The iPhone 5 is coming, but the question looms – are major carriers such as Verizon and AT&T going to be able to sufficiently handle the subsidy and data demand that the iPhone 5 will bring?
The iPhone 5 is almost here! The excitement and anticipation is building beyond measure for what’s expected to be the best selling iPhone to date. Consumers are ecstatic over the prospects of getting their hands on the new iPhone 5. So much so, iPhone sales have been taking hit over the past 6 months because people are simply waiting for the new iPhone 5 to show up on the shelves.
But with all the pent up consumer demand, and the velocity of sales that are expected to unfold, the place where the burden is going to be most felt are the carriers. Verizon, AT&T, and other major carriers are going to have a heavy burden both in the data demand and in meeting subsidies on new purchases.
From ABC NEWS: The price customers typically pay for a new iPhone is anews heavily discounted rate cushioned by the carriers, who buy the devices from Apple for close to their full retail price tags. (The 16 GB iPhone 4S that generally goes for $199 with a two-year contract has a list price of $649.) Carriers eat the difference and make it up by padding the monthly cost of their customers’ phone contracts.
The iPhone’s subsidy typically runs about $400 per device — the highest of any smartphone on the market. If the iPhone 5 goes on sale Sept. 21 (a widely rumored date), analysts are forecasting sales of 5 million units in the final 10 days of the current quarter, and four times that number over the next three months.
That’s a huge upfront cost for the carriers to bear, and it means that wireless service margins, a closely watched metric, will sink hard. AT&T and Verizon’s margins hit record highs last quarter. Once the iPhone 5 lands, Wall Street analysts expect those margins to plummet again to near the historic lows they set a year earlier, when the iPhone 4S first went on sale.
Verizon’s margin is expected to sink by more than six percentage points, according Kevin Smithen of Macquarie Securities. That’s a huge swing in an industry where tiny changes can have investors jumping for joy or hiding under their desks.