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AT&T’s strained, outdated network and spotty coverage has long been a sore point for US iPhone users, with many calling for Apple to bring its popular phone to other carriers, thus giving users more of a choice. The rumor mill has even posited that the AT&T/Apple divorce could be no more than a year away and a possible open relationship with Verizon Wireless happening well before that.
Certainly there is much pent-up demand for iPhones among Verizon users and offering the iPhone on Verizon Wireless would dramatically increase Apple iPhone sales, but what would this mean for AT&T?
Slides provided by Karthik A, Eveline Danubrata, Erskine Love, Gonzalo Laffitte and Jeni Leidel of Stanford SIGM 2010
Of course, the worst case scenario for AT&T, would be a hemorrhaging of customers to its biggest rival, with some studies positing around half of AT&T’s iPhone users would like to defect to a different provider. With the wireless segment representing a significant revenue contributor to AT&T, the results of such a defection can’t be underestimated.
AT&T does, however, have some mitigating factors up its sleeve, which could help soften the blow if and when it comes. For one thing, the firm is still a dominant player in the Smartphone market, a market still seeing massive growth and set to outpace feature phones within a year. True, the iPhone is still the leading smartphone in the US, but with a plethora of Android devices flooding the market, AT&T certainly wouldn’t be left high and dry.
Then, of course, there are also the high barriers to exit for AT&T users, especially those who recently locked themselves into a new two-year contract for the new iPhone 4. For many, switching providers will simply not be an economically viable move at the moment.
Analyst Jack Gold agrees, “I think that there are a lot of fed-up people waiting to bail out on AT&T, but won’t due to the stiff penalties involved until their contract is up,” he told RCR Unplugged.
There is also the fact that Verizon’s network coverage is as of yet untested with iPhone and may prove even worse than AT&T’s, not having had any experience with the kind of data strain AT&T has grudgingly grown accustomed to. Indeed, Verizon’s network recently showed some cracks when the new Motorola X went on sale last week, with customers suffering hour or more activation delays.
Some would even claim that AT&T’s capped data plans are also more cost effective and put more control in the hands of users, who may not want or need Verizon’s more expensive unlimited package.
According to Gold, however, AT&T’s slight advantages are certainly no silver bullet. “I do think that a lot of people would opt out of AT&T if they could, and Verizon is likely to gain share if iPhone goes there,” he told us.
“What’s not clear is how much AT&T would lose. Verizon is already having an impact, as its reliance on high visibility Droids is doing well in capturing potential iPhone users. This is both a play for Verizon to sell more phones, but also if it is successful with Droids as a competitor to iPhones, it can poke Apple and say, ‘see, you should let us have an iPhone because we are selling so many Droids that compete with your device’.”
Gold is not alone in his views, with many analysts now pointing out that the bigger long term threat to Apple is Android based devices by the likes of Motorola, HTC and Samsung.
“I believe that iPhone isn’t going away, but within two years, I think the Android ecosystem will far eclipse the iPhone, no matter what Apple does,” Gold concluded.
This is good news for AT&T, which although may smart a bit at losing a ‘core’ part of its smartphone business initially, could easily recover with a whole host of other Android based smartphones.
The firm might also do well to put greater effort into expanding its US wireless service network capabilities, broadening its technological offerings, growing internationally and “moving heaven and earth,” to develop a strong next-generation 4G network.
