Looks like AT&T really wants to prove me right. According to a report from BGR, AT&T has instructed its retail staff to push Android & Windows Phone based smartphones and limit sales of iPhone models. Even though AT&T has issued a denial, certain impromptu checks by Forbes staff show they may be some truth to this report. This obviously comes as no surprise to regular readers, but for the benefit of all readers let's take a quick look at the primary reasons behind this move.
Limiting Carrier Subsidies to Boost Margins
As I've explained previously, thanks to Apple's long-term carrier contracts, the iPhone receives the largest carrier subsidies of any smartphone and brings in comparatively lower revenue and cost savings. Here's a look at some detailed research on the impact of the iPhone's subsidy burden on AT&T.
Based on those research inputs, reducing iPhone sales or replacing iPhone sales with sales of other smartphones would give AT&T an immediate boost in profitability.
Bargaining Power
As I've explained in the subsidy research note above, the next power shift in the US smartphone race would happen when AT&T's contract with Apple runs out. At this point, thanks to the MFN clause, any reduction in iPhone subsidies in AT&T's new contract would be applicable to all US iPhone carriers.
Since the iPhone makes up the lion's share of AT&T's smartphone sales and user base, any move by AT&T to limit iPhone sales would reduce their dependence on Apple. This would give AT&T more bargaining power in their negotiations with Apple for renewing the iPhone's contract.
Conclusion - AT&T's move to restrict iPhone sales makes fiscal sense given the negative impact of massive iPhone subsidies on their margins. But a more important and understated impact could be the bargaining power that AT&T could gain while negotiating iPhone subsidies in the future. Looks like AT&T may force Tim Cook to make a decision on volume vs. margins sooner than we expected.
