August 18, 2009

iPhone Subsidies Eroding Telecom Profits

Telecom operators have failed to profit from the heavy subsidies they provide customers to purchase Apple iPhones, according to a new report released Monday by Copenhagen-based wireless consultancy Strand Consult.

In fact, the subsidies may even have eroded profits in some cases, the report found.

"According to the research we have conducted on the operators, not one of these have increased their market share, revenue, or their earnings as a result of introducing the iPhone," the report said.

"On the contrary, some operators have sent out profit warnings because of the iPhone," Strand said.

Apple released its first iPhone in mid-2007, after which the device's slick design and ease of use made it widely popular. Cupertino, Calif.-based Apple sold 5.2 million iPhones during the June quarter, compared with 268 million phones sold globally by all handset manufacturers.

Telecom operators have heavily subsidized the iPhone in hopes of reaping longer-term benefits. 

However, not everyone has profited.

"We have not found one operator which has created shareholder value with iPhone," Reuters quoted Strand as saying.

"When looking at the numbers we can't see the iPhone effect -- a lot of competitors are actually doing better."

As the iPhone's exclusive U.S. carrier, AT&T Inc. said in June its costs to sell the new version of the iPhone would be similar to those for the original 3G iPhone, which weighed down its profits last year.

SingTel, Southeast Asia's largest telecom operator,  also reported declining profits due to iPhones, and blamed the device for a 3 to 4 percentage point drop in its operating profit margins.

TeliaSonera, the top telecom firm in the Nordics, launched the iPhone in conjunction with a significant marketing campaign in all Nordic countries.  But the efforts did not translate into a boost in market share or an increase in average revenues per subscriber (ARPU), the Strand report said.

TeliaSonera's ARPU in Denmark fell from 212 Danish crowns to 168 crowns over last two years, twice the rate of Sonofon's ARPU decline. Sonofon's ARPU in first quarter was 205 crowns, while its market share remained unchanged from two years ago.

TeliaSonera has lost one percentage point of market share in Sweden in the past two years, and became the lowest ARPU carrier among leading firms with its ARPU falling to 179 Swedish crowns during the first quarter.

Operators hoping for long-term profits from iPhone subsidies are seeing their window of opportunity close as Apple moves away from exclusive deals.

"Operators are definitely looking for alternatives to the iPhone that return more value back to the operator," said Frank Meehan, CEO of phone maker INQ Mobile, during an interview wit Reuters.

Rival handset makers are starting to catch up with Apple, and several small operators have seen success in pursuing iPhone customers of other operators, the Strand report said.


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