|Want more? Check out TheStreet.com TV video. Scott Moritz discusses the Apple's iPhone deal with AT&T and how it will impact both companies.|
A sweet iPhone deal with AT&T ( T) is paying off for Apple ( AAPL) even faster than Wall Street expected. It's well established that the world's most talked-about phone has lured thousands of
free-spending, lust seeking customers since its introduction last month. But the financial terms of the revenue-sharing deal have been kept under wraps. Until now, that is. People close to the companies tell TheStreet.com that AT&T is paying Apple a bounty of between $150 and $200 per phone -- plus $9 a month per phone over the life of the typical two-year customer contract. AT&T didn't comment, and Apple said it would have no comment. But the figures show Apple is getting an unprecedented windfall on the sale of each new iPhone. Bulls on the stock believe the nifty terms -- which haven't been baked into Wall Street's earnings estimates for Apple -- could push Apple's highflying stock into the stratosphere. "This is unheard of," says one money manager who is long Apple. "No one has this plugged this into their models." "It's a pretty sweet deal for Apple, and not all that bad for AT&T," says IAG Research's Roger Entner. AT&T agreed to a five-year exclusive pact to sell the iPhone. The deal included a two-pronged payment plan to Apple, as TheStreet.com reported in April. Wall Street knew Apple was getting a good deal, but it didn't know just how good it was.
"At $145, Apple is valued at about 25 times forward EPS," says the money manager. But with these sweeter-than-expected terms, "you could easily see it as a stock worth $200." Apple shares rose 25 cents Monday to $144 after earlier touching an all-time high above $145. Wireless sector watchers and analysts say Apple's iPhone terms with AT&T are the sweetest in the industry. Research in Motion's ( RIMM) beloved BlackBerry phone comes closest: RIM collects about $170 bounty and $7 a month per phone from the telcos. Telcos customarily fork over as much as $100 in rebates to hook new customers with free or lower cost phones. The payoff is usually 10 times that by the end of the contract if the customer hasn't canceled. From a financial standpoint, AT&T seems to be taking a big risk on the iPhone, shelling out a big commission and ongoing payments. But analysts see some logic to it. If AT&T sold half of the estimated 400,000 iPhones bought on the last two days of the quarter, its total payments to Apple for the period will be about $40 million -- a reasonably insignificant number compared to AT&T's $1.7 billion in quarterly operating expenses. Verizon Wireless -- co-owned by Verizon ( VZ) and Vodafone ( VOD) -- was the first company approached by Apple. But Verizon nixed the deal. It was thought at the time that Verizon didn't like the financial terms, but sources at the company now confirm that the deal was killed even before the terms were discussed. It was Apple's unbending position on iPhone distribution and the applications that would run on the phone that brought the talks to a quick end, these people say. AT&T reports its second quarter earnings before the opening bell Tuesday. Apple reports after the close Wednesday. Investors will be looking closely at the numbers for signs of the iPhone's effects. To watch Scott Moritz's video take of this column,
click here .