CUPERTINO, Calif., Feb. 11 (UPI) -- The subsidized iPhone sold by phone carriers is taking a significant bite out of the profit margins of big U.S. telecommunications firms, data indicates.
Firms like Verizon Wireless, Sprint and AT&T, which had an exclusive contract for iPhone sales for several years, are buying iPhones from Apple and selling these to customers with the idea that they will earn their money back through two-year service contracts that come with the phone.
The Los Angeles Times reported Saturday that phone companies are paying Apple $600 per iPhone and passing these on to consumers for $200 -- a $400 loss leader.
That's similar to deals offered a few years back, when smart phones were relatively cheap. In those days AT&T, Sprint and Verizon would pay Apple about $400 – a $200 loss leader.
AT&T, for example, sold 7.6 million iPhones in the last quarter with an initial loss of $400 per phone.
Further, when Apple comes out with an improved version of the iPhone, some consumers look for upgrades and phone carriers have to compete to offer the best deals there.
That means some customers end up with two subsidized iPhones within the two-year length of a contract. In spite of a contract being extended, the phone carriers are still paying $400 to Apple twice on behalf of customers who upgrade.
Eighty-two percent of the phones AT&T sold in the final quarter of 2011 were iPhones.
Phone carriers are now hoping that Android based systems will become more popular, so the subsidies paid per phone decrease.
"Can Apple continue to roll through industry after industry, soak up all the profits, and leave everything it touches as a smoking wreckage? They've done it with music and handsets, and now they're doing it to the carriers," said Craig Moffett, an analyst at Sanford C. Bernstein & Co.