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In this Wednesday, Oct. 19, 2011, file photo, a line of customers enter an Apple store in Scottsdale, Ariz. (Matt York/AP)
In this Wednesday, Oct. 19, 2011, file photo, a line of customers enter an Apple store in Scottsdale, Ariz. (Matt York/AP)

Record iPhone 5 orders won’t mean automatic windfall for wireless carriers: analyst Add to ...

Even as Apple Inc. processes a record two million pre-orders for the iPhone 5, an analyst report released on Wednesday notes Canada’s major wireless companies see less of a positive return from each successive iPhone launch.

Huge pent up demand for Apple Inc.’s incredibly popular smartphone usually crimps profit margins at big wireless carriers. Telecoms such as BCE Inc., Telus Corp. and Rogers Communications Inc. have to pay out in order to subsidize consumers’ purchases of the expensive devices, though they benefit in the long term by tossing them on lengthy contracts.

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But as wireless companies’ subscribers increasingly opt for smartphones – and pay for both voice and data plans in greater numbers than ever before – the benefit from each new iPhone launch shrinks, says Maher Yaghi of Desjardins Securities Inc.

Because some people are upgrading from smartphones to other smartphones, the carriers may have to pay out various retention costs without even seeing a boost in the average revenue per user, or ARPU, that comes with a subscriber upgrading from a simple text-and-talk cellphone to smartphone that also has a data plan.

Mr. Yaghi notes that with the launch of the iPhone 4s in October of 2011, Rogers saw its lowest quarterly profit margins in 5 years, as the company paid out for equipment costs, smartphone activations and smartphone upgrades.

“We believe the marginal ARPU lift from the launch of the iPhone 5 will be lower than what we have seen historically given the changing demographics of the wireless providers’ subscriber bases,” Mr. Yaghi wrote in his research note. “As a result, we do noty expect the launch of the iPhone 5 to drive an acceleration in the rate of ARPU growth in 2013.”

Wireless executives, however, still seem giddy about their ability to profit from the global demand for smartphones, even if there is less enthusiasm for their other business lines. Edward Rogers, deputy chairman and executive vice-president of emerging business and corporate development at Rogers, marvelled on Wednesday at the willingness of consumers to endure lengthy lineups just to be among the first to own the latest iPhone.

“I’m amazed when you see the iPhone 5 launch and people line up for a day or two days outside of a store, I think it is a wonderful thing. We wish they would do that for our next-generation of cable boxes,” Mr. Rogers told delegates attending a CIBC investor conference in Montreal. “I think we should try that and see if anyone shows up.”

Addressing that same investor conference, Quebecor Inc.’s chief financial officer Jean-François Pruneau conceded that his company’s Vidéotron Ltée division would probably have up to 20 per cent more wireless customers if it offered the iPhone. (Because Canada's newest telecom companies operate on a different wireless frequency, they are unable to offer the iPhone.)

“No doubt that having the iPhone available for us, we would have more customers. No doubt about that. We’re probably 15 to 20 per cent behind because we don’t have the iPhone. But I feel very comfortable with our lineup of handsets,” said Mr. Pruneau.

Echoing comments made by a Wind Mobile executive last week, Mr. Pruneau noted that the economics of carrying the iPhone have become too costly for carriers.

“It is an expensive handset, we have to subsidize it. The lifespan is getting shorter and shorter,” added Mr. Pruneau.

Follow on Twitter: @iainmarlow

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