Did AT&T Make the Right Call With Apple's iPhone?

AT&T may be the biggest beneficiary of Apple's latest iPhone price cut. Though some argued that AT&T overpaid to use Apple's phone, the new $199 price point should help AT&T further solidify its lead in the market and make inroads into the b-to-b arena.The situation wasn't as clear last year when AT&T and Apple announced the deal.Verizon rejected the iPhone because of Apple's financial terms and demands (among which Apple wanted control of distribution and a cut of the monthly fees). AT&T then swooped in and inked a reported five-year deal in the U.S. A year later, many industry experts are praising AT&T's marketing acumen. "AT&T got what it wanted," said Roger Entner, svp-communications sector at Nielsen IAG, Boston. "This device, at an attractive price point."Research in Motion's BlackBerry still leads the PDA pack with 44.5% market share in the first quarter of 2008 compared to iPhone's 19.2%, per the IDC Mobile Technology and Trends report on U.S. smartphones. Palm is third at 13.4% followed by Samsung at 8.6%.But, late last year Apple came closer to leveling the playing field with 26.7% of the market share in the fourth quarter compared to 35.1% held by RIM. The new phone, experts said, could put AT&T over the edge now that the service provider's exclusivity and revenue-sharing arrangement with Apple has been dropped for a traditional plan in which AT&T receives all revenue. (The provider buys the iPhone at a somewhat lower price point from Apple.) "The iPhone at the old price was the second most popular phone at AT&T," said Entner. "Can you imagine what this will do [at] half the price? I think RIM will very quickly feel an impact."AT&T's decision to use income it once shared to subsidize the cost of the new phones is a smart move, experts said. AT&T says it will recoup the losses by 2010, based upon their theory that a lower price point will increase the overall volume of iPhones sold.The real stroke of genius, analysts said, was the new iPhone's potential for corporate users: Connections to corporate VPNs (virtual private networks), PowerPoint capabilities and robust GPS offerings, for example."It's going to be a big hit with business customers," said Mark Siegel, an Atlanta-based spokesperson for AT&T's wireless business unit.Recent figures show AT&T's numbers climbing. The company says its wireless data traffic is quadrupling each year. At the end of 2007, the company claimed 2 million domestic iPhone customers, a number Apple wants to boost to 10 million worldwide (a total of 5.5 million phones had been sold by the first quarter). Some complain that AT&T's new service package, which offers voice plans at $40 a month, bilks consumers by charging them $20 to $30 for the phone's two data service plans. That's an additional $240-plus in revenue that AT&T is receiving with each phone, which is causing some to label the phone's new price point a marketing gimmick.Still it is good for AT&T's revenue and market strength, said Chetan Sharma, president of Chetan Sharma Consulting, a wireless strategy consulting firm in Seattle. "I think overall they still benefit in the sense that they've raised the price of [the monthly data service]." Meanwhile, AT&T's and Apple's rivals are working hard to come up with iPhone killers. For example, Sprint began offering Samsung's iPhone-like Instinct exclusively last week, which is designed to cut into AT&T's market share. "Let the battle begin," announced Sprint's Web site this month. It features a series of online demonstrations to allow visitors to "watch the Instinct defeat the iPhone" in Web, TV, video and GPS speed and operating tests."We think we have a phone that stacks up very well against iPhone," said Paul Golden, vice president of strategic marketing at Samsung Mobile, Richardson, Texas. "A lot of press we've received and feedback from consumers is we've got a winner here."Nokia also is planning to release the N78 smartphone this month. Like the iPhone, the N78 and others are converging features like the camera, GPS and high speed Internet access as the market demands more sophisticated software interaction.The halo from the iPhone may have even allowed the carrier to dial back its own ad spend. AT&T cut its advertising budget 16% to $465.7 million in the first quarter, per Nielsen Monitor-Plus It has been rallying around its quality of service message with its "More bars in more places message," via BBDO, New York. AT&T wouldn't comment about why it cut its ad budget. The official telecommunication sponsor of the U.S. Olympic Committee is expected to fire up its ad messages in conjunction with the Summer Games. Despite positive reviews, the new smartphones will have to not only take on iPhone's features, but Apple's brand strength, said Boy Genius of The Boy Genius Report in New York. "If you pulled two people off the street and said, 'Do you want an iPhone or a Samsung,' they're going to say, 'iPhone.'"

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Did AT&T Make the Right Call With Apple's iPhone?

Betsy Cummings

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