Apple 2.0

Covering the business that Steve Jobs built

Why AT&T loves the iPhone (again)

January 28, 2009: 12:12 PM ET

AT&T iPhone promoFor much of last year, AT&T (T) Mobility's websites seemed to be promoting every cell phone in their arsenal except for the iPhone -- as if the company wasn't sure the revenue coming in from iPhone users was worth the steep bounty it was paying Apple (AAPL) for each sale.

No more.

Today when you visit its website, a promo for the iPhone 3G ("Now Available Online!") is often the first thing that pops upĀ  -- and based on the fourth quarter results the company released Wednesday, you can see why.

The iPhone is still an expensive proposition for AT&T. The kickback to Apple -- between $288 and $432 per phone over the life of a 2-year contract, according to various estimates -- and the $450 million the company says it spent last quarter on network upgrades to provide high-speed 3G coverage, contributed significantly to the 23% year-to-year decline in AT&T's quarterly net income (to $2.4 billion from $3.1 billion).

On the other hand, Q4 revenues were up 2.4% (to $31.1 billion) in a tough economic climate thanks to results in the wireless division that CEO Randall Stephenson attributed largely to the iPhone.

"The success of our iPhone 3G launch has driven wireless growth and helped redefine the wireless data space," he said in a press release.

How did the iPhone do that? Let us count the ways:

  1. AT&T has activated 4.3 million iPhone 3Gs since its launch, 1.9 million in Q4 alone -- more than double its iPhone activations one year earlier.
  2. The average revenue from Phone users is 60% higher than the typical AT&T customer -- thanks to that $30 per month data fee. Their heavy use of Web services helped drive AT&T wireless data use up 51.2% year to year, which as reader Jon in Brentwood, Calif., points out is not necessarily a good thing.
  3. About 40% of the iPhone activations this quarter were new AT&T customers, either buying their first cellphone or switching from another carrier.
  4. The churn rate -- the percentage of customers who drop AT&T's service -- among iPhone owners is significantly lower than the rest of the network, sharply reducing marketing costs.

Although iPhone 3G activations were down 21% quarter to quarter -- to 1.9 million from 2.4 million after the device's July launch -- they still outpaced Research in Motion's (RIMM) much hyped BlackBerry Storm. According to one estimate, Verizon (VZ) has activated some 1 million Storms in its first two month of sales.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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