Apple (AAPL) Faces Potential Revenue Drop On iPhone

Telecom & Wireless

Published: June 7, 2008 6:52 am

Apple (AAPL) is almost certain to make two changes to its iPhone pricing model when it releases version 2.0 next week.

The first is that it will drop the price that consumers will pay for the handset from about $400 to $200. Cellular servicer providers will make up most of the rest of that, but, it is likely that Apple will bear some of the burden.

Much more important, Apple has decided to take less of the revenue from calling plans sold with the phone. AT&T (T) and others will keep more of the money from voice and data fees. That will cut Apple’s long-term sales, perhaps by a lot. According to the FT, "Apple has also forgone a portion of the monthly revenue paid to the operators by iPhone users."

That leaves open the issue of whether Apple is actually trading improved unit volume for lower margins. It is a reasonable gamble, but it may not pay off. The iPhone is such a popular piece of hardware that it will sell extremely well, Apple does not have to give AT&T a better deal on fees to sell more handsets.

Apple passing on a revenue opportunity when it does not need to.

Douglas A. McIntyre

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