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AT&T does not pay a higher price for iPhone exclusivity

In last year’s third calendar quarter earnings call (October 20, 2009) Tim Cook was asked:

“So when you go from exclusive to multiple, you don’t change the charge to the carrier?”

Cook answered: “Correct.”

In this year’s third calendar quarter earnings call (October 18, 2010) Tim Cook was asked again whether the future iPhone non-exclusive subsidy will affect the iPhone revenues and again Tim Cook repeated that it won’t.

Chris Whitmore – Deutsche Bank

And what is your experience then when you’ve gone non-exclusive from a subsidy and margin standpoint on the phone, have you had to give anything up in the past?

Tim Cook

We don’t give specific information out on the margins. But I think you can look at our ASPs and see that they’ve generally stayed above $600, and that’s despite opening up several markets from an exclusive market to a non-exclusive market.

The recurring assumption that the loss of AT&T exclusivity will cause iPhone price erosion is wrong and has been evident in the sales data for over a year now. Not only did Cook state clearly that there is one price for iPhone to the channel regardless of exclusivity but the price data shows that as Apple moved to non-exclusives in many regions of the world, the ASP remained fairly constant:

Over the period when the blue line has been flat, Apple moved a number of markets from exclusive to non-exclusive.  There are three main countries where iPhones have a contractual exclusive relationship. That is the United States, Germany and Spain. (China and Japan are exclusive due to network technologies). All these markets will go to non-exclusive next year. I don’t expect any change in the ASP as a result.

The final data point comes from AT&T themselves when they revealed the price they paid for the iPhone was roughly the same as the ASP shown above.

  • http://twitter.com/mjs1 @mjs1

    small error in the post on the date of the earnings call, should be October 18, 2010

  • Andrew Condon

    Spain is already non-exclusive – since the launch of the iPhone 4 more or less.

  • Jesse Hollington

    Actually, as I understand it the exclusivity agreements were negotiated and signed when the original iPhone was released back in 2007. At the time, Apple's business model was not the traditional carrier-subsidy model — instead Apple sold the iPhone at a full retail price and negotiated a deal whereby they took a portion of the actual monthly carrier subscription fees. The exclusivity contracts negotiated at that time were in exchange for this rather unusual business arrangement, and these agreements have simply lasted for this long.

    When Apple released the iPhone 3G it went over to the standard carrier-subsidy model and was obviously under no obligation to give carriers such as AT&T any special deals on the retail price of the iPhone, since the exclusivity contracts were already in place from the prior year.

    The only strange one in this equation is Spain, since it was not part of the initial 2007 iPhone launch, so any exclusivity contracts that were signed there must have been for a different reason, although it's worth noting that Spain's exclusivity was only supposed to be for a very short period initially, unlike the deals that Apple signed in the U.S., U.K. and Germany.

    • asymco

      The service revenue sharing contract was unique to AT&T and it lasted only one year. That can be seen in the ASP above.

  • Abhi Beckert

    “[…] that gives something around $600–below the global ASP for that quarter of about $676. Here exclusivity would imply a discount to average price!”

    I don’t have any evidence, but I’ve alwas suspected apple adds a slight price hike whenever selling anything in foreign currencies to allow for exchange rate fluctuation.

    Also, the USD has been trending down lately.

    Right now, the australian dollar is pretty much exactly the same as the USD, and we are paying crazy prices for apple products where the price was set a long time ago (usually reset whenever a new rev is released).

    For example, iTunes apps that are $1 in the US are $1.19 here, while iTunes songs are $1 vs $1.69. This is because the AUD music price was locked in a long time before the app store prices.

    $1 USD s currently $1.01 AUD. A couple of years ago it was $1.70 AUD.

  • Abhi Beckert

    Note: my iTunes prices in AUD include 10% tax, I suspect the USD prices do not include tax? Still, the price change is always more than 10%.

    It’s also possible apple just rounds up to the nearest “nice” price ($1.19 instead of $1.14).