A classic textbook piece for relationship among supply chain players: at least for consumer gadgets, having a big cloud from consumers determines who is dominating the chain. Verizon and AT&T are closer to consumers operationwize but not opinionwize. Thus Apple can wield higher power and force them to pay the subsidies.
The latest disclosure from Verizon this afternoon shows that iPhone is bittersweet. Verizon reportedly sold close to 11 million iPhones in 2011 including 4.2 million in the last quarter.
Verizon admits that its wireless margins have taken a 500-600 basis point hit because of the huge iPhone sales.
The sweet side of Apple‘s iPhone is well understood. The exclusivity that AT&T initially enjoyed with iPhone helped it to increase its market share and helped it compete more effectively against Verizon.
When a customer buys an iPhone, the carrier subsidizes the cost. It has been reported that Apple charges about $500 for its latest model, but carriers sell the phone for $199. The subsidies that other carriers provide for other phones are considerably lower than those for iPhone.
The more iPhones that a carrier sells the bigger is the hit to the bottom line. Herein lies the incentive for the carriers to promote Google Android, Microsoft Windows, and Research In Motion phones. Problem is, the iPhone seems too darn popular.