Apple CEO Tim Cook Has Had Enough Talk About Carrier Subsidies

Tim Cook, faced with a question about carrier subsidies during the Apple earnings call, offered a reminder of all that the iPhone offers carriers. Apple, he concluded, is working on making the best product, which carriers "will be very motivated" to sell customers.

Apple CEO Tim Cook, during Apple's fiscal third-quarter 2012 earnings call Tuesday night, offered the nation's wireless carriers, if not the industry, a reminder of the full extent of the iPhone's value.

The iPhone, it's well-known, is a pricey smartphone for carriers to offer. Apple charges more for it than its competitors do for their devices, leaving the carriers€”which like to offer subscribers tidy $199 price points€”to pay out larger subsidies. The incredible popularity of the iPhone, however, makes it a no-brainer for the carriers: They grin and bear the subsidy and look forward to two years' worth of data plan payments. However, even the latter hasn't stopped them, more recently, from embracing strategies that will help them to lessen their reliance on the iPhone.

When asked during the earnings call about the types of conversations Apple is having with the carriers regarding pricing and subsidies, "given that there's been a lot of talk about that over the last few months," said the analyst asking the question, Cook responded:

"I don't want to get into specific topics about the different carriers, but generally I would just say that our role is to make the very best smartphone in the world and that has an incredible user experience far superior than anything else that customers want to use every day. And I think at the end of the day, the carriers want to buy or want to provide their customers with what those customers want to buy. And so the most important thing for Apple, by far, is to continue making the best products in the world, and we are very deeply committed to doing this€”we're maniacally focused on it.

"From the carrier's perspective, I think it's also important to remember that the total subsidy they pay is fairly small relative to the monthly payments they collect over a 24-month contract period. And I think many would tell you€”they certainly told me€”that the iPhone has several advantages for them over the other smartphones. The churn rates are much less, and you can see carriers are now focusing on shared data plans, and I think an iPhone customer is more likely to have a tablet or an iPad. So I think they really value [iPhone customers] quite a bit."

If that weren't enough, Cook pointed to the data efficiency the iPhone can offer in these spectrum-pinched times, adding: "Our engineering teams are very sensitive to working with the carriers to find the most efficient way to deal with data, and we think we offer the most efficient smartphone on the market [for] an app-rich ecosystem."

Technology Business Research analyst Eric Costa, in a July 24 research note following AT&T's second-quarter earnings announcement earlier that day, wrote that AT&T is now packing "a one-two punch" that consists of a diversified device lineup and more flexible data plans.

Costa called the 72.5 percent of smartphones comprising AT&T's smartphone activations during the quarter a "significant improvement" over the first quarter, when the iPhone made up 78 percent of the carrier's smartphone activations.

"Despite the lower percentage," Costa added, "AT&T still remains reliant on the iPhone to drive subscriber additions and remains the leading U.S. iPhone carrier."

TBR analyst Michael Soper, in a report earlier this month, pointed to heavy subsidies as a primary reason that Microsoft can expect support for its Windows Phone 8 operating system. The carriers, looking for leverage over Apple and Android OEMs, are looking for a third OS to get behind, Soper explained.

Soper told eWEEK that while Android phones are generally less expensive than iPhones, the operators are now feeling the impact of subsidies related to high-end smartphones from OEMs such as Samsung and HTC.

Costa, like Apple's Cook, has pointed out that the iPhone, while it comes with some upfront pain to the carriers, certainly also enables them to more than overcome it. Because of this, if the iPhone's competitors are to match it in subsidies, they'll need to also meet its ability to drive data revenues and improve customer retention.

Cook concluded his comment Tuesday night by adding, "We will continue to focus on making the best product, and I think the carriers will be very motivated to make sure that they provide that to customers."

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