RealTime IT News

AT&T to Reap Benefits of iPhone

By Jack McCarthy

As Apple  approaches the June 29 launch of its much-anticipated iPhone, exclusive carrier AT&T is expected to gain market share in handsets as consumers rush to snap up the device. But the question is, for how long?

AT&T  stands to gain 1.4 percent of the wireless market by the end of fiscal year 2008, technology investment research company Cowen and Company said in a report released Monday.

However, AT&T competitors Verizon Wireless , Sprint Nextel  and T-Mobile are expected to rebound with new services of their own, the Cowen report said.

"AT&T will capture a near-term advantage as users flock to the iPhone, buying into high-priced service pans, and as increased store traffic also stimulates sales of less expensive phones," the report said.

"However, Verizon, Sprint, and T-Mobile will punch back this year with promotions, increased subsidies and selective new products, limiting share loss."

Overall, AT&T is expected to sell three million iPhones in 2007 and 10 million in 2008, said Shaun Parvez, a Cowen telecom analyst.

While the bump up in sales is significant, it is not a stampede, Parvez noted.

"Most people thought the iPhone would just kill competition, with everyone from Verizon and Sprint flocking to AT&T," Parvez told internetnews.com. "That will happen to some extent, but the competitors will slash prices to hold onto customers and eventually add similar products."

Apple fans are expected to line up outside AT&T stores June 29 to grab iPhones when they the come on sale. However, the $500 price for the iPhone will limit demand. As much as 85 percent of U.S. mobile carrier subscribers spend less than $100 on their handsets, leaving less than 15 percent of total potential phone users in the market for an iPhone, the Cowen report stated.

In addition, as many as 80 percent of handset subscribers are bound by two-year service contracts and would have to pay as much as $200 to break a contract, the report said.

Market researcher IDC in a recent report also singled out pricing as a potential barrier to iPhone sales.

The survey said only 10 percent of the respondents would be interested in buying iPhone at the full price with a two-year service contract. Almost 18 percent said they would not purchase an iPhone unless it was priced under $299.

The cost of switching subscriptions if customers aren't already AT&T subscribers and the fact that AT&T hasn't published the costs of its voice and data plans also worried the survey's respondents.

"This lack of clarity could adversely impact consumers' purchase decisions," Shiv K. Bakhshi, director of mobility research at IDC, said in a statement accompanying the survey. (Editor's note: AT&T announced pricing plans for the iPhone today.)

Verizon is expected to respond to the iPhone aggressively, with upgrades and credits to retain customers, the Cowen report said. In addition, Verizon's answer to the iPhone, Prada, is expected to be rolled out during the summer at a cost of $500.

Sprint will also respond to the iPhone but does not have a new product to release in the near future.

"We expect (Sprint) to have to step up promotions even further," the report noted. "Moreover, we are unaware of 'new' handsets that it may have in the pipeline to respond to the iPhone. We expect higher subsidies, resulting in lower equipment costs, to be Sprint's primary weapon."

It will take time for potential iPhone customers to let their current subscriptions lapse and for others to take the leap to a $500 handset, said Gerry Purdy, chief analyst for mobile and wireless with technology consulting company Frost & Sullivan.

"AT&T stands to gain customers from the carriers, but not all at once," Purdy told internetnews.com. "They stand to gain two or three million subscriptions, as subscriptions come up for renewal."