Does AT&T turn into a pumpkin in June?
Its Cinderella contract with Apple for the iPhone runs out in seven months, says one analyst
Brian Marshall. Image: Bloomberg
Broadpoint AmTech's Brian Marshall, who has replaced Piper Jaffray's Gene Munster as the most bullish of the mainstream Apple analysts, made several assertions of fact in an Bloomberg TV interview Friday that — if true — struck me as newsworthy. Chief among them:
- The contract that gives AT&T (T) exclusive access in the U.S. to Apple's (AAPL) iPhone expires in June 2010.
- Apple is now getting a $450 subsidy from AT&T for each iPhone it sells; after June, that subsidy will be reduced to $300 for all carriers, domestic and international.
- The 4% of AT&T subscribers who use the iPhone consume roughly 40% of the network's bandwidth.
Here and in a research note issued last late month, Marshall has been lobbying heavily for Apple to start selling the iPhone through Verizon (VZ). It turns out he may have personal reasons for doing so. He told Bloomberg's Pimm Fox that whenever he travels to New York or San Francisco with his iPhone he gets dropped calls "all the time."
"A very frustrating experience," he said, "but I'm not going to move away because Apple has their hooks into me"
You can hear all this, plus what Marshall has to say about the Chinese iPhone market, Windows 7's effect on Mac sales and Apple's 2010 earnings, in the interview posted below the fold.
UPDATE: Financial Alchemist's Turley Muller takes issue virtually everything Marshall says in this interview. See here.
[Follow Philip Elmer-DeWitt on Twitter @philiped]
See also:
Agree with Turley and Ken C below.
If Marshall thinks the subsidy will fall to 300 just because that's what the competitors get, then I think he's wrong. The "subsidy" to Apple should account for the fact that Apple does iPhone marketing and service/warranty/repair, and that Apple activates phone service via its stores.
He must be short ATT or long Verizon. If he knows so much why doesn't he know Verizons network couldn't handle the data pig iPhone? ATT's network is five years ahead of Verizon. Also he admitted verizon lost to ATT the last two quarters but trashing the iPhone isn't the way to win buyers or Apple…
It only makes business sense for Apple to open up the iPhone to other carriers. Wouldn't you want to instantly double or even triple the number of subscribers if you were Jobs? And take market shares from Blackberry, Palm, Samsung users in the VZ, Sprint subscribers?
Also, he is saying 4% of iPhone users use up 40% of the bandwidth. Not iPhone users making up 4% of T's subscribers. You'd hear what is said if your mind is not already made up.
If you think apple does not coorporate with Verizon, you are totally wrong.
They have made iphone 4G for Verizon without the sim card and tested it now.
That is odd because I dont know why there is no sim card for iphone.
ex ped: The iPhone does have a SIM card. It slots in the top, between the power button and the earphone hole.
I had ATT for my cell phone and in my area of north east Pennsylvania I did not have dropped calls, I had no service at all. I now have an iPod touch and love it also if Verizon were the carrier for the iPhone I would buy one tommorrow.
@ KenC,
You are right- This guy doesn't know anything.
1) The subsidy is $400. (I know that to be fact, as I have seen it internally from sources) That's how the math work too, when calculating ASP. Also, they wouldn't sell a non-contract phone for $600 if it were costing AT&T $650.
2) Why would the subsidy fall to $300? No reason it would, AAPL even said on it's conference call that the price to the carrier doesn't change whether exclusive or not. Subsidy completely depends on ARPU, since it is in fact, the subscriber paying the subsidy, over the life of the contract.
3) AT&T said it had nearly 9M iPhone subs after June Qtr. This was exactly in line with my estimates from my model. I now estimate that AT&T has ~ 11M iPhone subs, which is more than 10%.
4) I am not convinced the drop dead date is June, as I have head from sources at AT&T it's not up until the end of 2010. Not certain of this, but Brian Marshall sure as heck doesn't know.
BTW, Pimm Fox is a pimp, gotta love the name.
I love AT&T.I love the Iphone.switching the iPhone is the dumbest thing that bitch Brian Marshall Is going to do. iPhone works better with AT&T. If Brian Marshall hates AT&T. Tell him to get over it. If he doesn’t like it then tell Brian Marshall to switch to verizon. Let him know that i said. Don’t switch to verizon. You get no servce in the other international contrys. With AT&T you get servce every where. Even in the international countrys so don’t switch to verizon.
I have an iPhone and use it all the time in the San Francisco area — and have used it several times in New York. Never had a dropped call yet. What the heck is this guy talking about?
One big problem with this particular theory. U-Verse set top boxes run on a Microsoft platform and u-verse is in fact a proprietary iptv format developed by AT&T and Microsoft.
Unless we're talking about a different Steve Jobs, I don't see AppleTV looking to play ball in that particular arena. When has Apple ever been known to adopt a Microsoft proprietary format as opposed to developing it's own or reluctantly adopting a standard…???
Well, if he's wrong about the AT&T contract ending in June of 2010, he can try again for 2011. I mean, eventually, he'll be right.
As for the $450 subsidy, does it make sense? Let's see, the ASP for all iPhones, 3G, 3GS 16 and 32GB is $612. If the subsidy is $450, then the ASP the public sees is $162. That's clearly not right, as the prices range from $99 to $499 with only a small fraction, probably 10% that sell for $99. Even with those $99 iPhone 3G sales, that still would not bring down the retail ASP below $199.
Only 4% of AT&T subscribers use the iPhone? Seems low, don't you think? There are about 80M AT&T subs, and 4% would be about 3.2M or so. I think that number has to be quite a bit higher by now. I'm sure studying the AT&T conference call transcripts would give the answer.
So, I'm not convinced Brian is right on any of his comments.
Becasue this idiot drops call in New York – he wants Verizon to carry it? I thought that people in Mr. Marshall's postion shou dbe concerned about facts and finaces verus personal interest…
People fail to remember that Apple gave Verizon the initial opportunity to carry the iPhone and they said no. I find it interesting that AT&T is continually bashed for having the exclusive on the iPhone. The bashing ranges from a poor network to subsidy costs yet they believe that if/when Verizon gets the iPhone, all of this will mysteriously disappear. I do believe Apple will offer the iPhone to other carriers but I don't think Verizon is next in line. The reason is the lastest advertisements "A Map for That" and "IDon't" from Verizon. These advertisements don't sound like a company getting the iPhone anytime soon. That's just my opinion of course.
Oh… has anyone forgotten Steve Jobs "hobby" called Apple TV? I think there will be a new Apple TV upgrade that will feature IPTV technology. This technology will turn Apple TV into a settop box for AT&T U-Verse and Verizon FiOS. I do believe Apple will release this upgrade initially to U-Verse customers only.
In conclusion, Apple and AT&T have a very good iPhone relationship. AT&T let Apple try different revenue models before falling back on the proven subsidy model. I don't see Apple leaving AT&T out to dry. If anything, AT&T and Apple are working on new products and services while giving the hand me downs to the other wireless carriers.
More guesses. This guys, if he knew Apple he wouldn't have said most of these things. I guess he just needed to get on TV, like Gene Munster, as part of his job. What a waste of time.
Quickly:
I've listened to this interview twice. The $300 subsidy comes up only in the context of Brian's "conservative" model for AAPL.
In the last conference call with analysts Apple COO Tim Cook answered this question directly and stated (I'm paraphrasing) there's been no deterioration in subsidy levels when multiple carriers in a market carry the iPhone.
Working against a subsidy cut is constrained supplies of components. Apple's not about to ramp production, possibly paying more for components and manufacturing contracts and then offer the iPhone at lower prices to authorized service providers.
The constrained supply issue (while not as chronic as the constraints realized into the first week of October) is a real management challenge.
It would make no sense to cut prices on the iPhone while global demand remains strong and certainly not at the start of a new model product cycle when demand is at a zenith.
Should Apple choose to partner with Verizon in the US market starting in June or July we might see as much as 50% increase in product demand in the States as new models comes to market. That alone works against a price cut because Apple, AT&T and Verizon would be scrambling to meet demand even at today's subsidy levels.