If there’s one thing Apple Inc. (NASDAQ: AAPL) knows, it’s the importance of staying on top of the personal-electronics game via constant refining. The iPhone is in its fourth incarnation since its launch, almost four years ago to the day, and a fifth version is expected soon. Consumers are already looking ahead to the iPad 2, even though the groundbreaking tablet PC is just 8 months old.
But it appears that someone at AT&T (NYSE: T) didn’t get the memo on this, despite the telecom’s close ties with Apple on the iPhone. In a surprising move, AT&T has decided to push an already outdated Apple smart phone model with its latest scheme: a $49 iPhone 3GS, as long as customers sign a two-year contract. The deal starts Friday.
The move is puzzling on the surface, since most consumers won’t be thrilled about the prospects of a nearly 2-year-old phone — coupled with a contract that lasts until that phone almost turns 4. But a closer look at AT&T’s books shows that it may be a very wise move in the long run — both for consumers and the telecom giant.
AT&T had 92.8 million wireless subscribers at the end of September. While many horse-race the overall subscribers of AT&T and other wireless carriers like Sprint (NYSE: S) and
Verizon (NYSE: VZ), it’s important to acknowledge that the kind of subscriber is just as important as the raw numbers.
Specifically for AT&T, the bulk of its revenue growth in its wireless sales is coming from a shift from voice to data fees — in the third quarter of 2010, AT&T’s wireless-data revenue rose $1.1 billion, or 30.5%, to $4.8 billion.
The idea of relying on an old phone (in tech years, anyway) may not appeal to the cutting-edge tech crowd. But the bottom line is that those folks will always be looking for the next big thing. There’s no guarantee that even the next-generation iPhone won’t be trounced by a flashy Google Inc. (NASDAQ: GOOG) Android-powered smart phone.
But if AT&T can find some growth in less avid smartphone users, folks who don’t necessarily need to be ahead of the personal-electronics curve but still want a phone with decent apps, it could really see revenue growth.
The key is that the $49 iPhone 3GS comes with a two-year service contract and data plan, and that data plan is where AT&T is seeing its biggest revenue growth.
There are certainly things that can backfire here. Critics of AT&T’s network will malign the fact that rising data use has not only been filling up the telecom company’s pockets but has also created bottlenecks on an antiquated network.
And with Verizon rumored to be launching an iPhone deal as soon as this year, AT&T may have a hard time replacing departing Apple fans with folks who want an older model. And let’s not forget that the iPhone 3GS is already offered for $99 since the iPhone 4 debuted last June.
So technically this isn’t a new plan to boost profits, just a $50 price cut on an established business model.
Still, putting an iPhone in the hands of folks for just $49 could move the needle for AT&T, especially if those customers get hooked and upgrade data plans or their smart phones.
Jeff Reeves is editor of InvestorPlace.com. Follow him on Twitter at http://twitter.com/JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.
