Hey, kids! Do you like math?! Sure you do!
Well, how'd you like to be an analyst at a Wall Street research firm?!
Seriously! It's apparently not as hard as it sounds! Let's have a look!
This may not be the same estimate referred to in those pieces, but the number's around $1 billion, so let's take a look at what horrid alchemy went into creating it.
Much of the iPhone's profitability comes from revenue-sharing agreements that Apple has in place with AT&T Inc., as well as its three European wireless partners.
Right you are.
Apple doesn't disclose how much revenue it gets from AT&T or its European partners, O2 in the U.K., T-Mobile in Germany and Orange in France. Those carriers each give Apple a payment every month for each customer that activates an iPhone on their its network.
Well, sure. Of course they do! It's only fair!
But the issue of users buying an iPhone only to "unlock" it from those carriers rose following Apple's last quarterly earnings report. Analysts noted a discrepancy between sales figures provided by Apple and those from AT&T, and some concluded that as many as 1 million devices had been unlocked.
Indeed. It was kind of surprisingly large to everyone, including the Macalope.
[Bernstein Research analyst Toni] Sacconaghi estimated that between 25% and 30% of the more than 4 million iPhone units already sold have been unlocked to work on other wireless networks...
Could be. No one knows for sure, but that's possible.
... and that each unlocked iPhone results in Apple's missing out on $370 in earnings over the phone's two-year contract period.
Splort - chortle - hack - cough.
Oh, no, you dih-unt, girlfriend.
$370 over two years implies a $15.42/month revenue share per phone. There's a lot of debate as to what the actual amount is Apple gets from AT&T -- Scott Bourne of the Apple Phone Show thinks it's around $9/month and Gene Munster of Piper Jaffray has estimated it as high as $18/month. So, $15.42 isn't outrageous, but it's a little on the high side. But the key thing to remember is that number is what it is because the contract is exclusive.
Which is why -- and, jeez, how many times does the Macalope have to say this? -- it makes absolutely no sense to say that Apple is losing this money.
Thanks to this report we can see Sacconaghi's math and, hey, the Macalope's 9th grade chemistry teacher (and the Macalope) was right! In a nutshell, Sacconaghi estimated that if Apple hit its target of selling 10 million iPhones by the end of 2008, that would mean that something like 3 million of them would be unlocked. 3 million times $370 is 1.11 billion!
With jelly on it!
Banana pony lollipop!
Let's try this one more time.
That. Makes. No. Sense.
If these phones are in countries where Apple has no contract, the only thing you can say is that Apple should get an exclusive contract there faster (easier said than done). If they're being used by people who just don't like the exclusive provider Apple's signed with, then these are people they'll never get anyway.
If you want to play the "but they could have contracts with multiple companies!" game, then you can't use the $15.42 multiplier. And not only for the incremental phones they'd gain, you can't use it for phones they've already sold under contract. Why? Because you just threw exclusivity out the window.
See? It's an inverse relationship. For every X number of phones you can put on a revenue sharing contract by adding another cellular provider, you must reduce the monthly rate for all phones, and by a lot.
Again, please see the definition of opportunity cost and how it actually has to have a realistic opportunity, not a fantasy bozo lala gum drops opportunity.
So, hey, let's do some more math! Since it's just multiplication of a bunch of numbers we read on the Intramets somewhere like Sacconaghi did! Remember, being an analyst is something you can try at home, kids!
If there are 400,000 unlocked iPhones in China -- where Apple has no contract and may or may not be able to even get one -- that's 10% of all iPhones sold to date. So if Apple hits its target of 10 million phones, 1 million of them will be in China, unlocked.
Poof. There goes 1/3 of that $1 billion.
This. Is. Not. Lost. Revenue.
if you'll excuse the Macalope, he's going to go lie down and apply a cold compress right between the antlers.