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A Worm In The Apple For AT&T?

AT&T scored a big win when it became the exclusive supplier of the iPhone in the US. They have had the deal for a little over two years now and it should extend well into 2010. You'd think after selling over ten million devices so far, it would be a huge win for both Apple and AT&T. You'd think. Right?
AT&T scored a big win when it became the exclusive supplier of the iPhone in the US. They have had the deal for a little over two years now and it should extend well into 2010. You'd think after selling over ten million devices so far, it would be a huge win for both Apple and AT&T. You'd think. Right?Well, maybe not. The Wall Street Journal had an interesting article yesterday about what the deal really means to AT&T. Here are a few of the more interesting facts from the article.

  • Only 40% of the activations were from new customers, the rest were from existing subscribers.
  • Only 35% of activations in the last quarter were from new customers, despite the fact this was the quarter that the new 3GS was released.
  • While 35%-40% of ten million sounds like a lot, it only represents 5% of AT&T's customer base.

The decline in percentage of new activations is telling. The market is reaching a point where either additional people don't want the iPhone or they don't want it bad enough to leave their current carrier.

This isn't to say AT&T hasn't had some good come from the deal. The article points out the revenue per customer is higher than average and the churn rate, the rate at which they lose customers to other carriers, has decreased.

They have also received some black eyes over the deal. While users may be in a covered area, AT&T's network has been tripped up more than once by the massive bandwidth demands of hundreds and thousands of devices in localized areas. Even though the iPhone now supports MMS message, AT&T still hasn't brought the service online though they promised to by the end of the summer. This delay is due no doubt to bandwidth concerns as millions of iPhone users would be able to send pictures to friends and family with devices that can only get pics via MMS - or basically anyone with a feature phone.

I'll be curios to see what happens when the exclusivity agreements expires and the phone becomes available on one or more of the other three US networks - Sprint, Verizon or T-Mobile. I predict you'll see a massive defection, especially if Verizon carries the phone because their network probably has the best coverage in the US. We'll know then if the price AT&T has paid in terms of the subsidy, costs to upgrade the network and the damage done to their reputation over service issues was too high for the carrier.