Margins squeezed as subsidies on Apple device begin to worry investors.AT&T has lowered its profit margin forecast to "better than 37 per cent" for FY08, compared to its original estimate of 39-40 per cent, primarily due to the impact of its iPhone subsidies.
The iconic device is having a positive impact on other AT&T 3Q08 metrics though, contributing to 2 million mobile subscriber additions, offsetting landline decline and pushing revenue up four per cent to $31.3 billion.
In a conference call, AT&T CFO Rick Linder moved to assure investors that its iPhone deal would make the company lots of money in the long-term from the higher data usage it encourages.
But some analysts voiced concern at the margin erosion. Stifel Nicolaus analyst Chris King told Reuters: "It's more dilution than even AT&T figured. They'll need to hold on to these [iPhone] customers for at least three years to make it worthwhile."
AT&T is not the only US operator to feel the iPhone effect - its rivals are also expected to post lower margins in their Q3s due to the subsidies they placed on other smartphones to counter AT&T's iPhone threat.