updated 11:30 am EDT, Tue April 24, 2012
Apple may have stiff terms in force
US carriers are unlikely to push back on iPhone subsidies for another 18 to 24 months, at least, says CLSA analyst Avi Silver. He estimates that about $19 billion of Apple's FY2011 revenue came from carrier subsidies, 46 percent of that being derived from US companies. Any lowering of subsidies would therefore have a major impact on Apple's profits, which has led some analysts to be skeptical of or even issue downgrades on Apple stock.
Silver suggests, though, that Apple has negotiated multi-year agreements in which subsidy terms were dictated up-front. "For the major carriers, we believe these agreements have most favored nation clauses so any offering from Apple to one carrier would have to be offered to the other," he writes in a new report. "During the length of these multiyear agreements, we believe U.S. carriers would need permission from Apple to alter subsidy levels."
He continues, "For AT&T, we do not know when its multiyear agreement expires but Verizon and Sprint are likely locked in for some time. As a result, we think that an outright reduction in subsidies is an unlikely scenario in the U.S. market."
iPhone subsidies are believed to be unusually high compared to most smartphones, to the extent that it can take many months or even years before monthly fees will turn a profit for a carrier. The iPhone is a major draw, though, and its buyers are more frequently loyal.