Tough Year Ahead for AT&T
(Reuters) - After waiting three-and-a-half years Verizon Wireless customers will finally get their hands on Apple Inc's iPhone next month.
The top U.S. wireless operator ended months of speculation and anticipation from impatient consumers on Tuesday by announcing that it would begin selling a version of the iPhone on February 10 at the same prices as AT&T Inc.
"I'm going to switch right away. I'm going to go back to Verizon," said Raheem Noble, 24, a New York City rapper, who was on his way to buy the device before being told that preorders would not begin until February 3.
The new device puts an end to AT&T's three-year-old status as the exclusive U.S. provider for the iPhone -- but leaves questions over how much Verizon Wireless would be able to capitalize on the deal with Apple.
For one, Verizon did not say what it would charge for its iPhone data and service plans when the phone goes on sale. There were expectations that it would trump AT&T by offering the device with unlimited data service plans.
Verizon likely will announce those prices before preorders begin, said Verizon Wireless Chief Executive Daniel Mead, who is preparing for "unprecedented" demand.
The phone will not work all around the world because it runs on the CDMA network, which is not supported in many big markets such as the United Kingdom and France.
In addition, Verizon's first iPhone customers may buy a phone that is outdated only months later if Apple upgrades the iPhone on its typical early summer launch schedule.
"Some buyers may want to wait for a new iPhone that is likely coming in June. I already had people coming to me asking, 'should I wait?'" said BGC partners analyst Colin Gillis. "On the other hand, a surprising number of people just don't want to wait."
Some analysts, pointing to years of pent-up demand among Verizon Wireless customers, expect it to sell 9 million to 13 million of the slim, touchscreen iPhone this year.
Verizon, a venture of Verizon Communications and Vodafone Group Plc, said the phone would be available at 2,000 of its stores. Prices with a two-year agreement are $199.99 for the 16-gigabyte model or $299.99 for the 32-gigabyte model -- comparable to what AT&T charges.
Apple said its Verizon Wireless deal was not exclusive, potentially leaving the door open for operators such as Sprint Nextel to sell iPhone as Sprint uses the same mobile technology as Verizon. Sprint declined to comment.
One upgrade in the new device compared with AT&T's iPhone 4 is that it will act as a so-called personal hotspot, which could connect as many as five different devices to the Internet via the phone's short-range Wi-Fi radio.
Kim Caughey Forrest, senior analyst with Fort Pitt Capital Group, which holds shares in Verizon, said she believes there are many people who have been reluctant to buy an iPhone because of worries about the quality of AT&T's network.
As an example she cited her home town of Pittsburgh: "A lot of people in Pittsburgh are really excited about the prospect of having a Verizon iPhone. I don't believe they are alone. I don't think we are a unique market," she said.Todd Rethemeier, an analyst with Hudson Square Research, agreed, saying that "as many as Apple can manufacture in that first year, Verizon will sell."
He added, "The average person, who has stuck with Verizon for the past three years, was suffering from iPhone envy."
On the other hand, AT&T is expected to face its toughest year since 2004 as a result of the Verizon deal with Apple.
AT&T, which has come under fire for patchy wireless service in some cities, nonetheless added an estimated 15 million new iPhone customers in 2010. It has tried to reduce its dependence on the iPhone by adding other devices to its service.
"For iPhone users who want the fastest speeds, the ability to talk and use apps at the same time, and unsurpassed global coverage, the only choice is AT&T," an AT&T spokesman said following the Verizon announcement.
Another company facing a threat from the new deal is phone maker Motorola Mobility, which has made a comeback as the flagship phone vendor at Verizon Wireless in 2010.
Motorola phones run on Google Inc's Android software, which has become Apple's most formidable rival in cellphone technology.
One problem for Verizon Wireless may be the high cost of selling Apple products, which come at a premium to other smartphones, analysts said.
Like AT&T, Verizon Wireless will have to shoulder part of the cost of the devices to convince people to sign long-term contracts.
Verizon Wireless will have to pay a $400 subsidy for each iPhone it sells if it keeps the price in line with AT&T's, UBS analyst John Hodulik estimated.
Shares of Verizon closed off 1.6 percent at $35.36, while AT&T shares were down 1.5 percent at $27.91. After reaching a record high the day before, shares of Apple slipped 0.24 percent to close at $341.64.
(Additional reporting by Gabriel Madway in San Francisco, Jim Finkle in Boston, and Jennifer Saba, Ritsuka Ando and Liana Baker in New York. Writing by Paul Thomasch. Editing by Robert MacMillan and Matthew Lewis)