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AT&T Mobility turns up heat on competition: 3G iPhone pricing set to impact all carriers

While Apple Inc.’s 3G iPhone includes a number of new technologies to excite tech-savvy phone users, it’s the device’s price and enterprise focus that could stand as the greatest boon to AT&T Mobility, the exclusive U.S. carrier for the device. But frankly, that is old news. The new buzz is hovering around the defense other carriers will likely shell out.
AT&T Mobility surprised many when it announced that the 3G iPhone would be
available for $199 for the 8 GB model and $299 for the 16 GB model, both $200 cheaper than the existing iPhone. The new pricing has set a tone that AT&T Mobility’s competitors could struggle to match. While most carriers have steered clear of touting their devices as “iPhone killers,” Sprint Nextel Corp. has gone full bore at the wonder device with its set-to-launch Samsung Electronics Co. Ltd. Instinct, including online videos showing the advantages of the Instinct compared with the current iPhone.
“A lot of people think all you have to do is make a black device with icons on a screen and you’re competing with the iPhone, but that’s not true,” said Gerry Purdy, VP and chief analyst of mobile and wireless at Frost & Sullivan.
As of June 13, Sprint Nextel had yet to announce a price for the Instinct’s June 20 launch date, but most online chatter seemed to point towards a similar $199 price point. Verizon Wireless also recently dropped the price of its LG Electronics Co. Ltd. Voyager device from $299 to $199.

Missing the mark
Industry research firm Current Analysis said in a report last week that carriers’ current iPhone competitors are simply not getting it and that the carriers need to come up with even more viable options.
“While the LG Voyager and the Samsung Instinct are aimed squarely at the iPhone, the iPhone’s user interface still captures the consumer imagination and that of the press,” the report said. “It is still the gold standard to meet or beat.”
One way carriers can provide some real competition is to focus on services the iPhone lacks. Current Analysis said Verizon Wireless and Sprint Nextel should focus on streaming video at a cheaper price. Both carriers currently offer streaming video and Web access for $15 per month, half of the $30 that AT&T Mobility will charge for data access for the 3G iPhone.

Pricing pressure
It’s really the overall user experience and what value you get out of it personally, Purdy said. But it seems most carriers are convinced it is now a pricing game. AT&T Mobility has slightly altered the pricing plans for the 3G iPhone: Voice plans will mimic the carrier’s current offerings that start at $40 per month with the required data plans surging 50% to $30 per month, bringing the total package to a minimum of $70 per month. Currently, AT&T Mobility’s iPhone pricing starts at $60 for voice and unlimited data.
The higher data pricing is expected to offset the subsidies AT&T Mobility is offering on the new device. Cowen & Co. said in a research report that AT&T Mobility anticipates iPhone subsidies could hit $1 billion by the end of the year.

New model
AT&T Mobility is also keeping more recurring revenues in its pocket as its previous revenue-sharing model with Apple has been ditched.
“Our prior agreement required us to share our ongoing customer revenue with Apple,” explained Rick Lindner, AT&T Mobility’s CFO. “Now, in line with industry practice, we will pay Apple upfront for devices sold in our stores, and commissions for units sold and activated by Apple, and we will retain all the customer revenue. This model facilitates device subsidizing for our customers.”
Lindner explained such a model – a common one for carriers worldwide – requires AT&T Mobility to invest in the purchase of 3G iPhones initially, but reap the benefit as more people purchase the device due to its lower price.
AT&T Mobility said iPhone customers typically spend twice as much per month as the carrier’s average user.
The key, though, is to entice more people to purchase an iPhone.
“Over the past several years, when lower price points have been introduced on other devices, we’ve seen significant volume increases, and there’s every reason to expect that to happen to the 3G iPhone,” said Ralph de la Vega, president and CEO of AT&T Mobility. “We could really have mass adoption of this device.”

Enterprise enticement
Further, AT&T Mobility is counting on enterprise demand for the 3G iPhone. The carrier said it will begin marketing the 3G iPhone to all of its business customers, which includes all of the Fortune 1000. And, to prepare for the rollout, AT&T Mobility said it will conduct training among its enterprise and small business sales force and customer-support employees.
Apple earlier this year announced its intent to target the enterprise with a software development kit that will allow business users to access corporate applications.
Between the handset and plan pricing wars fluctuating between the carriers, many agree that even though a headache befalls the mobile industry, customers are reaping the benefits. Denny Strigl, president and COO of Verizon Communications Inc., said that Verizon is alert to what Apple does, but because of the iPhone, customers are more data aware and it has forced the industry to benefit.
“Verizon Wireless has sold more high-end phones than before the iPhone [was introduced]” Strigl said.
Because of the iPhone, mobile users will continue to see new, competing and compelling phones with better features and a sexier look.
“[The release of the iPhone] marks a brand new era in the mobile industry and the winner will be the consumer,” Khan said.
RCR Wireless News Online Editor Mike Dano contributed to this story.

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