The Mobile Internet Report Key Themes*

iPhone Market Leadership Scenario Assumptions
• iPhone ASP: Drops to $99, below current market average of ~$200
• Carrier Subsidy: Apple forgoes carrier subsidies to force competition on
service plan pricing and network investments
• iPhone Bill-of-Materials: 33% annual decrease, similar to last two years
• Market Share: Apple captures 1/3 of handset shipments in light of: 1) low
handset price; 2) competition for subscribers (attractive pricing, better
networks); 3) no limitations on carrier distribution / compatibility.
• Accessory/Service/Content: MobileMe and AppleCare attach rate of 2% and
5% respectively, $123 / user / year of app/content downloads and 1
accessory / user / year
• Gross Margin: iPhone device gross margin of 24% (based on ASP and BOM
assumptions above); add-on revenue gross margin of 69% given nature of
services + high software content + low incremental costs
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