Why carriers may soon subsidize Apple’s revolutionary iPad

“What’s the next trend I see coming? iPad subsidies,” A. I. Houriani writes for Seeking Alpha.
“My analysis for this came from applying the customer lifetime value approach, which is a new shift in the business model, viewing customers in terms of how valuable they are in their lifetimes as loyal customers,” Houriani explains. “Essentially, it’s a simple finance question: finding the net present value of the profit per customer. This approach is a far cry from the traditional business model of making a quick sale and moving on and finding a new customer. Instead, as much research has shown, it’s cheaper and more profitable for the firm to retain customers and ‘milk’ them throughout their lifetimes. This approach has really gained traction in just the past two decades, as competition has become fierce.”

Houriani writes, “In Verizon’s last financial report, it reported that data revenue, as a percentage of total service revenue, increased from 38.1% to 42.9% quarter-over-quarter. This dramatic increase signifies the future of where service providers are heading to supply customer demand: data-plan servicing. As competition increases in the data plan market, capital expenditure will increase dramatically with it, in efforts to reduce their cost per gigabyte of data. This will become so fierce that large providers like Verizon and AT&T may have to give bonus products at cost to maintain their marketshare; consequently, pushing off the weaker players from the market. It’s going to become the same situation as with the iPhone: subsidize tablets, hook the customers, and generate revenue by bundling other products and services until the providers can cut the cost of providing services to generate more profit.”

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