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AT&T prepares for the end to iPhone exclusivity

Carrier is announcing new products and has struck a deal with an independent app store to make sure it has something to offer consumers when it must give up its exclusive hold on the iPhone.

The end of 2010 is close and it looks like AT&T is beefing up its device portfolio and app offerings for a day when it isn't the only U.S. operator offering the Apple iPhone.

Earlier this week, the nation's second largest wireless operator launched the first Microsoft Windows Phone 7 phones, and it also added two new Android smartphones to its line-up. Additionally, it announced a new deal with app store provider GetJar, which will help it address the app market beyond smartphones.

By the end of the month, it's expected to begin selling the first commercial competitor to the Apple iPad. And it's been spending millions of dollars in advertising since this summer marketing the BlackBerry Torch, the first QWERTY/touch screen BlackBerry to use the latest BlackBerry OS 6.

All of this activity has been happening as rumors circulate that AT&T will lose its exclusive contract to offer the Apple iPhone in the U.S. Press reports indicate that Verizon Wireless will likely get a version of the iPhone as soon as the first quarter of 2011.

While some have speculated AT&T may lose disgruntled iPhone users who are unhappy with the carrier's network, the bigger threat may be that AT&T will lose an important incentive to lure new subscribers to its network. In a market where more than 90 percent of the population already has a cell phone, wireless operators are constantly battling one another to steal customers. The exclusive contract with Apple has helped AT&T grow its subscriber base because the device wasn't offered anywhere else. But soon, customers lusting for the iconic iPhone will have more options.

AT&T has quietly been preparing for this fateful day. At the Consumer Electronics Show in January, Ralph de la Vega, head of AT&T's wireless business, told an audience that AT&T intended to diversify its smartphone offering and bring apps to every device it sells. The company introduced its first Google Android phones in the first half of the year and even launched some Palm OS phones in 2010.

The new phones launched this week and the GetJar deal are a continuation of this strategy.

"I think there's definitely an element of preparing for when the iPhone exclusivity goes away," said Charles Golvin, principal mobile analyst at Forrester Research. "The message they want to convey to consumers is that whatever you're looking for, AT&T has. If you want the iPhone they have that. If you want Android or the new Windows phone they have that, too."

On Monday, AT&T started selling the Windows Phone 7 Samsung Focus and HTC Surround. Official sales figures haven't been reported, but initial press reports suggest that the new smartphones aren't flying off the shelves. CNET noted on Monday when the phones went on sale that people were in line in San Francisco at an AT&T store, not for the Windows Phone 7 smartphones but for tickets to the Maroon 5 concert promoting the new devices.

Consumers also have not been lining up to buy AT&T's recently launched Android phones: the Motorola Bravo and Flipside. There have also been reports that despite the heavy marketing campaign, sales of the BlackBerry Torch have also been tepid.

This is in contrast to the iPhone, which has continued to sell extremely well, every time a new version is released. During the third quarter, AT&T reported it had activated a record 5.2 million iPhones. In total, AT&T said it activated more than 8 million smartphones during the quarter, which means that the iPhone accounted for roughly 65 percent of its new smartphone sales. Of those 8 million smartphone activations, about 24 percent of them were new subscribers to AT&T.

If AT&T is no longer the only game in town for the iPhone, it is conceivable that the company may lose an important incentive for new subscribers. And it's clear from the early sales reports, that individual Windows 7 phones, Android devices, or BlackBerry phones do not have the star power to attract new subscribers the way the iPhone has.

That said, AT&T may still garner an advantage over its competitors simply because it offers a wider variety of devices and platforms

"It's not as if AT&T was looking to Microsoft to bring it a massive number of new subscribers by being one of the Windows 7 launch partners," said Golvin. "I think what matters more is that if a customer wants a Windows 7 phone, AT&T can offer it. And by the same token if they want an Android, AT&T has that too."

Adding more devices is certainly a big part of AT&T's strategy as it moves away from iPhone exclusivity, but the company also has designs on providing more apps to more subscribers on more devices. And that is exactly what its deal with GetJar, announced earlier this week, does for the company. GetJar, an independent app store, gives AT&T subscribers a one-stop shop for apps on almost any phone, including basic feature phones.

"What AT&T is realizing, along with some other operators, is that the mobile app bonanza is extending far beyond the iPhone and smartphones in general," said Patrick Mork, vice president of marketing for GetJar. "The work Apple and AT&T have done in building awareness of apps and the app store concept has made everyone else look at their cell phones and wonder, 'What can my phone do?'"

Mork said that GetJar is the perfect solution for helping all of AT&T's wireless subscribers--regardless of what type of phone they are using--search for and download apps. The store itself, which has more than 75,000 apps, supports up to 2,300 different handsets worldwide.

GetJar's app store can be accessed through any mobile browser. But the deal with AT&T will make it easier for subscribers to get to the store. GetJar is providing an app that can be downloaded onto most of AT&T's handsets that will provide one click access to the GetJar app store. Platforms that will not be able to get the app include, Windows 7, Palm OS, and the iPhone.

"The GetJar deal is smart for AT&T because it allows easy access to apps for people who don't have smartphones," said Mork. "There are a lot of phones that aren't smartphones that can be great for watching video or using other apps. And we offer a way to get that content onto those phones."

Indeed, AT&T has changed the pricing of its data services for smartphones and for more mid-tier feature phones over the past year to encourage people to use more data services. Getting more data-centric applications onto phones and other devices will help AT&T drive more revenue.

GetJar's store also offers apps for other devices, such as the upcoming Samsung Galaxy Tab, which is expected to go on sale at AT&T by the end of this month. The tablet, which competes head to head with Apple's iPad, is already being sold by Verizon Wireless and T-Mobile USA. Sprint Nextel will also be selling the device. So far, AT&T hasn't announced details about pricing of the new device, but leaks have already begun trickling out.

Some Web sites report that the device will sell for $650. This price tag is $50 more than Verizon's price for the same device. AT&T is expected to keep the same data plan for the Galaxy Tab as the iPad: $14.99 for 250 MB or $25 for 2 GB of data per month.

It will be interesting to see what happens to AT&T when the iPhone exclusivity ends. Since it was launched in 2007, the iPhone has defied typical consumer sales and usage patterns. Once it's available on other carriers, AT&T will not be able to depend on one device for sales growth. It will be forced to compete like everyone else in the wireless market, based on network performance and a broad product offering.