Competition is good

Rico says Jenna Wortham has an article in The New York Times about the impending increase in outlets for the iPhone:

The race between AT&T and Verizon Wireless kicks into hyperdrive on Thursday as Verizon begins selling the iPhone 4 to new customers, ending AT&T’s exclusive hold on the phone in the United States.
AT&T has benefited tremendously from its partnership with Apple, lifting its subscriber numbers and buoying its wireless revenue. But many in the wireless industry wonder how AT&T will fare now that customers have a choice of carriers for the phone.
“There aren’t many handsets that can change the landscape of the wireless industry and the value of a hundred-billion-dollar communications company,” said Craig Moffett, an analyst at Sanford C. Bernstein & Company who follows the industry. “But this is one of those incredibly rare times where the exception proves the rule.”
Reviews of the Verizon iPhone have generally found that it drops fewer calls than the AT&T version. And early demand has been strong. Last Thursday, in less than a day, the company sold all of the iPhone4s it had set aside for current customers.
Verizon said the sales surpassed all of its previous smartphone debuts, including prominent releases like the Motorola Droid and Droid X. Although Verizon declined to share specific numbers, Phil Cusick, an analyst at JPMorgan, estimated that the company had sold as many as 500,000 iPhones.
Analysts say Verizon could sell as many as nine million iPhones this year, although most of those could go to existing customers. A recent report from the research firm the Yankee Group estimated that 1.9 million AT&T iPhone owners could switch to Verizon this year. That is just two percent of AT&T’s wireless subscriber base of about 93 million people.
Where the battle for customers will truly roar, analysts say, is in the last untapped frontier: cellphone users who are looking to trade in their creaky feature phones for more expensive smartphones and the costly data plans that support them.
By the end of the year, one in two Americans will own a smartphone, compared with just one in ten during the summer of 2008, according to a recent report from the research firm Nielsen. That means that, for the first time in the United States, there will be more smartphones than feature phones in use.
At stake for the wireless carriers is no small amount of revenue. Each iPhone owner pays an average of more than $90 a month to AT&T, according to Mr. Moffett’s estimates, while other subscribers bring in closer to $50 a month.
In 2010 alone, AT&T activated 15.2 million iPhones on its network, of which 3.9 million went to new subscribers, accounting for the bulk of the company’s growth in subscribers with contracts, Mr. Moffett estimated.
To get a sense for the escalating tension between the two carriers, one need look no further than their recent television commercials. During the Super Bowl, Verizon released a commercial for the iPhone that played up its much-lauded network strength. It seemed to take a swipe at AT&T’s overloaded network, ending with the line, “Yes, I can hear you now.”
To bite back, AT&T has been promoting advantages like its international coverage. Phones that run on AT&T’s network are compatible with networks in more foreign countries than Verizon phones. And Verizon’s technology does not allow use of its data network during phone calls. In one AT&T commercial, a man scrambles to find a restaurant on the web when his wife calls to remind him of their plans for an anniversary dinner. A voiceover says: “Only AT&T’s network lets your iPhone talk and surf at the same time.” The fierce competition underscores the growing importance of retaining and attracting new smartphone customers as the telecommunications industry shifts away from traditional phone lines and focuses more heavily on mobile.
During AT&T’s most recent earnings announcement, it revealed that its revenue from the company’s mobile division had outpaced revenue from its wire line business for the first time.
Now it would seem as if Verizon and AT&T are planning to deploy every weapon in their arsenals to try to capture as many of those new subscribers as they can.
Verizon is offering a number of incentives to sweeten the deal for new customers, including offering an unlimited data plan for $30 a month, in sharp contrast to AT&T, which offers two gigabytes of data a month for $25. In response, AT&T has taken steps to punch up its own data offerings. It recently began allowing some of its smartphone customers to use their data connection to supply internet access to other mobile devices, using a special 'hotspot' application that costs $20 a month. AT&T also doubled the data cap for those who sign up for that feature to four gigabytes a month, at no additional cost.
“AT&T is not going to just roll over,” said Chetan Sharma, an independent wireless analyst. “They will entice customers through other pricing offers.”
Verizon also has a buyback program that will let AT&T iPhone owners offset some of the penalties they will pay for early termination of their contracts. The money is put on a gift card that can be used toward the purchase of a Verizon phone.
Despite the heightened competition, AT&T says it is unconcerned. “We’ve been planning for life after exclusivity since we signed the first contract,” said David Christopher, the chief marketing officer for mobility and consumer business at AT&T. “That playbook still includes selling tons of iPhones. They are an incredibly important part of our go-forward plan.”
Brenda Raney, a spokeswoman for Verizon Wireless, shrugged off its rival’s jabs at the technical quirks that impose some limits on its version of the iPhone. “We’re very comfortable with our network technology,” she said. “The ability to simultaneously use voice and data might matter to some people, but the majority of customers would prefer to be able to make a phone call.” Verizon’s marketing and advertising strategy, she said, would continue to focus on what the company views as its main advantage: call quality. “The same technology our competitor is touting as their strength is the same technology that is causing people to drop calls,” she added.

Rico says he's had an iPhone for quite awhile, but can't bring himself to pony up for the iPhone 4 just yet, and he's still hopeful that Verizon will force AT&T to lower its rates. But 'feature phone'? If the iPhone and its ilk are smartphones, shouldn't the older ones be 'dumb' phones?