The value of the iPhone, according to the analyst, depends on three predictions which include the annual decline in the price at which Apple sells its iPhone to carriers, the magnitude and trajectory of carrier subsidies of the iPhone, and the price elasticity of demand for the cellular handset. "Based on Apple’s strategies in pricing the Mac and iPod, the price at which Apple sells the iPhone to carriers should decline at a 12 percent annual rate," Wolf said. "Carrier subsidies should increase over time because the iPhone should generate growing data access fees as features and services are added. The price to consumers should fall at a 20 percent annual rate." Wolf adds that as the price of the iPhone falls toward zero, the price elasticity of demand will likely increase at an accelerating rate. Needham's free cash flow valuation model converts its iPhone forecast into $24 of value per Apple share, and factoring in cannibalization of iPod sales translates into a net addition of $20. "The obvious risk is that iPhone sales could fall materially short of our forecast," Wolf cautioned.