BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

About that iPhone 5 Bounce

This article is more than 10 years old.

Pre-orders for the iPhone 5 sold out in within hours, the fastest record for the smartphone ever. The device is going on sale this week and, to hear USA Today tell it, analysts are expecting long lines.

So it would seem that JP Morgan’s chief economist Michael Feroli might be on his way to being proved correct. Feroli, as you may remember, days before the iPhone 5’s release projected that sales of the product could add between 0.25 and 0.5 of a percentage point to U.S. growth, or $3.2 billion. Here’s a back-of-the-envelop version of his math: Apple is expected to sell 8 million of the iPhone 5 in Q4, priced at around $600. Minus the cost of imported parts, that equals $400 per phone into GDP.

Feroli’s numbers were quickly attacked, though, largely because he ignored the substitution factor: meaning that yes, consumers might shell out $600 for a new iPhone 5 but they won’t be spending that $600 elsewhere.

Long Hours in September and Then a Break

Associate Professor of Economics Edinaldo Tebaldi of Bryant University happens to agree with the substitution goods theorists but he does add this: the real economic juice for the iPhone 5 will be generated through the temporary increase of staff, or hours worked, at Apple stores, wireless carriers and retail stores like Best Buy. “This creates extra income/wages and thus additional spending money in the economy,” he says. The expected long lines and pre-order madness suggest this could be quite a bit of additional spending month.

Unfortunately there is a substitution effect of sorts at play here as well: the big jump in hours, according to studies Tebaldi has made of previous events, will be followed by a reduction in hours worked by retail employees over the next several weeks and months. Eventually, he says, it comes close to evening out.

Wireless Revenues

The expected increase in AT&T and Verizon Wireless revenues runs along a similar – and more stark -- story line. New customers or customers renewing contracts with the iPhone 5 will drive revenues, but there are other considerations. In short, network management concerns from the iPhone 5 launch will cause carriers' wireless service margins to take a hit, Carla Fitzgerald, VP of marketing with Smith Micro Software, flatly predicts. 4G is still in its infancy, she says, and operators must be able to intelligently offload users from 4G to 3G/WiFi to ensure they always have the best connection possible.

“From a carrier perspective, iOS devices are a double-edged sword. They drive a ton of data traffic and data revenue yet they do not provide sufficient management features for operators to manage that traffic across all of the networks that a subscriber may be using.” This ultimately adds to network congestion and support costs, she says. And unlike Android device makers, “Apple’s brand strength allows them to ignore the needs of the carrier, which include intelligent traffic management and innovative solutions to monetize connectivity over Wi-Fi.”