One Way Apple Could Kill Its Empire
In the same report, Apple warns that these subsidies might not last forever:
Carriers providing cellular network service for iPhone typically subsidize users' purchase of the device. There is no assurance that such subsidies will be continued at all or in the same amounts upon renewal of the Company's agreements with these carriers or in agreements the Company enters into with new carriers.
Margins, however, at wireless companies are not quite as hot as they are at Apple. Of course, it all depends on how you do your calculations.
Service revenues primarily exclude equipment revenues in order to reflect the impact of providing service to the wireless customer base on an ongoing basis.
In other words, someday, as a result of widespread smartphone adoption, which leads to increased data usage among customers, we'll make our money back. Therefore, we report only service revenue because that's all that matters in the long run.
In the most recent quarter, Verizon saw wireless service revenue increase 7.7%, year-over-over, from $14.3 billion to $15.4 billion. Data revenue accounted for 42.9% of service revenue, clocking in at $6.6 billion for the quarter ending March 31, 2012. That's up from 38.1% and $5.5 billion in the year-ago period.
From a margin standpoint, wireless EBITDA service margin increased from 43.7% to 46.3% between the periods ending March 31, 2011 and March 31, 2012. Overall wireless operating income margin moved from 25.8% to 28.6% over the same timeframe.
Apple CEO Tim Cook is not concerned much by the discrepancy. Cook discounted the notion that wireless carriers might pull back on, or eliminate, subsidies all together, noting on the company's most recent conference call that iPhone reigns superior to competing smartphones, has more loyal customers and the subsidy is not all that "large relative to the sum of monthly payments across a 24-month contract period."