Was AT&T CEO's Slip Of The Lip Really A Flip Tip?

AT&T CEO Randall Stephenson may have recently opened his mouth and let it slip that Apple plans to release a 3G iPhone in 2008, but it fits into Apple's strategy to create marketing hype well before a product launch.

At a meeting of the Churchill Club in Santa Clara, Calif., Stephenson told reporters that a 3G version of the iPhone would become available next year. The San Antonio, Texas-based carrier exclusively supports the iPhone in the U.S. Analysts say consumers have been less than satisfied with the data speeds on AT&T's Edge network, and are anticipating significant improvements to performance as the carrier continues to roll out the 3G network across the United States.

If you took a 3G iPhone on a drive from Los Angeles to San Francisco, it should receive reception the majority of the way, but then default from the faster-speed network to the 2.5G network when not available. Today, AT&T's 3G network is available in more than 220 major metropolitan areas nationally, with continued expansion planned through 2008.



So the real question isn't if Apple will launch a 3G iPhone, but rather, when. "Yes, absolutely, they must have a 3G iPhone for Europe and Japan," says Daniel Ernst, analyst at Soleil-Hudson Square Research. "3G is the only network in Japan, so when the iPhone launches in Japan they must have it to work, and they need to do it soon."

It could have been an innocent and unintentional marketing ploy to talk about a new Apple iPhone that operates across AT&T's 3G network prior to the January MacWorld Conference, but when asked if Stephenson's leak could hurt sales in the short- or the long term, analysts had mixed views.

Most analysts agree the news leaked too soon--suggesting that Steve Jobs, CEO at the Cupertino, Calif. company probably would have preferred to hold off until after the 2007 holiday buying season. The slip may work against Apple by "prompting some consumers to wait until the new phone launches next year," Ernst says, who closely follows Apple's stock.

Trip Chowdhry, managing director at Global Equities Research, agrees. "Consumers who have Apple's iPhone are unhappy with the slow Internet connection, and know the answer to the solution is 3G," he says. If you're in the process of buying an iPhone and know AT&T will continue to build out its 3G network to include more coverage in the United States, you will likely hold back until Apple releases the new product."

Apple's iPhone isn't immune to feeling the fallout from consumers who are unhappy about slow data speeds over AT&T's Edge network and understand that 2.5G isn't the end of the road. Stephenson only stated the obvious, according to Darren Aftahi, VP of equity research at ThinkEquity Partners.

"Apple does do a good job of hyping products before they come to market, but in this instance the case was so well documented that a next-gen phone was coming when the 2.5G was launched," Aftahi says. "This is old news. The iPod shelf life is coming to an end, and it will become more important to have a network handset instead."

Soleil Sur Terre Research Telecom Analyst Todd Rethemeier questions whether the average consumer even pays attention to the type of network the data streams across as long as the device gets the job done.

Rethemeier doesn't think it's a big deal if Stephenson wanted to plug AT&T's new network and the launch of a possible new 3G iPhone, but stating the obvious could cause some to delay their purchase until next year.

"On the other hand, people paying attention to this probably already have an iPhone," he says. "These are the Apple diehard customers who go out and buy the latest when the product launches. Many of them will upgrade when the new one comes out anyway."

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