It began yesterday, the Fourth of July. They’re already lining up outside Apple’s Fifth Avenue store in NYC for the 3G iPhone. Earlier in the week, a study by investment bank RBC Capital Markets found that half of consumers in the market for smartphones will buy a 3G iPhone after the July 11th launch. Smartphone users are the most desirable subscribers, with much higher ARPUs than the industry average of $51. For example, iPhone users average $90 ARPUs!
Consumers will be paying $199 for their new 3G iPhone — $200 less than the original iPhone — but an interesting analysis found that with AT&T’s unlimited data plan going up to $30 plus the $5 messaging bolt-on for 200 messages, the 3G iPhone will actually cost consumers $160 more over the two-year term. The analyst’s conclusion: “$160 is a small price to pay—for us at least—over the course of two years to drastically increase your email and browsing speeds.”
While consumers will be paying $200 less up-front, and $160 more over a two-year term, what has the iPhone cost its competitors, particularly VZW?
Last Fall, when asked if he had any regret passing on the iPhone, VZW CEO Lowell McAdam told FierceWireless, “None whatsoever.” Interestingly, when asked the follow-up question in an earlier interview, he explained, “partnering with Apple would have meant surrendering customer service to Apple. It would have prevented Verizon Wireless retail partners from selling the product. And he said the revenue share model was not favorable enough to justify the deal.”
It’s no secret that the iPhone was a big driver of subscriber growth for AT&T in the second half of 2007, and the 3G iPhone promises a similar boost. So much so that the only way VZW was going to pass AT&T in total subscribers is through acquisition. Many consider this the main reason VZ is spending $28 billion to buy ALLTEL — to add their 13 million subscribers to VZW’s 67 million — to get to 80 million (vs. AT&T’s 71 million at end of 1Q08) and leapfrog AT&T to be Number One.
With lines forming a week in advance, VZW is not going to catch AT&T organically, especially if its answer to the iPhone is a handset named after a minivan (did Chrysler license the Voyager name to VZW?) A $199 iPhone will also force handset prices down. VZW (and everyone else) is going to have a hard time selling any handset for more than $199. If half of consumers looking for a smartphone will buy an iPhone, even high-end smartphones will be hard to sell at more than $200. Except the Blackberry. Here again, AT&T will be first to market with the Bold, which will also push sales.
But $28 billion later, at least VZW didn’t have to surrender customer service to Apple, a brand customers consistently rank high, usually higher than Verizon. VZW made a huge strategic mistake by passing on the iPhone, and protestations to the contrary just don’t ring true, at least to this observer.
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