AT&T's iPhone wildcard

Sales of its other phones may be positive, but the third quarter was clearly the iPhone’s quarter. Of the 2.4 million iPhones activated, slightly less than 1 million were new customers to the AT&T network. Those 1 million new subscribers were half of AT&T’s total net subscriber additions for the quarter and helped the operator reach a record 1.7 million post-paid-subscriber net adds. What’s more, those 1 million iPhone subscribers are all high-value subscribers. Each iPhone comes bundled with an unlimited $30-a-month data plan, with the cheapest contract priced at $70 month. The monthly ARPU for iPhone subscribers is $95, 60% higher than the AT&T’s overall post-paid ARPU of $59. iPhone customers are also least likely to churn, as AT&T is the only US operator to offer it.

The monthly data revenue from those customers also led to skyrocketing growth in AT&T’s data revenue. Overall data revenue rose to $2.7 billion in the third quarter, up 50.5% from the same quarter last year and 8% from the second quarter. Though the iPhone is a primary driver of that data growth, it hasn’t yet had a huge effect on AT&T’s overall ARPU, which factors in all postpaid, prepaid and wholesale subscribers. Though AT&T is adding iPhone subscribers at a furious rate, they are being absorbed into a subscriber base that topped 74.9 million customers at the end of September. As iPhone sales continue to ramp up and those customers become a larger percentage of AT&T’s overall subscriber base, AT&T will start to see definite effects on overall ARPU, Lindner said. AT&T saw a 2.6% bump in post-paid revenue in the third quarter, which was in part due to new iPhone plans, he said.

The iPhone, however, comes with its cost. AT&T is highly subsidizing the devices, the price of which fell from $500 to $200 with the introduction of the iPhone 3G in July. The launch of the iPhone and the associate subsidies cost AT&T $900 million against its earnings for the quarter, and Lindner said he expected AT&T to incur similar charges in the next quarter as the iPhone’s rapid sales continue. He added though that AT&T believes the benefits fully justify the investment, having funded the acquisition of 1 million new high-value customers, all of whom are locked into two-year contracts.