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Blame AT&T? I don’t think so

CNet’s Don Reisinger thinks that AT&T is forcing Apple to ‘brick’ iPhones:

“What would have driven Apple to brick iPhones? Some may say that an unlocked iPhone running on a T-Mobile network means significant losses in revenue, but I think that argument is a bit flimsy.

Historically speaking, Apple is a hardware company, and it’s in the business of selling as many computers, iPods, Apple TVs and iPhones as possible. Wouldn’t an unlocked iPhone allow the company to sell more hardware? And if so, couldn’t it be said that this hardware company would benefit the most from hardware sales?

An unlocked iPhone means more hardware sales because T-Mobile customers and people from all over the world could pick one up at an Apple store, bring it home, and put it on any GSM carrier.”

There’s only one problem with this argument: it only works if you assume that AT&T’s deal is permanently exclusive, and that Apple makes more money off selling an iPhone than it does from the revenue share deals.

Neither of these is actually likely to be true. First of all, I doubt that AT&T will have the exclusive deal on iPhones for longer than a year – it it does, Apple will be the first phone seller anywhere to stick to exclusive permanently.

Second, even a cursory glance at the numbers reveals that Apple will make far more profit from its revenue sharing than from the physical iPhone. Support that the 40% revenue sharing deal which the company is rumoured to have done with O2 is the norm.

This means that, on the lowest-priced AT&T tariff, Apple makes $24, or, over the course of the 18 month contract, a whopping $432, far more than the initial price of the iPhone. And, for Apple, that’s almost all profit: I’m sure its deal with AT&T doesn’t mean it’s required to pay a portion of the cost of running the network.

If it’s serious about selling 10 million iPhones by the end of 2008, that represents a yearly profit of $2.8 billion, just from the revenue sharing. Add in the profits from the phone itself, plus ringtones, and you’re probably talking about around $3 billion profit. I very much doubt that AT&T will make anything like that amount in profit from the iPhone.

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