AT&T to Pay Apple Cut Off Monthly Service Charge for New Customers?

While everyone that has read about it knows that the iPhone is a revolution in technology, it looks like Apple's little device might also be a revolution in the US cell phone business.

American Technology Research analyst, Shaw Wu, thinks that the iPhone will be more than Apple entrance to the mobile phone market, also marking a new kind partnership. It seems that Verizon Wireless, a joint venture between Verizon and Vodafone, who was first offered the exclusive iPhone contract in January, turned it down because it did not agree to Apple's revenue sharing proposal.

According to the two-pronged revenue sharing arrangement, AT&T will pay Apple a commission for each new customer and a cut of the customer's monthly payment, something that is not to be taken lightly. Hardware manufacturers have not seen such recurring fees since back when Qualcomm sued phone makers to honor its patents and enter royalty agreements.

Such an agreement is a huge deal for Apple since the company makes most of its money from hardware sales which are sporadic at best. Recurring revenue could mean quite a nice chunk of change for Apple, according to Shaw Wu. "We view this incremental revenue from the carriers for Apple 's value-added as positive in that it will likely be very high margin, in the 80 percent range, similar to royalty and/or intellectual property (IP) revenue where there is little incremental cost," he wrote. "We believe this recurring revenue stream is high quality and adds an additional degree of stability and predictability to Apple 's financial results."

While many have down-played the potential success of Apple's latest gadget, but if AT&T did enter such an agreement, then it must be convinced that the iPhone will be a massive hit with customers. Apple's success with the iPods is a clear indication that the company knows what it is doing when it comes to consumer electronics.