A few holes in the Cingular-Apple strategy

 

As we reported yesterday, Apple CEO Steve Jobs unveiled the iPhone [1] at the MacWorld event. Today more details are starting to emerge about Cingular Wireless' relationship with Apple. The Tier 1 carrier scored an exclusive two-year deal for the Apple iPhone in the U.S., which could prove very lucrative for the carrier in the long run. However, the positioning of the new smartphone within the carrier's portfolio will be tricky and there are a few holes in the Apple-Cingular strategy.

Analysts seem to agree that going the smartphone route was savvy: John Jackson, VP and senior analyst at M:Metrics notes: "The decision to design the iPhone with a smartphone orientation was a very wise, yet unexpected move that puts Apple squarely against Microsoft and the Nokia N-series. Whereas the expected profusion of music-centric devices would dilute the value of an iPod-like phone, the demand for smartphones is steadily growing, and now Mac enthusiasts can finally get their hands on the seminal Apple mobile device."

The pricetag, however, which ranges from $500 to $600 will prove to be a barrier to entry, especially for a smartphone that will run on Cingular's EDGE network and not over HSDPA. Iain Gillott, analyst with IGR, speculates that users will get frustrated with the slower EDGE network particularly since some of the new smartphones operate over higher-speed networks such as HSDPA or 1xEV-DO. "It makes no sense to me," Gillott says. While the iPhone boasts Web surfing, Yahoo email and other slick-looking applications, an EDGE network connection--with average speeds ranging from 80 kbps to 110 kbps--is not appropriate support for what is supposed to be a game-changing handset. Since the deal has been in the works for nearly two and a half years, Gillott wonders as to whether Cingular/Apple was uncomfortable pushing ahead with HSDPA functionality for fear the chipsets would not be ready in time.

Another concern for Cingular should be the mobile music service it launched this past September. While the pricing of the iPhone is sure to relegate it to the high-end of the mobile user spectrum, it's curious that Cingular hasn't addressed its relationship with iTunes moving forward or whether this handset could cannibalize the music service it just recently launched. How will Cingular position this phone against its other music phones?

For all the specs and details on the phone, check out this previous post [2]. -Brian [3]