iSuppli Corp. believes that Apple Inc. will extend its exclusive iPhone service deal with AT&T, based on an analysis of wireless technology deployment. They however caution that it may not be the boon for AT&T that it appears to be, because AT&T's image has been tarnished by network troubles due to huge iPhone data usage.
"Speculation is rife that Apple will end its exclusive U.S. iPhone service deal with AT&T when the current contract expires in June 2010 and begin to offer phones that work with the Verizon network," said Francis Sideco, principal analyst, wireless communications, for iSuppli.
"However, iSuppli doesn't believe this will be the case. The main
reason Apple is likely to stick with AT&T beyond 2010 is the
relatively wide usage and growth expected for the HSPA air standard
used by the carrier for 3G data. Cumulative global subscribers of HSPA
wireless services, consisting of High-Speed Downlink Packet Access
(HSDPA) and High-Speed Uplink Packet Access (HSUPA), are set to rise to
1.4 billion in 2012, up from 269.1 million in 2009.
In contrast, cumulative subscribers for the EVDO standard used by
Verizon will amount to 304.6 million in 2013, up from 145.2 million in
2009.
The attached figure presents iSuppli's forecasts of cumulative global
HSPA and EVDO subscribers.
"The FCC investigation notwithstanding, Apple has no reason to move
away from its highly successful exclusive deal with AT&T, which has
already generated strong growth in iPhone sales and is expected to fuel
a continued expansion in the coming years," Sideco said.
iPhone: A blessing or curse for AT&T?
But for AT&T, the iPhone offering has been a mixed blessing. While
the iPhone service deal has been hailed as a major coup for AT&T
and the phone has been a significant factor in the strong subscriber
additions reported by the carrier, the extremely high use of data
services by iPhone users has severely taxed the carrier's network
capacity. The extension of the current exclusive arrangement is likely
to be seen by most as another win for the company.
However, AT&T's
image has been bruised by critical wireless bandwidth shortages and
resulting service problems that have spurred outrage among iPhone
users.
"Facing dropped calls, service interruptions and slow download
speeds, iPhone users in certain markets are blaming AT&T," said
Jagdish Rebello, director and principal analyst for iSuppli. "iPhone
users are overloading AT&T's network with data traffic generated by
the download and usage of apps. However, the real problem is that
AT&T has not found a way to monetize data traffic generated by the
iPhone. With its voice service revenue on the wane, and the company
unable to cash in on the increase in data traffic outside of the base
data access fee, AT&T is finding it difficult to make the required
investments in upgrading its network to support greater bandwidth."
For AT&T, the problem has far greater implications than just
unhappy customers.
"With much of the iPhone experience intricately tied to Apple's iTunes,
the customer ownership line between AT&T and Apple is blurring - a
phenomenon that is not limited to this relationship," Rebello said.
The battle for the wireless subscriber
AT&T's struggles reflect a wider battle that is taking place in the
global wireless business--a battle for control of the consumer in the
new era of wireless data.
"A dramatic shift is taking place in the global cellular industry--one
poised to alter the balance of power in the mobile value chain,"
Rebello said. "This is attributable to the explosive growth during the
past two years of mobile data service offerings, service provider data
revenues and unit shipments of smart phones and mobile broadband
devices."
Mobile data is key to the continued health of wireless carriers and the
mobile value chain for the future. With mobile data gaining traction
among consumers, wireless service providers like AT&T increasingly
are competing with OEMs, content developers and content aggregators for
ownership of the customer and for a share of data revenue growth.
"Players including Apple, Google, Yahoo, Nokia, RIM and Microsoft are
all trying to muscle in on the wireless carriers, angling for a share
of the lucrative--and growing--pie representing mobile premium content,
services, and applications," Rebello said.
"To sustain growth momentum
in data revenues while working with these players, wireless carriers
will have to develop and implement carefully thought-out business
models that also allow them to own the customer experience. Such moves
are critical to ensuring the success of the operators and the sustained
health of the mobile value chain."
For the wireless industry to succeed, business models must align the
needs of the mobile carriers with the growth objectives of OEMs,
content owners, and application developers, Rebello added. Carriers
must seek to promote their networks, content, features, and services
directly to consumers, rather than try to lure customers solely by
touting the devices that are available in their portfolio. Their mantra
going forward must be to emphasize services, capabilities and features
of their networks.
Other wireless service deals for Apple?
While Apple is likely to stick with AT&T for the iPhone for now,
the company may be seeking a deal with Verizon to provide services for
alternative platforms.
"There is no available information that would indicate that Apple is
prohibited from pursuing a relationship with Verizon for non-iPhone
products, such as another Apple
phone model, tablet, Mobile Internet Device (MID), netbook or an
enhanced version of the company's iTouch," observes Sideco.
For more information on how wireless carriers can realign their
strategies to suit the changing dynamics of the market, see Rebello's
new report entitled: Mobile Operator Data Models: Successful
Implementations Critical to Mobile Value Chain Health.