iPhone Battle Just Beginning


So after Round 1 of AT&T and Verizon Wireless going head-to-head with the iPhone, the contest could be called a split decision, or in corporate parlance, "a win/win." AT&T survived the incursion of an iPhone-equipped Verizon, activating 3.6 million of the Apple smartphones in the first quarter, up 1 million from a year earlier.  

For its part, Verizon 8CK sold 2.2 million iPhones in the quarter, after launching the device February 10. That rate suggests the Verizon iPhone would have sold nearly 4 million units had it been available the entire quarter, outstripping AT&T sales. In any event, the iPhone helped the two telecom giants meet or beat Wall Street earnings and revenue expectations.

Perhaps most important for AT&T, few iPhone customers bolted to Verizon, despite speculation the company might take a bigger hit from subscribers fleeing into the arms of its new iPhone rival. "I think one of the most surprising areas, perhaps, is the fact that iPhone churn basically stayed flat. It did not increase," noted AT&T CFO Rick Lindner, during the carrier's conference call with analysts yesterday.

Maybe that shouldn't be so surprising, since most of AT&T's iPhone customers are still locked into two-year contracts that carry high fees for breaking. Any erosion of AT&T's iPhone subscriber base as a direct result of new competition from Verizon will unfold more gradually, as AT&T customers come off their contracts -- or when Apple releases the next-generation iPhone later this year.

Still, Lindner argued the lack of defections had less to do with customers being under contract than AT&T's network offering faster data service than Verizon's, and iPhone features like the ability to talk and use email and applications at the same time. AT&T's $49 price tag on the older iPhone 3G S didn't hurt either.

Recent tests by Consumer Reports and other researchers have shown that Verizon iPhone users have experienced fewer dropped calls than AT&T iPhone subscribers so far. A ChangeWave survey earlier this month showed iPhone owners on both networks are about equally satisfied with their devices. But if Verizon can marry the iPhone to 4G service before AT&T, that could tip the Apple handset battle in its favor.

The biggest difference between the carriers in the first quarter was Verizon's adding 906,000 contract customers while AT&T pulled in a paltry 62,000. That was down from 512,000 a year ago. Without the negative impact of its Alltel merger, AT&T said it would have added 165,000 net contract subscribers in the quarter. How many new Verizon iPhone users who might have otherwise signed up with AT&T is hard to say.

But AT&T's 3.6 million iPhone activations were down from 4.1 million the previous quarter. That might be expected, since the fourth quarter is typically seasonally stronger for retail sales. Still, a continuing downward trend is something AT&T would want to avoid.

Of course, the real winner in all this is Apple, which doubled iPhone sales to nearly 18.65 million in the quarter on its way to posting nearly $6 billion in profit on sales of $25 billion. Having the nation's two largest carrier's sell the iPhone? Now that's a win/win for Apple.

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