Carrier Watch – iPhones Add Users and Expand the Market

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Back in 2007, when the iPhone first came out, a lot of folks puzzled over Apple’s decision to go with just one exclusive carrier, AT&T. After all this was a product that was almost certainly going to be in high demand, so why restrict it to a narrow slice of the market, especially given that most cell phone subscribers were locked into long-term contracts with other carriers, and that AT&T didn’t have especially great coverage in certain key markets (like Los Angeles, where I live).

Well, J.P. Morgan released a report that will have those same people, and Apple, scratching their heads and asking themselves “Why didn’t we make it available to all of the carriers in the first place?” According to the report, summarized here on CNN.com’s Apple 2.0 column, Verizon is the big beneficiary of the exclusivity clause that ended early this year. The results, while predictable, are still startling, and show the true market power the iPhone has, despite it being #2 in terms of market share in smartphones.

Now — first, know that these numbers are in overall subscribers, not just iPhone subscribers. In just Q4 alone, Verizon added on 1.2MM new subscribers, AT&T added on about 450k, and Sprint added on 250k. However, T-Mobile, the one major carrier that doesn’t offer the iPhone, lost 400k accounts.

So let’s look at what we can interpolate based on this data, and the timing of the iPhone’s availability. First — it is pretty obvious that there were a lot of Verizon subscribers that were chomping at the bit to get the iPhone all of these years since 2007. Some of them couldn’t wait, and went for an Android instead, but as I posted recently, 40% of Android owners say they will be going with another phone brand in the future. I speculate that a lot of these folks are Android users who now wish they had waited for the iPhone, or had used the Android as a stop-gap smart phone until they could get an iPhone during their next contract renewal. Many of Verizon’s customers (myself included) were pretty happy with the service quality, and had heard not-so-great things about competing carriers from our friends and families, so switching carriers to get the iPhone was not a practical option. I will also be that some of the folks from competing carriers jumped to Verizon for that same reason, better reputation in their market for a quality signal, and now they have the iPhone!

T-Mobile looks to be the big market loser here — not having the iPhone pushes them into a niche where they are already competing with the other carriers (i.e. offering Android and other brands), but with less options. It’s not hard to guess that they are losing users strictly on iPhone availability.

So why did Apple go with exclusivity in the beginning? I don’t know for sure, but I can speculate:

  • Use scarcity to build demand, and then reap profits once the product is proven. By going with just one provider for a few years, you hurt overall profits, but create this atmosphere of obsession from those who can’t get it yet. Apple certainly has used this concept, quality over quantity, and scarcity, to keep consistent demand on their products and avoided flooding the market.
  • The iPhone was essentially in beta in 2007, and it is possible that only AT&T had the assets ready to go that instant for the roll-out. I still question why they wouldn’t use Verizon instead, but maybe the money wasn’t right. Getting a big chunk of change from AT&T provided R&D money to get things perfected for the long-term lifespan of the product. Maybe Apple wasn’t 100% confident in the product at the time (though it doesn’t sound much like Steve Jobs to bring anything to market that wasn’t 100%), or maybe this provided the leverage Apple needed to push the other carriers into supporting their long-term tech demands on infrastructure. Doing the beta testing on the 2nd biggest network in the country probably kept the biggest sheltered from teething problems, and led to some very satisfied Verizon customers this year when the iPhone finally became available.
  • It is possible Apple wasn’t 100% confident in the iPhone — Apple had only semi-recently made a comeback from very low stock prices and revenues earlier in the decade, and while the iPod line was a hit, this was a much bigger foray into new technology. It’s easy to look back and see that the smart phone was going to be a hit, but at the time, it was much more of a risk, and North America had not shown the kind of mobile broadband interest that Asia and Europe had shown

There are still a ton of nuggets in this J.P. Morgan report that I want to cover – I will save the rest for the next post.

Until then — Glenn Highcove

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One Response to Carrier Watch – iPhones Add Users and Expand the Market

  1. Pingback: Carrier Watch Part 2 – iPhone Effects on Mobile Industry Mechanics | | Glenn Highcove's Online Advertising and Marketing BlogGlenn Highcove's Online Advertising and Marketing Blog

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