Ever wonder why when you walk into a carrier store, they always subtly (or in some cases, not so subtly) try to push you toward buying an Android device? The reason is because even though Apple requires a grandiose display of the iPhone, carriers make much more money off of Android phones.
Carriers pay Apple the subsidy that is able to keep the iPhone down to its $199 price point even after cramming in loads of new features in every release. For Apple, this is good. For consumers, this is good. For carriers, this is very bad.
During 2009 and 2010 before Verizon Wireless was selling the iPhone, its EBITDA margin was at an average of 46.4 percent. Right after the Verizon iPhone became a reality, the profit margin dropped to 43.7 percent. Last quarter, which was the first quarter to include iPhone 4S sales, Verizon’s margin was at 42.2 percent.
Fortunately for Verizon, its margins are comparably high to those of AT&T and Sprint. AT&T’s EBITDA service margin last quarter was 28.7 percent, an 8.9 percent decline year-over-year. Sprint’s margin last quarter was even worse at a sad 9.5 percent. The year before that when Sprint wasn’t selling the iPhone, its margin was 16 percent.
The good news is since Apple sells so many iPhones, carriers are still making plenty of money off of them. Don’t ever lose sleep about them not making money — if something doesn’t add to their bottom line, you can bet carriers will not go through with it.