Will Apple’s iPhone bring US wireless market up to speed?

If the iPhone lives up to media hype, Apple could be set to take over the lagging US wireless market, with mobile operator partner AT&T

On June 29th, Apple will join the wireless and consumer technology industries, media-watchers and consumers in heralding the launch of the highly anticipated iPhone. It will be the latest and most exciting chapter in the story of its iconic founder Steve Jobs and the company he stared 31 years ago. The extraordinary hype for the new phone and its implications for Apple have filled the business pages of every major newspaper and magazine for the last fortnight. New York magazine, this week, has an image of Jobs on the front, with the tag “iGod”.

Apple started out as a computer company with some of the best user interface and software applications, which were loved by all who used them, but never achieved the ubiquity of Microsoft’s Windows software. Jobs was forced out of the company in 1985, only to return in 1997 and begin a transformation of Apple, with a shift in focus from personal computers to consumer electronics, which crystallised in 2001 with the launch of the iPod digital media player. Some have said Jobs’ strength is salesmanship, but others say he is one of the greatest marketers of his generation.

In Unstoppable – Finding Hidden Assets to Renew the Core and Fuel Profitable Growth (Harvard Business School Press), author Chris Zook highlights Apple as a company which transformed itself by creating a new core. Zook, head of global strategy practice at Bain & Co, says: “We have found that the revival of a company can come from spawning new core businesses from existing capabilities that prove to be extendible in new areas (in combination with newly acquired capabilities).”

By this, Zook refers to Apple’s seamless move into the music business, with the launch of the iPod and the iTunes Music Store, without losing its core strengths of design, usability and brand management. The transformation has been so successful that Apple dropped the “Computer” from its name in January. It was no coincidence that a month later Apple announced the settlement of a long-running legal dispute over use of the “Apple” brand with Apple Corps, the company that manages The Beatles’ business affairs.

Apple ran into brand trademark trouble again with the iPhone. Soon after rumours of plans for an Apple mobile phone started doing the rounds 18 months ago, the Apple-faithful and the media immediately christened it the iPhone. At the time, Apple refused to acknowledge that such a product was even in the works – the iPhone brand was owned by networking giant Cisco’s Linksys division, which also makes a product called iPhone. After legal threats and posturing, which included Cisco launching a new ad campaign for its iPhone earlier this year, the two sides finally settled.

The iPhone will see Apple make in-roads into not just the mobile handset-maker space, but also the mobile music industry, digital cameras, mobile e-mail and many other applications, which can benefit from mobile communications.

Believing the hype
The media hype about the iPhone is especially impressive when you consider that no journalist has gotten hold of the phone – so no one really knows if it’s any good. In 2001, Apple introduced the iPod with slightly less fanfare and similar restrictions on pre-launch product reviews. After selling 100 million iPods, one can only guess that Apple marketers are saying, “If the strategy ain’t broke, why fix it?”

Industry analysts believe the iPhone will change the US wireless landscape. The US lags behind Europe and Asia in the mobile space – particularly in data services such as the internet and text messaging – but the iPhone’s US origins could help to narrow the gap.

The iPhone’s launch coincides with the rebranding of its US mobile operator partner from Cingular Wireless to AT&T. Cingular was jointly owned by phone giants AT&T and BellSouth, who completed a $67bn (£34bn) merger in January. Already the biggest mobile network in terms of user numbers, AT&T will now have the most desired product in the US wireless industry on a five-year exclusive basis.

Apple has forecast that, by end of 2008, it will have sold around 10 million iPhones, priced from $499 (£252) to $599 (£302), with a two-year AT&T contract. Some analysts think this is too pricey, but others say 10 million is a conservative forecast. Research out last week from M:Metrics predicted that AT&T’s strategy to use the device to lure customers from competitors could pay off, after its research showed 67% of those who were most inclined to buy an iPhone are subscribers on other mobile networks.

Taking the lead
“While other devices – some of them already on the market – have features equal or better than the iPhone, the iPhone has been the first mobile device to create widespread consumer excitement,” says Mark Donovan, senior vice-president and senior analyst at M:Metrics.

This could make things difficult for rivals, including number two US mobile operator Verizon Wireless (55%owned by Verizon Communications and 45% owned by the UK’s Vodafone) and number three player Sprint Nextel, which has been going through a difficult patch recently.

But some commentators say T-Mobile USA could be the worst hit, because it has a higher number of young users between the ages of 18 to 24, the very people who might be most attracted to buying the iPhone because of its multimedia and entertainment features. AT&T will certainly be hoping to cannibalise subscribers from rivals, because one of the unusual features of this deal is that Apple will have more power in the relationship than most handset-makers typically do.

It is, perhaps, no surprise that Apple will lead on the marketing of the phone, but some of the features of the iPhone don’t necessarily lend themselves to AT&T’s best advantage. For example, most operators, including AT&T, have been developing their own mobile music download stores to encourage data traffic usage to help justify investment in 3G licences. But users of the iPhone will be able to go direct to iTunes Music Store, rather than an AT&T music store. In addition, iPhone users can seek out random wi-fi networks, potentially depriving AT&T of data traffic revenue.

And the game will change for the handset-makers as well. Sony Ericsson, Nokia and Motorola are all launching better, slicker and more powerful phones in response to the iPhone.

“This has the potential to increase consumer demand for more expensive, full-featured phones across the board, as OEMs and other operators respond to AT&T/Apple’s marketing juggernaut,” says Donovan.

All parties will be trying to see if they can out-market Steve Jobs, the great marketer himself, as his company makes its latest game-changing move.

Yinka Adegoke is a New York-based business journalist. us.column@gmail.com

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