Sramana Mitra on iPhone/AT&T competitors
Over the past several weeks, Sramana Mitra has taken a look at the device and carrier competitors that are trying to overcome the advances offered by the iPhone on AT&T’s network. I’ll briefly summarize her conclusions here, but it’s worth reading her complete posts.
The Device Manufacturers
She started with the companies trying to build a more compelling phone than Apple’s.
First up: Research in Motion: “RIM is the king of the converged mobile devices market for the enterprise or prosumers with over 9 million subscriber accounts. … RIM, as I expected, doesn?t seem to be hurting due to the launch of iPhone and it expects revenue in the range of $1.3-$1.365 billion and subscriber account additions in the range of 1.325-1.375 million for Q2 fiscal 2008. … The advantages the iPhone has over BlackBerry are many, the most important of them being the user friendly touch screen and Wi-Fi. … RIM is trying to maintain its lead in the enterprise market by adding media player and Wi-Fi functions in its latest products, Pearl and Curve. … For a while yet, I think RIM has an excellent positioning, and the overall convergence device movement should give them plenty of tailwind.”
Next: Nokia: “It won?t be too far fetched to say that today, Nokia is the Microsoft of the mobile devices industry. … On the other hand, Nokia has proven to be resilient and the experience of 2004 when it lost ground to Motorola?s Razr will help it address the iPhone challenge better. … Nokia has long been selling mobile devices through three business groups, mobile phones (eg: Nokia 6300, Nokia 5200, and Nokia 5300), multimedia (eg: Nseries), and enterprise solutions (eg: Eseries). With iPhone joining the fray, it is the multimedia series that is under maximum threat in the near term. In the longer term, there are question marks around the Symbian OS, which may not be sufficiently elaborate to shoulder the entire convergence device movement. Nokia?s Linux phone strategy, therefore, is something analysts ought to watch carefully.”
On Palm: “The hype around iPhones has put the spotlight on smartphones and Palm seems to have benefited from it as shown by the record high sales in the Q4 2007 of 750,000 units, a 43% increase compared to the previous year. … Overall, I am bullish on the convergence device market, and if Palm can get a couple of Linux based hit products out with Rubenstein?s strong execution orientation, (something Palm has consistently lacked so far), it still has a great brand to market them under. … In a nutshell, I?ve maintained that Palm either needs to come up with something impressive in the enterprise space, or go for a lower-priced emerging market killer app strategy.”
Finally, she closes with Motorola: “In my earlier post on Motorola, I had mentioned their need for a better product mix and a better position in the SmartPhone / Convergence Device segment. There were not many changes in Motorola?s product mix in the second quarter with just upgradings to the RAZR model. This over-dependence on its RAZR model has proved detrimental to the company and it has slipped to the third position in the mobile phone market behind Nokia and Samsung. … Motorola has a great brand and lots of experience to be a key player in the convergence device market which the iPhone has breathed new energy into. It will, most likely, have a CEO change with Ed Zander being replaced by someone more effective. At the moment, the company seems to be waiting for new leadership, and investor should too.”
Interestingly, although she only covered Samsung in her overview of component suppliers to Apple for the iPhone (Samsung provides 30% of the parts that go into the device), in a summary of device competitors, Sramana concludes with this observation: “Samsung is likely to become the iPhone?s most important competitor.”
The Carriers
Next Sramana moved onto AT&T’s competitors and how they are positioning against the iPhone. (Obvious disclaimer: I work for Sprint, an AT&T competitor.)
She started by reviewing how AT&T is doing post-iPhone: “Following the iPhone launch on June 29, AT&T activated 146,000 iPhone subscribers in the second quarter that included less than two days of sales. More than 40% of iPhone subscribers were new subscribers. … If not for the slow speed of its EDGE network, AT&T could expect more customers to line up for the iPhone and could perhaps have a smoother run up.? … The iPhone alignment gives them an opportunity to diversify their customer base from mainly local and long distance, to wireless. Especially with the iPhone, the newly acquired customer segment will be relatively high-end, thus, potentially offering some margin expansion headroom.”
She then moved on to Verizon: “In the quarter, Verizon added 1.3 million wireless customers, less than AT&T?s 1.5 million. The main reason behind this is that Verizon lost about 300,000 wholesale subscribers due to the bankruptcy of its reseller Amp?d Mobile. This is the first time since early 2006 that AT&T has outpaced Verizon. … The one advantage Verizon has over AT&T is its 3G network. Most of its customers would rather wait for an iPhone rival version that is 3G capable rather than shift to the slow EDGE network of AT&T. Verizon is a CDMA shop and there is no chance at least for five years that an iPhone version will hit its network. … With the lowest churn rate in the industry at 1.08%, Verizon would probably not lose a lot of its existing customers. … However, Verizon would need to come with an answer to the iPhone in the near future, as the convergence device movement gains ground. So far, I have not seen a compelling story on that from the Verizon camp, and that is worrisome. The low-end market segment, including rural, is likely to be significantly less profitable than a strong high-end, iPhone equivalent strategy.”
On Sprint: “For Q2 2007, Sprint saw an increase of 373,000 customers and its customer base increased by 5% from a year ago to 54 million. … Sprint has already an answer to the iPhone in the form of the Samsung UpStage, which saw strong sales during the quarter. Sprint might have turned around its customer losses during the second quarter but iPhone is sure to upset its delicate balance. With the iPhone hitting the market at the end of the second quarter, its effect on Sprint would be best measured in the next quarter. … Treading with cautious steps, investors should look into how the convergence device strategy shapes up, and how Samsung?s UpStage performs. As you know, I am very bullish on Samsung?s prospects as a competitor to the iPhone.”
Sramana closed her series with T-Mobile: “For the second quarter of fiscal 2007, T-Mobile USA reported 857,000 net new customer additions taking its total customer count to 27 million. … T-Mobile is quite vulnerable to the effect of the iPhone, with most of it users in the 18-24 age group. The iPhone is bound to be a hit amongst this age group and the new generation and could hit T-Mobile hard. … as is the case with all Apple deals, nothing is official yet, but the report says Apple would be launching the iPhone with T-Mobile in Germany, Orange in France and O{2 }in the UK. With such a deal with Apple, T-Mobile could compensate for its potential loss in the US. … Those carriers that have won key geographies would certainly have a leg up in understanding the convergence device movement, and T-Mobile is one of them.”
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