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Image via CrunchBaseRecently, there has been a flurry of reports like the link above discussing the possibility the iPhone was a "bad" deal for AT&T. Most of the commentary I've seen seems to take this at face value, even while some disagree with the conclusion. I have yet to see a discussion regarding the possibility of AT&T beginning to spin Wall Street's perception and expectations of the deal prior to the loss of their iPhone exclusivity. And I think this is the most interesting angle.
Some of the facts discussed are interesting in how the WSJ article seems to spin good news into bad. For instance, the article mentions that of the 10 million iPhone activations, "only" 40% were new customers switching to AT&T. That means 4 million new expensive iPhone accounts activated after switching from other carriers (or possibly new cell users). This seems like fairly good news for AT&T.
Concern is also voiced on the relative profitability of iPhone customers due to the ~$400 subsidy on the phone purchase. It is estimated that AT&T brings in $2000 per customer of a two year iPhone contract after the subsidy. The concern centers around two areas: 1) the relatively larger subsidy compared to other "smart" phones with the same high cost data plans, potentially making the iPhone slightly less profitable , and 2) iPhone owners' heavy use of the AT&T data network has caused problems. While the higher subsidy is a real factor, the iPhone's ability to bring in new customers and convert customers to high cost data plans is ignored in this analysis.
I think the affect of the iPhone users on the AT&T data network highlights an issue with the cell carriers: while the cell carriers sell "unlimited" data plans, their data networks are not engineered for actual heavy use. They were designed and built with the prior generation of devices in mind. I think the underlying assumption was that typical cell devices would only be used for e-mail or other spot use. Models before the iPhone were awkward to use for extended periods of time and were not very good for general purpose web browsing. But the iPhone (and some other recent smart phones) has exposed the fallacy in this thinking. If the cell carriers actually believe in a future where handheld (cell-based) devices are primary (or even significant) tools in the use of the Internet, they will need to engineer and build their networks for that load. AT&T is apparently far behind here.
I think there are two factors more at play in the recent articles: 1) AT&T is sensitive to recent criticism and outright jeering over their data network and coverage, and primarily 2) AT&T will soon see the news officially break that it lose its iPhone exclusivity, and they do not want to see their stock collapse when this occurs. So I think it is not unrealistic to think AT&T may be engaging in some spin control to prepare for a time when they lose iPhone exclusivity and many (most?) of those "only" 40% of switching, new customers buying high cost data plans. By minimizing the financial value of the iPhone to AT&T, they attempt to reduce the perceived damage when the news breaks that they are losing the exclusivity.
