AAPL) and Nokia (NOK) and then depending on the profitability of the services used on a particular device, offer subsidies to the phone purchaser at the point of sale. For example, Apple’s iPhone tends to be the most profitable handset sold for a carrier because of the large number of applications the phone can house which then creates high usage of more expensive monthly data services plans. AT&T (T) for example, recognized the potential value of being the exclusive provider of the iPhone in 2007 because of the high value of service plans its mobile subscribers would then consume.Network carriers wear many hats which include providing customers video services over fiber optic networks, broadband internet access, and acting as a local exchange carrier for other phone operators under their Wireline segment. A network carrier’s Wireless segment provides internet access via mobile phones, messaging services, and access to mobile applications however an equally important function of the carrier is sitting at the point of sale for most mobile devices. Carriers buy mobile phones directly from the manufacturers including Apple (
The size of the carrier industry is measured many different ways and the most commonly quoted metrics are either by revenues or by subscribers (subs). AT&T is the largest in the U.S. by subscribers with over 105 million and Verizon is a close second with 95 million. Subscriber bases then drop quite substantially at the 3rd and 4th spots with Sprint Nextel at 55 million subs and T-Mobile with just over half that number at 33 million wireless subscribers. The industry is then quite fragmented after these 4 top players with 7 smaller carriers between 7-10 million subscribers.
Network carriers are a smorgasbord of technology with a variety of offerings from home networking solutions to mobile messaging. The subsidy that they offer to mobile device consumers during in store sales however might be one of their most important functions. With new devices coming from Nokia in its new Windows based Lumia phone and the ongoing battle between Apple and Samsung, the volume of new handsets sold is greatly influenced by how much the carriers are willing to subsidize of the initial costs which is then eventually made up in the mobile contracts consumed on that phone. Thus when evaluating whether a new mobile device will sell well, investors will have to consider the subsidy offered by the carriers to the purchaser.
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