The iPhone’s Impact on Rivals
It didn’t take Apple (AAPL) long to make its mark on the mobile-phone industry. In the first year after the introduction of the iPhone, Apple grabbed handset share from rivals including Research In Motion (RIMM), while AT&T (T), the only authorized U.S. provider of iPhone service, used the device to lure customers from Alltel and T-Mobile USA. Imagine the ripple effect of a cheaper, faster, more feature-packed version of the iPhone.
Not only has Apple whacked as much as $200 from the iPhone price and made it capable of working on a faster wireless network, but the company is also adding a wide range of software features that may make it more appealing to consumers and business users alike. The new iPhone is due in July.
To cope, wireless service providers are likely to increase their own mobile handset subsidies, boost marketing budgets, and reduce prices on some services, analysts and industry insiders say—all likely to mean slimmer margins. Rivalry from Apple adds to the pressure on an industry already grappling with increased government regulation and competition from new players, including Google (GOOG), that threaten to loosen service providers’ control of the market.
In the past year, U.S. wireless carriers had scaled back on the subsidies that resulted in lower handset prices in exchange for long-term wireless service contracts. But now that AT&T is boosting its subsidy of the iPhone, chances are other operators will follow suit—especially on iPhone copycats. “Most people want the iPhone, just as they want the iPod and not some other MP3 player,” says Gloria Barczak, professor of marketing at Northeastern University. “People want the real thing.” Consumers will need an incentive to settle for something other than the iPhone, she says. The new iPhone 3G will sell for $199 to $299 with a two-year contract from AT&T.
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