The iPhone is a nightmare for carriers

The iPhone may be great for consumers, but takes a nasty toll on wireless carriers' bottom line.

The price of Apple's iconic smartphone is heavily discounted by carriers. Those subsidies almost single-handedly devastate profit margins for Verizon, AT&T and Sprint. Since Apple's iPhone debuted on Verizon's network in February 2011, Verizon's "EBITDA service margin" -- a closely watched metric that carriers use to measure their core profit as a percentage of their sales -- has tumbled. Between 2009 and 2010, Verizon averaged EBITDA service margin of 46.4% per quarter. In the first quarter that the iPhone went on sale, that fell to 43.7%. Last quarter, when Verizon sold a record 4.2 million iPhones, its margin plunged to 42.2%. AT&T and Sprint suffered an even worse fate. Those swings are a big problem in an industry where tiny, fractional changes in margin can cause investors to either throw temper tantrums or ticker-tape parades.