Analysts: iPhone sales to cut into AT&T's margins

Sales of Apple's iPhone will cut into AT&T Mobility's adjusted income operating margins, according to a Globe and Mail article, which cited unnamed analysts. The analysts said the flurry of iPhone 3GS sales at the end of the quarter pulled down AT&T's operating margin by 3 percentage points, to around 38.5 percent, due to the carrier's subsidy on the device.

Shortly after Apple unveiled the new iPhone 3GS in early June, AT&T said that its 2009 wireless service operating income before depreciation and amortization would be in the low 40 percent range. AT&T said that the cost of customer acquisition for the iPhone 3GS and the new, low-cost iPhone 3G would be very similar to the costs associated with the original iPhone 3G. The operator's confidence reflected the company's belief that its subsidy policy for the iPhone would pay off, and that it had enough scale--more than 4.5 million iPhone subscribers paying at least $70 per month--to counter customer acquisition costs.

However, analysts quoted by the Globe and Mail predict that higher-than-expected sales of the device will compress AT&T's second quarter results. Apple said it has sold more than a million iPhone 3GS devices.

Analysts have carefully watched AT&T's margins following the launch of the iPhone. The carrier's margins hit a low of 33.5 percent, but rebounded to 41 percent in the first quarter. AT&T reports its second quarter earnings July 23.

For more:
- see this Globe and Mail article [1]

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