Can Anyone Help These Poor Wireless Carriers Break Their Addiction to iPhones?

by YCharts Staff August 08, 2012

Consumers pay a premium to get their Apple (AAPL) fix, willing to pay more for an iPhone than one of Google's (GOOG) Androids. Wireless carriers are just as addicted, and they’d like to break the habit.

Feel free to call them ungrateful. The iPhone has been a boon for wireless carriers, some of which had to wait for the privilege of selling it. AT&T (T) started first, with an exclusive, in 2007. Then Verizon Wireless, majority owned by Verizon (VZ), started selling iPhones in 2011. That year Sprint (S) got the iPhone, too.

The iPhone converted people who use their phone to talk into people who also surf the internet and check e-email. In doing so, it raised the average revenue per user for phone companies – which boosted overall revenues.

T Revenue TTM data by YCharts

But this came with a tradeoff: wireless carriers have to pay a higher subsidy for iPhones than they pay for Android phones – $420 rather than $300, according to the Wall Street Journal. Now that most people have smartphones, the carriers are getting tired of that. The extra $120 per phone cost AT&T $2 billion last year.

So the carriers are doing what they can to make consumers eat that cost. AT&T has lengthened the amount of time before customers can upgrade their devices at a discount, and in February it raised upgrade fees. That seems to be helping its margins:

T Gross Profit Margin data by YCharts

But it’s hard to break an addiction. Apple’s expected to launch a new version of the iPhone this fall. If it does, odds are more people will buy or upgrade, and the carriers will have to pay up.

Needless to say, it’s good to be the dealer. Captive companies are one more reason for Apple’s success.