AT&T, Apple differ on the iPhone gap

news analysis The honeymoon might already be over between Apple and AT&T.

The two partners stood in stark contrast Wednesday evening following the results of Apple's third-quarter earnings, in which the company revealed it sold 270,000 iPhones in the first 30 hours the product was on sale. Earlier in the week, AT&T said it had activated only 146,000 iPhones during a similar period of time.

The innovative activation scheme that Apple and AT&T came up with for the iPhone launch made life much easier for many early iPhone customers, in that they could take their new purchase home and activate it from the comfort of their living room. It also made for a stressful weekend for those who ran into problems activating their iPhones.

Both Apple and AT&T initially said that a small number of customers ran into activation problems. AT&T said the "vast majority" of customers sailed through the activation process, and Apple said "a small percentage" of customers were affected by the activation delays.

"They deserved a lot to put up with AT&T. But Apple's not a big enough part of their business to get them to fix their problems."

--Gene Munster,
Piper Jaffray analyst

But what's to account for the 124,000 iPhones that were sold by Apple but not activated? Apple and AT&T were not on the same page in the early hours after Wednesday's conference call.

"We activated 146,000 iPhones from 6 p.m. on Friday until midnight on Saturday," said Mark Siegel, an AT&T spokesman. "Apple's results are what they are."

When asked to explain the discrepancy, Siegel initially cited three factors. First, he said that Apple counted sales of iPhone accessories along with the sales of the actual iPhones themselves, citing a footnote in Apple's earnings release with that language.

Apple spokesman Steve Dowling, however, said that footnote refers only to revenue from iPhone accessories, not unit shipments. The 270,000 shipment figure in Apple's earnings release is all iPhones, and doesn't include headsets, cases or other accessories, he said.

AT&T's second explanation was that Apple's 270,000 iPhones included sales of iPhones through Apple's online store, which obviously couldn't have been activated the first weekend since Apple is quoting two- to four-week lead times for iPhones ordered online.

But Apple Chief Financial Officer Peter Oppenheimer specifically said on the conference call that the 270,000 units reflected only iPhones that were sold to AT&T for distribution through its network of retail stores and iPhones sold through Apple's retail stores. No iPhones sold through Apple's online store were included as part of that 270,000 unit figure, the company later confirmed.

Procrastination and profiteers?
The third reason offered by AT&T for the gap between sales and activations was procrastination. "One of the reasons for the gap is that many, many people chose to activate their phones a day later. That seems pretty straight forward," Siegel said.

This is quite possible, but extremely difficult to quantify. Given the zeal of those who waited in line for an iPhone on Friday or bought one the following day, however, it's hard to imagine 100,000 or more of those customers waiting a day to activate their new toy.

But those who were hoping to flip their iPhones on eBay or Craigslist could account for the some of those who waited to activate, since many sellers did not receive the number of bids they had once hoped to receive in the first 30 hours the iPhone went on sale. Some might have returned unopened boxes without activating the iPhone when met with lackluster demand.

Siegel also pointed out that since AT&T sold out of its iPhone allotment very quickly on Saturday, the gap could reflect iPhones that were being shipped to AT&T stores for Sunday's business. Oppenheimer also seemed to think this was a possibility. "There would have been some inventory in transit to AT&T at the end of the quarter," he said on Apple's conference call. But neither company wanted to quantify how many iPhones were in transit.

The back-and-forth calls into question just how widespread those initial activation problems were among the iPhone early adopters. AT&T reiterated Wednesday that it thought the problem was confined to a small number of users.

"We said all along that the activation process worked extremely well. There were only a very small percentage of customers--in the low single digits to be exact--that had activation issues. It was a very, very small percentage," Siegel said Wednesday.

The exact number affected by the activation issues may never be quantified. When the problems first surfaced, Reuters quoted an anonymous source that said 2 percent of iPhone customers ran into activation problems. But AT&T wouldn't confirm that number Wednesday.

Assuming that's true, and each affected customer bought one iPhone, 2 percent of the total number of iPhone units sold in the first 30 hours would be 5,400 units, a far cry from the 124,000 gap between Apple's numbers and AT&T's figures. Assuming everyone affected by the activation problems bought two iPhones from an Apple store--which would be pretty much an impossible coincidence--that would account for 10,800 units out of commission on Friday night and Saturday.

So, the official explanation for the discrepancy appears to be that more than 100,000 iPhones were either in transit Saturday night or still sitting all alone in their boxes inside tech-savvy homes around America, waiting for activation.

While the activation problems might have angered new AT&T customers, it's unlikely that the problems will have a long-term effect on iPhone sales since they appeared to be cleared up very quickly, said Gene Munster, an analyst with Piper Jaffray. "It's a nuisance, but it doesn't change the fact that people still want the phone."

And while the 124,000-unit gap might be a source of stress between the two partners, Apple is being compensated for any problems that AT&T might have had, Munster said, referring to the revenue-sharing agreement between the two companies that was confirmed by Apple's Oppenheimer on Wednesday.

"They deserved a lot to put up with AT&T. But Apple's not a big enough part of their business to get them to fix their problems," Munster said.

[dadams]

The reason is easy to understand

See: http://www.crazyapplerumors.com/?p=897

[rcardona2k]

I was a "procrastinator"

Count me as one of the 100,000 that didn't activate until 1 July, I
had a contract with Sprint that expired on 30 June, so I had to
wait...

Plus I wanted to see what the success rate was like. There was no
way I was going to try Friday evening!

[RobH54]

Non Plan iPhones

My iPhone was not activating with the computer so I called to find
out why.

Concequecially I was activated with a $39.99 regular 450 minute
plan and they added a $30 plan later to give me Data and 1500
text messages. Same price, but not an iPhone plan.

I wonder if that plays into the numbers?

[wilemn]

I waited

I waited until the next day. I got home fairly late (remember you
cant activate until you connect to a computer...) and decided it
would be better to take my time and be awake (in case problems
would arise) I treated it like any other peripheral installation....
careful and even more so because I have dealt with windows based
issues in a past life.

[acheron5]

Another Possible Factor for the Discrepancy

It's difficult to speculate how significant this may be, but a
possible factor that may have fueled the difference between
AT&T's and Apple's numbers is that many customers who waited
on line on Friday actually purchased two iPhones. Why I think
this may have added to the difference is that the customers who
purchased two phones may have chosen to simply activate one
phone to play with to see how it worked.

The woman who was in line in front of me when I went to pick
up my phone actually asked me to buy one for her since I was
only getting one for myself. She walked away with three phones,
but I really wonder if she went home and activated all three
phones at once?

Of course this can't account for a 100k + difference but it may
have been a contributing factor. In any case, I believe both
AT&T and Apple are being accurate. And like AT&T has noted,
more units of iPhone were sold in the first two days than any
other phone has sold in its first opening month. A lot of phones
were sold.

[valeriehoughton]

Corporate Accounts prohibited from using iphones

After hours on the telephone with ATT/Cingular and Apple (the
latter only 10 % of that total), I was informed that the iphone
would not be able to be used under my corporate account! That
included a business account (much LESS corporate). Thus, I had
to open a personal account, and it is mandatory that you
automatically sign up for a $20/month data plan. it required a
great deal of effort to retain the same phone number for that
new personal account!!! No one told us at the Cingular store,
even though I told the manager it was for a corporate account.
Lousy service via ATT, except for Latisha!! Talk about a "bait and
switch..."

[wylbur]

You can do this with accounting

Here's how you account for the discrepancy: Apple can book the
sales to The Apple Store and AT&T assuming those shipments
will not be returned. That does not mean that the next step in
the transaction, moving the phone from retailer to consumer has
actually happened. Nonetheless, so long as there is no buyback
clause for the shipments to The Apple Store and AT&T, Apple is
allowed to book the sale. I think the discrepancy comes from
talking about two different types of sales. Because AT&T is not
the wholesaler/manufacturer, they can only the book the sale
when the consumer buys the phone and signs up for service.
Simple really.

[colingc]

Apple changed retail accounting

Apple disclosed that they changed the way the account for retail sales to be consistent with how other segments are accounted. Non-retail revenue is recognized upon delivery to resellers, not upon sale, while retail revenues WERE recognized on sale. Sounds like they are now accounting for retail revenue when the Apple store receive the inventory. If so, Apple has gotten very sleezy.

[GTAVolunteers]

ebay rip Off Iphone On Going matter this week FYI

Crime on the Streets maybe down as repoted as Cyber Crime Grows, ebay story
http://www.topix.net/world/canada/2007/07/crime-on-the-streets-maybe-down-as-cyber-crime-grows-ebay-story
Got screwed on ebay, instead of an iphone in the package they placed a dirty dish towel in the box.
http://www.topix.net/world/canada/2007/07/got-screwed-on-ebay-instead-of-an-iphone-in-the-package-they-placed-a-dirty-dish-towel-in-the-box
Got screwed on ebay, instead of an iphone got a dirty dish towel in the box
http://www.topix.net/forum/topstories/TEHCEUMKA5GQRIK5N

[davidlawless]

What about Gifts

I know 6 people that purchased iPhones on June 29th.

1 of them (mine) was activated successfully on June 29th. 2 of
them activated on June 30th (activation problems - different
Area Codes). 1 delayed until July 1st (activation problems -
different Area Codes).

2 were gifts and weren't even opened until later (1 on July 5th
and the other not until July 11th).

[RobertBruce1975]

Tech savvy?

I'm not sure you know what that means. I think a lot of buyers wanted a pretty shiny phone as a 'fashion statement' and dont know squat about how screwed theyre getting.

[grangerfx]

124,000 Hackers

Perhaps 124,000 tech savvy iPhone customers decided to hack their units to allow them to be the best iPod ever made. This would allow them to save $60 a month and avoid dealing with the worst telephone company in America.

[1st]

silly

silly cnet spend so much time try to come with excuses that they
got it number wrong (use the CIBC's report and made it big fuzz
out of it).
(1) human need sleep. after all the party and line up, few just
crashed after got the iPhone.
(2) you need waiting period (24 hrs or so, according to many) to
get activated, even you have no major issues.
(3) rumor said there are some issues related to the SNCR
software. Cnet may want to check early statement of the
company regard the issue see if it is true.
(4) go to some website, like appleinsider to check out how many
complain about the slow activation (more than 72 hrs) process
will tell the story.
(5) eBay, yes, just like xbox 360. small number is not really
impact the picture. etc.etc.
Willingness to fan the flame with CIBC shows lack of common
sense and investigated reporting (lack of logic may be). Silly!
(may be just silly me... I must miss something...)

[winstein]

Both AT&T and Sprint had problems...

Both my friend and I bought iPhone on Friday night. He had trouble activation on Friday and Saturday. He finally activated his phone on Sunday. I had problem transfering numbers from Sprint. I did not activate my phone until Tuesday.

[Xtoo]

Retail Accounting Facts

All retail companies have a different way of accounting for
sales. It is not cheating but it could be seen as if it is. For
example, most big retail corporations that sell products to end
consumers actually "sell" their inventory to its own stores.

When a store gets a new shipment of products, the warehouse
sells that product to the store and it is accounted as sales.
Regional Managers are forced to push that product to the end
user due to sales goals and because a "new" shipment will come
(forced) no matter what - which as soon as leaves the
warehouse will count as sales again.

Many of us consumers have no idea this goes behind closed
doors in corporate retail America. Retails stores can't wait for us
consumers to buy as we pleased. Retail stores are forced by
corporate management to sell the inventory on the floor on a
specific period of time and regardless of end-consumer
purchases they will get a new shipment in 3 or 4 weeks. So
store managers better move that inventory quick or end up with
huge inventory's that the corporate warehouse never takes back
and someone gets fired.

So back to Apple, their 240,000 units accounts for all iPhones
shipped to stores (not actual sales to consumers) plus all
accounted replenishing shipments scheduled -but not shipped-
the first two days to keep the supply flow smooth.

Apple not only decided to open Apple stores to be cool but to
push its inventory way more aggressively than certified third-
party distributors which believe it or are also pushed to sale a
specific number of items in due time or "else".......

[smilin:)]

"Apple counted sales of iPhone accessories "

Nice.

[joebuff75]

different time zones?

One part of the equation could be different time zones.
If AT&T's quarter ran until June 30th 24:00 ET and Apple's
quarter ran until June 30th 24:00 PT then you've already got a
couple of hours difference in which more iPhones could have
been sold. You need also to factor in the time it takes to take an
iPhone home before activating it... so somebody buying the
iPhone late on Saturday 30th on the west coast might have
activated it when it was already July on the east coast.

However this doesn't fully explain the difference in numbers
between T and AAPL...

The next quarter will give a better view on iPhone sales...

[ice9ine]

No, they didn't. Read the article.

"Apple spokesman Steve Dowling, however, said that footnote refers only to revenue from iPhone accessories, not unit shipments. The 270,000 shipment figure in Apple's earnings release is all iPhones, and doesn't include headsets, cases or other accessories, he said."

[aklgd]

Activation Nightmare Survivor--Still Disgusted with AT&T

I can account for 1 of the 124,000 phones not immediately
activated. My phone took 14--that's right, 14!!--days to
activate a new account, & in the interim I was trapped in an
endless loop of unresponsive, unknowledgeable, lazy and
insulting AT&T "help" people (1 of whom actually had the gall to
tell me I had no right to have gotten a mortgage, since they
claimed AT&T had written off an amount they said I owed in
2002, although they were not able to produce any proof or
records relating to it, and it appears nowhere on any credit
reports, copies of which I was able to provide from 3 different
reporting agencies. Moreover, the account they said they had
written off in 2002 was in fact active until mid-2006--so if I had
such a delinquent debt, why did they let me keep using the
phone number? But they didn't want to hear any of that.
Essentially they told me that they could not access any of my
account records whatsoever, all they could see was that an
amount was written off in 2002, and until I paid it they were not
able to approve activation of the phone. The people in the AT&T
store were great (and equally frustrated)--it was the people (and
I spoke to many of them, all equally unhelpful) on the "customer
assistance" lines who were horrific. I spoke to numerous
departments and various levels of people in the foodchain, but it
didn't matter--the mantra was that they couldn't see my
records, they couldn't review anything I provided, they had no
authority whatsoever or no ability to do anything but tell me to
pay or return the phone. I have never had such a frustrating
experience in my life. My grandparents and great grandparents
were immigrants who worked extremely hard and invested every
spare penny they had in AT&T. It's a shame that their
investment has turned into in a Company whose payroll is
bloated with lazy, stupid, miserable slobs.

[freewheel]

Possible to use without activation??

Is it possible to use the iPhone without activation? It was my understanding that some users terminated their AT&T phone account, but could still use the phone for e-mail, web browsing, etc. Perhaps the activation is not necessary after all?