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The iPhone: A new calling for Apple

Device may foster market for rivals' smart phones

If Apple's vaunted machine performs well, multimedia cellular handsets may move toward the mainstream.

June 26, 2007|James S. Granelli | Times Staff Writer

Amid the hype around the iPhone, rival cellular handset makers and phone companies say they welcome the competition from Apple Inc. and its wireless partner, AT&T Inc.

Sound insincere? Not when you consider that with all the things today's so-called smart phones can do, customers are still using them mostly to make calls and, to a lesser degree, send text and other messages.

So far, carriers haven't reaped the revenue they had expected from mobile music downloads, streaming video and other features. That's why even rivals of Apple and AT&T are counting on the iPhone to whet the appetite for fancy handsets that deliver a host of functions.

"If it offers a very good user experience, the iPhone could help the entire industry for smart phones," said Chris Hazelton, an analyst at research firm IDC.

The possibility that the iPhone could be a boon to the business isn't stopping rivals from belittling it.

At an industry conference last week, Ivan Seidenberg, chairman of Verizon Communications Inc., said the Apple device didn't change his company's game plan. He noted such Verizon advantages as its faster data network and unique offerings such as V-Cast Music, TV phones and Song ID. The latter enables customers to hold up their handsets to the radio, automatically identify the songs being played and download them immediately. Music for iPhones can be downloaded only from Apple's iTunes online store to a computer, then sideloaded onto the handsets.

Sprint Nextel Corp., like others, has researched the competitive issues around the iPhone, its likely customers and its shortcomings. That has helped the company form a strategy for winning customers, said David Owens, Sprint's director of devices.

The company found that the iPhone had the potential to promote Sprint's own smart phones, including the new UpStage. The iPod-like, touch-control device sports a slim cellphone on one side and a large multimedia screen for music and video on the other.

"Our strategy is very much focused on our full portfolio of products, our faster network and competitive prices," Owens said.

T-Mobile USA won't talk about the iPhone. It's pushing ahead with plans to roll out its HotSpot@Home service, which uses first-of-its-kind Wi-Fi cellphones to enable customers to move seamlessly between Wi-Fi networks -- especially in the home -- and conventional cellular networks.

The wireless company that stands to gain the most from iPhone is AT&T, the nation's biggest phone company. In a move unique in the U.S. telecommunications industry, AT&T allowed Apple to control product development and marketing of the handset in exchange for the exclusive right to provide service on the device.

Though carriers normally call the shots in such a relationship, San Antonio-based AT&T is counting on the most widely anticipated mobile phone yet to attract new customers.

It's unclear how much the iPhone will help AT&T's bottom line. Wall Street doesn't know how much the device might affect the company's earnings because AT&T hasn't yet released details on pricing plans, related costs or projected sales.

"Answers remain largely conjecture at this point," analyst David W. Barden of Banc of America Securities said.

AT&T shares gained 23 cents to $39.08 on Monday after Cowen & Co. issued a report predicting that the iPhone would help the phone company boost its mobile subscribers. Analyst Tom Watts said he expected AT&T to net 7 million new subscribers this year, up from his previous estimate of 5.5 million, and 8 million next year, up from 4 million.

"We expect iPhone to validate the sale of higher priced phones, and to re-create excitement in the sector, stimulating phone upgrades and use of higher priced services at other carriers," he wrote.

AT&T is banking on the iPhone to drive traffic to its stores. Its chairman, Randall Stephenson, said at last week's conference that 40% of the more than 1 million people who contacted the company about the iPhone were not AT&T customers. AT&T also hopes that people who visit stores to gawk at the iPhone but are turned off by its price might consider the new Samsung Sync or other AT&T phones and plans.

While most smart phones cost $100 to $300, the iPhone comes with a price tag of $499 or $599, depending on the amount of file storage included.

IDC found that although 60% of people surveyed were interested in the iPhone, only 10% would be likely to pay full price and sign a two-year service deal with AT&T.

The appeal of the iPhone is that it's an iPod, a mini-Macintosh computer and a phone built into a touch-screen device -- made by the innovative Apple team.

The rhetoric has been so pervasive that theonion.com, the news parody website, ridiculed the iPhone and its sycophants in a graphic with such comments as: "Nanotechnology enables it to reassemble itself when thrown against wall" and, "Comes with an iPhone hat, so people know you own an iPhone during the brief periods you're not using it."

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