Why AT&T Wants to Keep the iPhone Away From Verizon

AT&T's earnings report on Wednesday highlights the enormous stakes involved in the renewal of its exclusive contract to distribute Apple's iPhone in the United States. AT&T is paying Apple an unusually high subsidy on top of the $199 and $299 paid by iPhone buyers. But it appears to be getting quite a return on that investment. IPhone customers are particularly valuable, mainly because they also buy expensive data plans. Their average bill is $94 a month, 60 percent higher than the company's overall customer base. Data represented 27 percent of AT&T's $11.7 billion in wireless revenue in the quarter, up from 22 percent a year ago. If the average iPhone customer brings in $90 a month, or $1,080 a year in revenue, and the operating profit margin stays constant at 26 percent, that means an iPhone customer represents at least $561 in operating profit over a two-year contract. That probably understates the impact because iPhone customers have higher-than-average profit margins. Put another way, if the company gets 2.5 million new customers a year because of its iPhone exclusivity, the deal represents at least $700 million a year in operating profits — profits that it could lose if Verizon sold the iPhone, too.