Switching carriers for the iPhone

AT&T competitors could take a hit in the next few quarters as enthusiastic Apple fans switch providers for the hyped device.

Kristy Miller will line up at the AT&T store in the Phoenix suburb of Surprise, Ariz., on Friday in an attempt to be one of the first iPhone owners, but that will mean ditching the wireless service she already has with Verizon Wireless.

"I do have trepidation about switching from Verizon to AT&T, but I figure Steve Jobs wouldn't have made the deal if he couldn't back it up," she said. "Verizon has one of the largest networks, but AT&T has the iPhone."

The 36-year-old, who owns a graphic design business with her husband, said she needs the iPhone for e-mailing, Web access, and sending and receiving files--all functions she could easily do with another device like a Treo or BlackBerry, which are already sold through Verizon Wireless. But as a Mac user for more than a decade, she admits she is drawn to anything created by Apple and Apple CEO Steve Jobs.

"I was going to have to break down and buy a BlackBerry," she said. "But when they announced the iPhone, I decided to wait."

It's customers like Miller AT&T's competitors--Verizon Wireless, Sprint Nextel, and T-Mobile USA--should worry about. According to a recent poll conducted by M:Metrics, roughly two-thirds of people interested in buying the iPhone are not currently AT&T customers, but they say they're still willing to switch carriers to obtain the phone. AT&T will be the exclusive carrier of the iPhone.

"The data we have suggests that this is going to work as a customer acquisition strategy for AT&T," said M:Metric Senior Analyst Mark Donovan. "The market has matured to the point where carriers are stealing subscribers from each other. And a cool new phone like iPhone has certainly generated a lot of interest."

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Calling plan
Will you buy an iPhone?

Are you kidding? I'm in line now
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The iPhone, announced in January, has been one of the most widely hyped gadgets ever to go on sale. Jobs says he expects the company to sell 10 million iPhones in the first 18 months. By contrast, Research In Motion has sold only 14.6 million BlackBerry devices since 2000. The company has ramped up sales recently as it targets the consumer market, selling 6.4 million devices during the 2007 fiscal year, which ended March 3, 2007.

Interest among consumers certainly seems piqued. AT&T CEO Randall Stephenson in March said more than a million people had inquired about how they can get their hands on the new iPhone. People in Manhattan are already lining up for the iPhone days in advance of its sale.

If the hype lives up to expectations, the iPhone could help AT&T boost subscriber growth, just like the Motorola Razr helped boost subscriber rates when Cingular Wireless (now called AT&T) had a nine-month exclusive deal to sell that phone. Motorola, which now offers the phone through every major U.S. carrier, recently said it has sold more than 100 million Razrs since the product was launched a few years ago.

But what could be a windfall for AT&T will likely mean bad news for competitors. More than 76 percent of the U.S. population already owns a cell phone. And AT&T makes up only about a quarter of those subscribers, so many of those interested in the iPhone would have to switch their service to use the phone.

Sprint Nextel vulnerable

While all three major carriers are likely to see some defections, Sprint Nextel will likely be most vulnerable to fallout from the iPhone. The company lost 220,000 post-paid monthly subscribers--customers who pay monthly--during its first quarter, the third quarter in a row it saw losses of these highly valuable customers. Most of these defections were to competitors. Sprint along with T-Mobile have also consistently had high churn rates, or rates at which people cancel their service. At the end of the first quarter of 2007, Sprint reported a churn rate of 2.7 percent. T-Mobile's churn rate was 2.6 percent.

According to M:Metrics' survey, subscribers from Sprint and T-Mobile were also the most likely to say they would switch providers to get the iPhone. About 12.5 percent of T-Mobile customers and 8.1 percent of Sprint customers surveyed expressed a high interest in the iPhone.

Sprint is also vulnerable because it has spent a great deal of money and effort marketing its advanced 3G data services to tech savvy individuals.

"Sprint tends to have the most enthusiastic data users," said Charles Golvin, an analyst with Forrester Research. "These are early adopters, and they're also the ones likely to be interested in the iPhone."

Indeed, the most valuable piece of Sprint's business is its 3G EV-DO network. In the first quarter, it generated $1.2 billion from wireless data services, up 44 percent from the previous year. Data contributed about $9.25 or 16 percent of Sprint's total average revenue per user for the quarter, which was about $59.

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