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Summary:

Roy, a doorman for my apartment building, stopped me this morning to chit chat. Knowing my affection for all new mobile phones, I wasn’t surprised that he asked to play around with my Nokia N95. “Are you going to buy the iPhone?” he asked, seeking a […]

Roy, a doorman for my apartment building, stopped me this morning to chit chat. Knowing my affection for all new mobile phones, I wasn’t surprised that he asked to play around with my Nokia N95. “Are you going to buy the iPhone?” he asked, seeking a second opinion since he has already made up his mind and is going to buy an iPhone.

Though he doesn’t have an iPod right now, he thinks an iPhone would give him two devices in one, despite the high price tag. He is seemingly undeterred by the questionable battery life. (One of the reasons why I have a more wait-and-see attitude towards this Apple device.) He isn’t the only one – as the interest in iPhone seems to be on an upswing.

Even if you disregard the rumors and fan sites – the population at large seems to have a considerable interest in the iPhone, indicated by the total search volume for keyword “iPhone.” According to Hitwise, a research group that tracks Internet traffic trends, iPhone related searches represent over 0.002% of total Internet searches per week for past three weeks, with iPhone release date and price being the specific information folks are looking for. (In comparison, MySpace was the #1 query and had 1.16% of the total search volume.) Just as an unscientific indicator the search volume is a good indicator of increasing commercial appeal of the device.

The big question, however, is how does iPhone impact the wireless market at large — and whether it will result in a market share shift, putting AT&T at an advantage.

AT&T is betting big on this device and is hoping to pull ahead of its rivals by riding the iPhone express. AT&T and Apple are going to be launching a big media blitz to promote the iPhone, and according to UBS Research, it will be a major reason why AT&T will be able to add approximately 2.8 million gross postpaid subscribers in the third and fourth quarters of 2007.

If Apple’s guidance of 10 million units in 18 months hits the target, UBS estimates that 2 million iPhones will be sold in the U.S. in the first six months of the launch. That works out to about 18% of AT&T’s post-paid additions and upgrades, UBS estimates. But these 2 million will have to come from somewhere – probably switchers from other wireless services.

At the end of Q1 2007, there were about 170 million postpaid wireless subscribers in the U.S., with Verizon the largest carrier (56 million) with AT&T at #2 with about 51 million, followed by Sprint (41 million) and T-Mobile bringing up the rear at 22 million. (These numbers don’t reflect wholesale and prepaid customers.)

So 2 million units don’t mean much in market share — a little 1.1% market share gain for AT&T in the first six months, but it is the residual impact that might cause the big upheaval in the wireless market.

There are some who believe that since iPhone isn’t going to get as much subsidy as other devices, AT&T can pass those subsidies to even further subsidize non-Apple phones, and making its service more attractive. That would be one way to capture the increased foot traffic to AT&T stores.

Will Verizon and Sprint take this lying down? Of course not, and will launch their own price subsidies, discount plans or whatever it takes to hang on to their subscribers. And whatever happens, consumers will come out ahead — nothing wrong with that. And even if Roy doesn’t end up buying the iPhone, he still might get a good deal somewhere else.

Photos by Niall Kennedy via Flickr.

By Om Malik

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  1. I think that for some, the AT&T moniker hinders adoption. I went from ATT Wireless pre-Cingular to T-Mobile 4 years ago and haven’t looked back since. ATT Wireless is just an awful company.

    However, I don’t think I would get one. Sure, it’s super cool and all that, but unless it can get me my Exchange mail and can run all the third party apps I’ve gotten hooked on, then it’s no better than my T-Mobile MDA or any smartphone.

    I would love to see what sort of bundles that ATT would be offering with the iPhone (data+voice). Oh, and I’m morbidly awaiting problems that seem to plague all of Apple’s rev 1 devices.

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  2. I’ve yet to see GigaOm cover the other significant issue here with the possible wireless wars given the soon-to-be-released iPhone, particularly that of competing wireless standards: CDMA (Verizon, Sprint) vs GSM (Cingular/ATT). While there are many considerations (such as data rates, signal strength), the consumer generated YouTube video, “Feeling Cingular”, does a pretty amazing job asking the question: if Roy wants the iPhone as an iPod and a phone, just how bad will EMI/RFI affect the iPod side of his experience. If AT&T is hoping to have people migrate from Tier 1 CDMA service providers, they might want to start letting those prospective costumers know about the pleasure of their particularly heinous blend of RFI. I know I’ve experienced it.

    I don’t think the average consumer is all that aware that CDMA providers don’t have this issue. Heck it even blew the “Feeling Cingular” guy’s speaker (granted he could have shelled out for some shielded speakers). I find it pretty funny in his recorded costumer service conversation that the AT&T rep lady tells him that AT&T employees can’t even have their own cell phones out in the call-center because of the problem with EMI. Apparently their GSM EMI is too bad for them, but just fine for everyone else. I’m sad that Apple chose to hop in bed exclusively with AT&T and their GSM network. Heaven forbid, the monogamous union birth the EMiPhone and a whole new crop of creative, disgruntled costumers with too much free time and a Mac.

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  3. Nick, you hit some of the crucial points on iPhone and well i hope it works as advertised though i am not counting on it. i am waiting this one out.

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  4. roger,

    i accidentally hit delete on your comment which was stuck in spam but i managed to rescue the comment but somehow you got yourself a blue background. sorry about that.

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  5. Verizon passed on the iPhone, which says something. Probably more about what Apple was demanding rather than the actual phone.

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  6. One thing which is clear – the GSM play favors Apple when it comes to international markets. But in the US, i am guessing this is going to cause some challenge to other cellular providers and they will respond accordingly. a lower price LG Prada phone – now that’s what I like, especially from a consumer perspective.

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  7. best thing is a hardware manufacturer like Apple (hopefully following by Nokia, Motorola others) is breaking the channel lock the carriers have (in the US, less so around the world). Innovation in the industry comes from the equipment makers (Siemens, Cisco) and the device guys, but the lion’s share of the margins have gone to the carriers even though much of the innovation has not come from them

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  8. Om,

    A blue bg works with the whining; you should emotionally color all posts. I’ll cue up for a Prada, too!

    I don’t really know that much about this GSM EMI issue, just the little bit of read after watching that video and the posts on consumerist about it. Do you know why it’s so bad on Cingular/AT&T and not as bad on other GSM carriers? Just an anecdotal observation from comments and conversations.

    Thanks for rescuing me from the round file.

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  9. Heard a rumor that Apple actually wanted to start with a carrier that couldn’t be used with a sim card as they wanted to make sure the phone was good to go before rolling it out internationally.

    Course, that doesn’t say much for their opinion of the US market, but considering the uptake of mobile digital here in the US, guess its no surprise.

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  10. Hi Om,
    Wanted to share a piece (iPhone – beyond the hype, about 5 pages long analysis) I did sometime back with the readers. The piece addressed some of the issues Apple may have to resolve if want to make a significant difference in the mobile communication world. Let me know if you would be interested in having a look and share with the readers.
    Regards
    Krishna

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