T has too much leverage it can use to gain customers.

The biggest losers, critics claim, are the rural carriers. Having few customers compared to the big four, these companies rarely get exclusive contracts. This means that when phones such as the iPhone hit it big, the rural telecoms dwindle even more in size as their customers leave to go with AT&T.Thus the big companies get even bigger and more monopolistic.

I understand this argument. Competition is good, and absolutely essential. Exclusive contracts help generate extra competition, but at the same time it shouldn’t be completely unfair. It’s just that rural carriers don’t have enough customers or revenue to interest phone makers.

Conclusion

In order to attract customers, a critical balance of offerings must exist. Exclusive deals are great, but they aren’t the only thing that will help a mobile provider achieve success.

In addition to unique phones a telecom company needs to attract customers by offering a solid network, good customer service, and unique features that no other telecom offers.

While I feel exclusive deals on phones such as the iPhone are essential to achieve optimal competitive advantage in the wireless industry, I do believe 3 years is too long. That amount of time makes AT&T feel more like a monopoly. My concern is that similar monopolistic tendencies are what contributed to AT&T’s breakup in the 80’s.

Six months is the maximum amount of time any phone carrier should have exclusive rights on any particular handset. This still gives the carrier plenty of competitive advantage, still forces innovation and variety in the market, yet gives other telecoms a fighting chance on game-changing devices such as the iPhone.

The only time I could see 3 years as acceptable is if Apple comes out with a different kind of iPhone for different carriers. Say — iPhone 3G for AT&T, maybe iPhone Nano for T-Mobile for example?

Just an idea.

Now, sound off. You can agree or disagree with me however you want. Fire off your comments to me!

The world of Telecom sees no shortage of lawsuits. Each cellular provider in the US gets slapped with suits. Typically the suits come in the following forms:

1. Patent Infringement – We saw this recently with the iPhone and several companies and individuals trying to sue Apple/AT&T for violating patents.

2. Telecom Rivalry – Whether it is Verizon suing Sprint, Sprint suing AT&T, or whatever the case, US telecom companies tend to sue each other for various reasons.

3. Class Action – Individuals get fed up with hidden charges, contracts, and other injustices that telecom has been getting away with. These individuals find it easy to get others to team up with and sue these companies. Some do it for money, some do it out of principle.

My goal is to provide you with some of the current lawsuits going on in the world of Telecom. I will try to keep this as up-to-date as possible. It’s hard to keep up with them all, but several of them are worth reading up on. Each suit contains a link to details on what exactly the suit is all about. Enjoy!

AT&T, Verizon, Sprint, etc. – Class Action Suit against unauthorized texting. Customers upset at carriers for not “offering its customers the opportunity to avoid such charges by opting out of text messaging and refusing to disable its customers’ text messaging service.”

T-Mobile – May 2008 – Sued over charging pay-per-use for incoming SMS and not blocking SMS if customer requests it

Sprint – May 2008 – Sued over unauthorized mobile content, such as ringtones, sports scores and weather reports

Sprint – May 2008 – Sued by workers over mismanagement of pension plans

Verizon and Alltel – April 2008 – Violation of Fair Credit Reporting Act, falsely report disputed debt on credit report

Sprint – May 2008 – Sued by Sprint affiliate iPCS over Clearwire/WiMax merger

Verizon – May 2008 – Sued by parents of 14-year old girl assaulted by man she met through mobile social network

Sprint – April 2008 – Sued by Verizon for not paying $10 million in interconnection charges

Verizon, Sprint, and AT&T – March 2008 – Class Action suing against text message gambling for shows such as “Deal or No Deal”.

1. 3G iPhone (sometime between June 15 and July 12)

2. Blackberry Bold (after August?)

3. Sony Ericsson XPERIA X1



4. Garmin Nuviphone

5. Nokia E71

6. Nokia N95-3

7. Pantech Duo 2 (C820)

No image available at this time.

Related Posts:

Upcoming AT&T Phones

According to sources, AT&T is planning to release the Pantech Breeze, aka C520, on May 23. The Breeze is a low-end phone geared toward the elderly, with low cost (I’m hearing free after rebate?), very few bells and whistles, and large buttons. It will also feature a set of 3 shortcut buttons near the top of the phone. Be on the lookout for pics shortly!

Expected features include:

VGA Camera
Bluetooth
MP3 ringtones
Interchangeable faceplates
Speakerphone
EDGE/GPRS

Related Posts:

Upcoming AT&T Phones

The newest phones to pop up on PhoneArena include:

Samsung A617 – Quad band World phone
Pantech C710 – Tri-Band, 1.3 MP camera
Pantech C510 – Quad band but no 3G, 1.3 MP Camera and MicroSD
Pantech C600 – Quad band, 3G, VGA camera, MicroSD
Motorola W760R – Quad band, 3G, 2.0 MP camera, rugged, replacing V365
LG Voyager (Rumored!)

These phones are all flips, and all but one – the C510 – will be 3G.

Samsung Access

LG Vu

Motorola V9x

Blackberry Bold – New 3G Blackberry. I cannot WAIT!

Sony Ericsson Z780 – no release date yet – Google Maps with aGPS, and Push Email via MS Exchange ActiveSync are the highlights.

Motorola W760R – Quad band, 3G, 2.0 MP camera, rugged, replacing V365

Nokia 3555 – Already available on T-Mobile. 3G but otherwise unimpressive.

Samsung A237 – entry level clamshell; likely to have Quad-band GSM/EDGE with camera and bluetooth (photo courtesy PhoneArena)

LG CB630 “Invision” – August? – new LG candybar TV phone. Looks very similar to the Samsung Access.

Rumored Phones

Samsung Blackjack 3

Samsung Omnia

AT&T Tilt 2

Pantech Duo 2

Related Posts:

Presenting the new Jawbone
Look at AT&T’s roadmap

Here we have the new Motorola Z9 coming to AT&T. This looks like a pretty sweet phone – this will be the first non PDA device to offer AT&T Navigator, aka Telenav. Are we seeing the beginning of the era of GPS in standard GSM cell phones? We can only hope! Perhaps this will soon be followed up by GPS kid-tracking systems that you can currently find on CDMA carriers such as Verizon or Sprint.

The Z9 is slated to arrive in stores April 1. Let’s see if that comes true.

More than that, many phones out there will play AAC songs – ie. iTunes format. Thus, you can turn your cell phone into a 2 or 4 GB iPod without paying hundreds of bucks.

So, which phones play AAC? Here’s a list of a few:

AT&T:
Nokia 6555
Nokia 6126
Nokia 6085
Motorola V3i
Motorola V3xx
Motorola V9
LG CU515
LG Shine
LG Trax CU575
AT&T Tilt
Motorola Q9 global
Pantech Duo

Other phones from other carriers coming soon!