Cost of iPhone service?

wot_fan

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Alright, lets take this take a look at this.

Actually it's quite simple, basic businesss 101 if you will. First of all I will keep it simple and easy to understand.

Let's say we are talking about a phone that retails for $399.00. There is a lot of profit in that phone. The manufacturer shares some of that with the carrier. They have a strategic relationship, as the only way for the mfg to sell the phone is through the carriers. It's the mfgs way to entice the carrier to buy a lot of their phones.

If the subsidized price to the customer is $199.00 then that amount more than pays for the phone as the actual cost of the phone is approx. $65.00
Yes this is sort of true. There is a lot of profit in electronics, but not as much as you seem to think. A 615% markup is not realistic.

Anyway, the manufacturer does not share its profit with the carrier. What it does do is sell its product to the carrier for a reduced price based on quantity. The carrier then marks up the price by a certain percent thereby defining the price of the phone when bought without a contract.

To make this easier for you to understand, lets look at the example of a free phone with 1 year contract example. The carrier buys the phone from the manufacturer for a discounted price due to the quantities involved. At this point, the carrier is in the hole for the price of the phone. Lets say the phone cost the carrier $30. The carrier must recoup this expense over the term of the contract. If you prorate it, they must recoup $2.50 per month to cover the cost of the phone. So if they hadn't given you a phone, they would be making $2.50 more off your account or they could charge you $2.50 less and make the same profit. Obviously, the bigger the size of the subsidy the higher this figure gets.

Therefore the mfg gets paid for the phone plus a small profit and the carrier breaks even on the phone. More importantly for the carrier is they either just signed up a new customer, or they extended the contract of an existing customer. Either way they make a massive profit. Their money comes from selling the service, not from selling the phone, at any price for that matter.
I agree with what you say here for the most part. In my example however, (and in yours if you use realistic profit margins) the carrier does not break even on the phone.

The manufacturer makes money on volume and the carrier makes a lot of profit off the customer each month, as they are selling airtime and data usage that costs them very little. They already have the network, they have been profiting from services for years. So they have a huge profit margin already. Then because they know that most people will pay the price, they use the same mentality that you are believing, which is that they have to "get their money by locking you into a 2 year contract". Nothing could be further from the truth.
I agree that the carrier makes their money from the service. I am not sure I agree with your statement that they have huge profit margins. Yes the network is in place, but it took a lot of cash to put it in place and the money needs to be recouped. It also does not maintain/upgrade itself. There are a tremendous amount of resources required to keep the network running smoothly. While I am sure they are making an acceptable profit, I don't think it is the gold mine you seem to think it is.

The reason they make customers sign on to a 2 year contract is "customer retention" and guaranteed income for them. This simply guarantees them that you are not going anywhere for 2 years. Much like a lease on a car, you are locked in. If you terminate the contract, you pay the ETF = Early Termination Fee. So they get you coming and going.
As you pointed out customer retention is important for them. Keeping customers satisfied with your service is what keeps customers, not contracts. You are right that it there is a penalty for leaving a contract early, but that isn't enough to keep most dissatisfied customers from leaving. And those dissatisfied customers that aren't willing to pay the ETF will leave as soon as their contract is up. Either way a carrier is not going to stay in businesss long if they don't keep a majority of customers satisfied.

Here's another example:
Let's say that you have a regular cell phone and you only make phone calls, thereforee your only expense is airtime. You have a plan which gives you 1400 minutes per month for $79.99.

Now you don't really believe that it costs your carrier $69.99 to provide that service do you? And that they only make $10 per month profit?

The reality is that the carriers cost to provide that service for you is pennies on the dollar, thereforee they reap a huge profit from every customer, every month.

Plain and simple........:)

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I think you are drastically underestimating the overhead involved in maintaining the network as well as a company the size of AT&T. If you factor in all of the expenses you would see that their profit margins are no where near as big as you seem to think.

I am pretty sure you are not going to change your way of thinking about this and I have yet to see anything posted that has changed my mind so I think we are going to have to agree to disagree. Since I come here to talk about the iPhone, that is what I am going to get back to :). Reply if you want and I will read your response, but I am done posting about subsidies ;).
 

archer6

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1) I am pretty sure you are not going to change your way of thinking about this and I have yet to see anything posted that has changed my mind so I think we are going to have to agree to disagree.

2) Since I come here to talk about the iPhone, that is what I am going to get back to :).
1) It's been my experience as the moderator of two other forums, that the sole purpose of an open forum environment like this is to share viewpoints and have an open discussion. Different opinions and experiences are welcomed. At no point is there an expectation that everyone will agree. That would not be normal. Counterpoints are a valuable component to any discussion.

It might serve you best not to take it so personally as that is not the intent of an open forum. Secondly, it would also be of benefit to your credibility if you did not speak for others, or assume "you know, that they are not going to change their mind".

How is it, that you know this? Sounds like an assumption on your part, and we all know the definition of assuming. This dialog on your part, suggests that you expect them to change to fit your values and beliefs. Therefore we would all be clones, how boring.

I find lively debates and sharing of experiences particularly fun, beneficial, and part of a customary practice in our society.

2) We are all here to talk about the iPhone.

Open forums are not about one person, they are about the entire group and the topics of discussion. Like any other group of people who gather to participate and contribute their experiences and viewpoints, it's about community and the spirit of sharing.

Thanks for sharing your position, which I respect and enjoy hearing about.

Cheers...:laugh2:
 

ColsTiger

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1) It's been my experience as the moderator of two other forums, that the sole purpose of an open forum environment like this is to share viewpoints and have an open discussion. Different opinions and experiences are welcomed. At no point is there an expectation that everyone will agree. That would not be normal. Counterpoints are a valuable component to any discussion.

It might serve you best not to take it so personally as that is not the intent of an open forum. Secondly, it would also be of benefit to your credibility if you did not speak for others, or assume "you know, that they are not going to change their mind".

How is it, that you know this? Sounds like an assumption on your part, and we all know the definition of assuming. This dialog on your part, suggests that you expect them to change to fit your values and beliefs. Therefore we would all be clones, how boring.

I find lively debates and sharing of experiences particularly fun, beneficial, and part of a customary practice in our society.

2) We are all here to talk about the iPhone.

Open forums are not about one person, they are about the entire group and the topics of discussion. Like any other group of people who gather to participate and contribute their experiences and viewpoints, it's about community and the spirit of sharing.

Thanks for sharing your position, which I respect and enjoy hearing about.

Cheers...:laugh2:
Which other forums do you moderate?
 

BoxKrait

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You know.. If you don't like what the thread is talking about.. Don't post in it.

You don't have to post in every single thread in here.
 

wot_fan

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You know.. If you don't like what the thread is talking about.. Don't post in it.

You don't have to post in every single thread in here.
Forgot to quote.
Though it was obvious though.
wot_somehting.
What are you referring to? Where did I say that I didn't like what this thread was talking about? Are you sure your comment was directed at me? If so, kindly explain what you meant.
 

thepepes

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That's a really really good point. There would be no reason to buy the longer contract unless the phone was discounted. I've been a Cingular customer since 2001 and I've never once seen a phone sold there that didn't have at least a rebate if bought with a contract. Usually, the phone would have the best discount if bought with a 2-yr renewed contract, next best with a new 2 yr contract (or the same), and a lesser discount for a 1 yr contract. If they all-of-a-sudden changed it, I think it would make many customers upset...especially since the largest clientele buying iPhones are going to be kids or adults not in the businesss world - thus probably not making as much money. I know I wouldn't go with another 2 yr contract unless they had a reason it would be better than the freedom of a 1 yr only contract... or none at all.
 

Cantwait4iPhone

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That's a really really good point. There would be no reason to buy the longer contract unless the phone was discounted. I've been a Cingular customer since 2001 and I've never once seen a phone sold there that didn't have at least a rebate if bought with a contract. Usually, the phone would have the best discount if bought with a 2-yr renewed contract, next best with a new 2 yr contract (or the same), and a lesser discount for a 1 yr contract. If they all-of-a-sudden changed it, I think it would make many customers upset...especially since the largest clientele buying iPhones are going to be kids or adults not in the businesss world - thus probably not making as much money. I know I wouldn't go with another 2 yr contract unless they had a reason it would be better than the freedom of a 1 yr only contract... or none at all.
This is a valid point. I think, and I know some will diasgree with me on this, that there will, as you mentioned, be at least some kind of rebate. It is still not too late for them to announce discounted prices when the contract is purchased. Maybe everybody is wrong, and $500+$600 are the costs without contract or rebates. That would be awesome, and we can only hope :laugh2:
 

zed wheeler

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data charge

I wonder if ATT will offer a lower charge without the data feature. The advantage to me of an iPhone would the fusion of phone and PDA (and, to a lesser extent, the iPod). I really don't care about the email or WWW functions. Besides, if the iPhone has WiFi, one could surf the internet wherever free WiFi is available without using the cell to tap the internet.
 

Hondamaker

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I wonder if ATT will offer a lower charge without the data feature. The advantage to me of an iPhone would the fusion of phone and PDA (and, to a lesser extent, the iPod). I really don't care about the email or WWW functions. Besides, if the iPhone has WiFi, one could surf the internet wherever free WiFi is available without using the cell to tap the internet.
That is my plan, to use the wi-fi aspect of the phone for internet. Have it in my house, many restaurants, the nearby mall, etc.
 

Cantwait4iPhone

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Using the iPhone without a data plan might be an okay idea. The problem is, though, if there is a situation where there is no WiFi and you do not have a data plan. Then you're pretty much screwed :D


I guess my reasoning of it is that I want to take full advantage of the $600 gadget, and to do that I am willing to shell out an extra twenty a month. I wonder if they will require you have a data plan. Then it could get interesting. Hackers, start your hacking!
 

Spin This!

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If the iPhone required a data plan, that would definitely burst the bubble for me. I know Apple wouldn't do this—why would they put Wi-Fi in at all then?

Apple is not in the data connectivity businesss—whether they admit to sharing profits with AT&T or not. I could really see Microsoft doing something this... Apple has generally been one of the "good guys".
 

ATTingular

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Just a warning to people that will cancel your internet package and just use wifi: There have been people who cancelled data on their HTC 8525 (which also has wifi) but weren't aware a pay-per-use feature was on their account. They did not set the phone to use wifi only and racked up massive bills.

If you're going to use wifi only, make sure to ask CS to not put the pay-per use feature on. That does assume AT&T will require a data package, which they probably will.
 

Hondamaker

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Using the iPhone without a data plan might be an okay idea. The problem is, though, if there is a situation where there is no WiFi and you do not have a data plan. Then you're pretty much screwed :D


I guess my reasoning of it is that I want to take full advantage of the $600 gadget, and to do that I am willing to shell out an extra twenty a month. I wonder if they will require you have a data plan. Then it could get interesting. Hackers, start your hacking!
I currently use Cingular, and I have no data plan, but if I do decide to get on the 'net, I just do what I have to do and get charged per kilobyte of usage. I don't do it a whole lot, tho.
 

ebrunn

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I currently use Cingular, and I have no data plan, but if I do decide to get on the 'net, I just do what I have to do and get charged per kilobyte of usage. I don't do it a whole lot, tho.
You might want to get a data plan added to your plan, your probably gonna start doing a "whole lot" on this thing.;)