February 8, 2012
★ “The iPhone is a nightmare for carriers”

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CNN Money describes how US based mobile operators are suffering from slimmer margins following the iPhone:

AT&T (TFortune 500) and Sprint suffered an even worse fate. AT&T posted a stunning 28.7% EBITDA service margin last quarter, compared with 37.6% a year earlier. One contributing factor: AT&T sold nearly twice as many iPhones as Verizon last quarter.

After selling nearly 2 million iPhones last quarter, Sprint’s adjusted wireless margin fell to 9.5%, down from 16% a year ago. The company said Wednesday morning that its margin was significantly lower than it would have been without the iPhone subsidy.

Purchasing wireless spectrum, setting up a nation-wide wireless system and keeping that system up to date as consumer demand increases is very costly. The carriers who take on this risk deserve to make money and remain profitable. The same goes for the power company and cable TV / Internet operators. These companies invested money to bring a utility to each home at a loss and then give consumers the option to utilize the utility or not. I’d say that’s a risky move. Spending millions to setup towers in a town that may not use the wireless company’s service is a risk and one that must be repaid some way.

However, I’d prefer utility companies to operate like the power company. Power companies are profitable without interfering with how you use the power. Imagine how absurd it would be for my local power company to only allow a selection of 5 televisions for my home. Each of those TVs is custom made to work on my power company and no other. If I move to another state or county and thus get a new power company, I’m forced to buy all new hardware. Sure, I get that hardware at a subsidized rate but if I want to buy a new TV, blender or microwave, I’m asked to pay an early termination fee or upgrade fee.

There would be riots in the streets if power companies held their customers that way with fees, exclusivity, 2-year term contracts and only offered a slim choice of hardware on top of a monthly service price.

Wireless and Cable companies have been doing this for YEARS and yet people just sign on the dotted line and accept $8 pay-per-view movies and crappy handsets with a 50 cent fee for every text message you receive whether you want to receive it or not.

Apple may be squeezing mobile operators and soon, cable companies’ margins and there are arguments that less earnings equal lost jobs and now Apple is killing America and blah blah blah. The truth is, Apple’s devoted fan base and leverage on these middle-men to agree to terms that are fair for consumers is our only hope in a world crowded with insane practices in how the customers are treated. If Apple can make AppleTV a box that requires a $20 a month Cable connection + $50 a month Internet connection and a $100 a month cell phone bill and provide an experience we LOVE and not hate, I really don’t care that the operators feel squeezed by that. These guys have enjoyed great margins for years.

MG Siegler weighs in with a similar argument:

Boo-fucking-hoo. The carriers have raked consumers over the coals for years with things like SMS charges, which have a near-infinite margin.