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.

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