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AT&T May Suck, But It's a Huge Reason Apple Sold 1.7M iPhone 4s

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Apple (s aapl) said today it sold 1.7 million iPhone 4s in the first three days, far outpacing last year’s record of 1 million iPhone 3GS handsets sold over the same time frame. In light of increasing competition from Google Android (s goog) devices, how did Apple manage to sell 70 percent more iPhones with this launch? An improved phone combined with strong marketing is part of the story — but for the rest, you need to look at AT&T.

iPhone 4 is impressing many with its improved feature set and design, notably how it packs four times as many pixels per inch as prior iPhone models and adds a front-facing camera complete with FaceTime software integration. Even more impressive is the masterful marketing behind the device. At a non-techie, family function I attended this weekend, for example, everyone was raving about how Apple seemingly invented video calling. This functionality has been around for at least two years, but FaceTime’s demonstrated ease of use won them over, as did other features that appeared “magical.”

Apple magic aside, AT&T (s t) had a hand or two helping to drive record iPhone sales. Instead of last year’s iPhone 3GS customers having to wait until next year for iPhone 4 upgrade pricing, many became eligible for an early discount. Indeed, AT&T advanced the eligibility date to some current iPhone customers by six months or more, giving such customers the $199 and $299 upgrade pricing during the handset’s launch weekend — which helps explain estimates why 77 percent of iPhone 4 sales were made by existing iPhone customers. Although it takes money out of AT&T’s pocket up front — the carrier subsidizes the phone, which Apple claims has an average selling price of slightly more than $600 — it locks customers into a 2-year voice and data contract. So while Verizon (s vz) may finally see an iPhone next year, all those new AT&T contract holders won’t be leaving without some hefty (and recently raised) early termination fees.

AT&T’s new data plans have helped as well. Although some consumers were upset earlier this month when AT&T eliminated unlimited smartphone data plans for all new contracts, others are happy to save money. Prior to the change, iPhone purchases required a $30 monthly data fee. But with the new plans — 200 MB for $15/month or 2 GB for $25/month — iPhone 4 could be construed as more affordable on a monthly basis. Although we didn’t upgrade the two iPhones in our home, we’re happy to be saving $30 each month now that my wife and step-daughter have the lowest rate plan.

So even though existing iPhone owners have had to deal with network capacity constraints and new customers have lost an unlimited data plan option, AT&T helped make the iPhone 4 more affordable and attractive.

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25 Responses to “AT&T May Suck, But It's a Huge Reason Apple Sold 1.7M iPhone 4s”

  1. Ronald Stepp

    I don’t think AT&T sold nearly as many iphones as would have been sold if Verizon, Sprint, and T-Mobile had also been options. In that case, AT&T would have sold the fewest, IF ANY, of the iphone4’s.

    I wonder how many people actually use MiFi’s or the Sprint equivalent to get all their data, instead of AT&T?

  2. Olivier

    The real difference between 2009 and 2010 is… iPhone 4 has been launched in 5 countries simultaneously. Whereas the iPhone 3G S was only launched in the U.S.

    THIS should explain the 70% increase in the 3-days sales. No ?

    Moreover, in France, Orange, SFR and Bouygues offers great value to existing customers also.

    • Olivier, you raise a very valid point and Apple hasn’t broken out sales numbers by country. However, AT&T did say that they had 10x the pre-order numbers for iPhone 4 than they did with iPhone 3GS. Between that and some reports of low shipments of non-U.S. iPhone 4s, I currently think that AT&T sold the bulk of the devices. Hopefully we can get a breakdown in the future and then revisit the numbers.

  3. Apple just keeps leaving so much money on the table with an exclusive relationship with AT&T. They have a ton more market share and sold way more than 1.7M iPhones if they sold them through multiple carriers.

    Android wouldn’t be anywhere near their sales numbers and they’d keep the story on how well they’re doing; not how close competitors are to them.

    • The problem with your assertion is that you are looking at this from 3 years in hindsight. When apple launched this product, they could not get a deal with verizon on their terms. The landscape for this type of product has changed dramatically in 3 years and it is apple that has changed it. I guess i agree that apple could be making more money by working with other U.S. carriers, but apparently apple has a 5 year exclusive with AT&T. So, they apparently are just honoring their agreement. Of course, apple is one of the most profitable companies on the planet, so it seems to me their strategy is working.

  4. martin miranda

    I’m a big user of my phone, I like research a lot, always watching videos and listening to music (Pandora). I went to At&t to purchase the iphone 4 but once I spoke to the represantitive about the data plans, he measured how much I used of data just on my phone with 1hr of listening to music it took a whole GB. So I walked away and rather pay $30.00 for unlimited with my current celphone provider. Thanx for the technology, but no thanks.

  5. Apple did invent video calling. Sure, AT&T demoed a “video phone” at a worlds fair a half dozen decades ago, and thus the “technology” for it has been around for a lot longer than 2 years.

    But there’s a big difference between a piece of “technology” and a usable product. Nobody before Apple has bothered to make a usable product.

    This is the difference between Apple than a lot of so-called “Geeks” don’t get.

    FaceTime is a triumph of engineering, not marketing.

    • Joe, Fring offered video calling last year on various Nokia phones, some of which have a front-facing camera. It’s quite usable — I just used it two weeks ago on the Nokia N73 Mode and it works over 3G as well as Wi-Fi.

      • Hi,

        It’s a really annoying bugbear when Facetime is mentioned, but does anyone in America know that video-calls have been available as the base spec for 3G/UMTS from day one; In the UK since 2003 when 3 launched, in Japan, Finland, etc even before.

        Yes, With one-click operation.

        Yours kindly,

        Shakir Razak

      • primate

        As an engineer, I’m dismayed by this attitude that a significant design refinement is not considered invention. Almost all of invention is small design innovations over previous designs which result in some improvement. (Sometimes this improvement has negative tradeoffs which preclude it from being used in the final product, but the USPTO and other orgs award the patent). Truly novel inventions are very very rare. To assert that a company is deficient because it has not introduced a >99% novel invention strikes me as ridiculous.

  6. Kevin – don’t you think the “AT&T Sucks” meme is getting a bit tired? I’m one of the lucky one with little/no coverage issues – in fact, my usage pattern has actually shown better coverage with AT&T than my Droid gets on VZW – so I know I dont speak for the huddled masses in NYC and SF, but your support of this is Om’s article from a year ago. I think an otherwise solid commentary suffers from snark

    • I can see your point, Sean, especially because your service and coverage are sound. And AT&T has made huge strides to increase capacity even as mobile broadband demand continues to outstrip supply. But between continued trouble spots (as you said, you’re “one of the lucky ones with little/no coverage issues”) and the iPhone pre-order challenges last week, there are still areas of opportunity. Be that as it may, I appreciate your feedback on the headline and how it detracts from the post — I’ll make a better effort in the future, so thanks for that.

  7. Agreed… although I’m still a die-hard Blackberry guy my wife has a 3GS and after looking at her data usage for the past 6 months and seeing that the most she had consumed in any given month was 82.1MB I immediately switched her to the $15/month plan and am happy to pocket the extra $15.