AT&T is taking a pounding in the press over continued dissatisfaction with its third-generation wireless network, which is the only conduit to the Internet for users of the coveted Apple iPhone 3GS. But the Apple device itself is still winning high ratings from its users.
Arguably the biggest hit to AT&T came from an Aug. 18 opinion piece in The Wall Street Journal. Author Andy Kessler argued that the nation's largest telephone company is stifling wireless broadband innovation.
Meanwhile, a new survey shows that more than one-third of iPhone 3GS users dislike being forced to use AT&T as their carrier.
In his op-ed piece, Kessler, a former hedge-fund manager and an iPhone user, cites rumors that AT&T was behind Apple’s decision to reject the Google Voice multi-feature phone application for the iPhone. That decision spurred Google CEO Eric Schmidt to resign from Apple’s board of directors, and fueled the Federal Communications Commission’s investigation of exclusive distribution deals between handset manufacturers and carriers.
“AT&T clings to the old business of charging for voice calls in minutes,” Kessler wrote. “It takes not much more than 10 kilobits per second of data to handle voice. In a world of megabit per-second connections, that's nothing—hence Google's proposal to offer voice calls for no cost and heap on features galore.
“What this episode really uncovers is that AT&T is dying,” he argues. “AT&T is dragging down the rest of us by overcharging us for voice calls and stifling innovation in a mobile data market critical to the U.S. economy.”
Meanwhile, a report released this week by the Rockville, Md.-based ChangeWave Research showed that 32% of iPhone 3GS users surveyed said they dislike that they have to use AT&T as their service provider, and 23% don’t like the coverage, speed and quality of the AT&T 3G network.
The exclusivity deal with AT&T doesn’t seem, so far, to be a problem for Apple. The survey also showed that the iPhone 3GS itself has an overall satisfaction rating of 99%.
AT&T activated more than 2.4 million iPhones in the second quarter as a result of a record iPhone 3G S launch, and 35% of those buyers were new AT&T customers. More than half of the quarter’s iPhone upgrades were for subscribers who previously had no data plan, and more than 80% of the upgrades were from a non-iPhone device or a 2G iPhone. AT&T ended the quarter with slightly fewer than 9 million iPhone customers. iPhones and other integrated devices are generating ARPU 1.6 times higher and churn rates significantly lower than the company's overall postpaid subscriber base.
So what’s at stake for Apple if it allows other carriers to sell the device? Without an exclusive carrier, Apple would come under pricing pressures, and this price competitiveness would result in reduced gross margins. In order for the company to offset the reduction in profits, it would need to negotiate favorable component and OEM costs on the basis of increased volume. Manufacturers like Apple and Palm are already facing difficulties in meeting demand, so an increased customer base could present significant supply difficulties.
Tech Thumper has been providing detailed and actionable competitive intelligence to leading technology firms for approximately ten years. In that time he has provided both quantitative and qualitative analyses on the computing, consumer electronics, telecommunications, wireless and broadband cable markets.
He has authored more than one hundred and fifty comprehensive syndicated reports and an equal number of custom financial models that have been distributed to professional clients internationally.