Telcos may take financial squeeze from release of new iPhone

Telstra and local telcos hoping to profit from the sales of the yet-to-be-announced iPhone may suffer a financial hit by doing so, with their margins reduced by the high cost of acquiring and subsidising the new technology.

The warning comes as a new rumour ahead of the iPhone announcement on Thursday morning suggests the new device will be LTE-capable across the world, instead of just the United States – as was the case with the iPad release earlier this year.

Apple was skewered over its advertising earlier this year which suggested Australians could use the 4G capabilities of the new iPad, when in fact the hardware is not tuned for local networks.

Analysis by Merrill Lynch shows carriers across the world have suffered lower margins during the past three iPhone launches. Analyst Sameer Chopra has also told Fairfax today the launch could eliminate between 3% and 4% from Telstra’s mobile margins, which last year reached 39%.

Mobile revenues in Telstra reached a record of $8.7 billion last year.

Telstra chief executive David Thodey said as much when the company released its financial results, saying costs would encounter a “slight increase” in 2012-13, but also said, “I think we can manage it pretty well”.

The Merrill Lynch analysis shows carriers across the world have experienced a similar reduction in margins. It points to AT&T in the United States, which suffered a 15 percentage point fall after the launch of last year’s iPhone 4S.

CLSA analyst Digby Gilmour also suggests this could hit Telstra given the huge amount of customers waiting to get on a new contract.

“Historically Telstra has not effectively managed .?.?. recontracting risk,” he said in new research note.

“Periods of strong subscriber gains have typically been followed by elevated churn through subsequent re-contracting”

But the launch of the new iPhone will also bring Telstra a possible advantage with the rollout of its new 4G network.

This comes just as a rumour reported in The Wall Street Journal claims the new iPhone will feature 4G support around the world.

Australian carriers are busy launching their own 4G networks. Last month, Telstra announced a $500 million plan to expand its 4G network to two-thirds of the population within a year.

Optus has started expanding its 4G network, turning on the network in Sydney, Perth and Newcastle last week. A Melbourne launch is scheduled before the end of the month.

Vodafone has announced its 4G network, but it will only start expanding next year.

SmartCompany will cover the announcement of the next iPhone on Thursday morning.




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