Earlier this year, when Verizon Wireless launched its version of the iPhone 4, many had predicted the end of AT&T. After all, Apple helped propel AT&T forward as the leading carrier for smartphones, and the two were nearly synonymous with the word 'smartphone.' As a result of this relationship, AT&T drew new subscribers to the iconic device, and saw many of its own customers eventually switch over as well. Each annual update to the iPhone became a party for AT&T, with the most loyal Apple fanboys and fangirls upgrading to the latest version. At the same time, the iPhone became a drain on AT&T's available bandwidth, with users in key markets not even being able to receive phone calls.
When the announcement came out that the iPhone would become available at competitor Verizon Wireless, many had envisioned AT&T iPhone owners switching over in droves. Verizon Wireless's marketing campaign of having America's most reliable network would be a boon for frustrated AT&T iPhone owners, even if it meant sacrificing simultaneous voice and data capability from the iPhone experience. Verizon Wireless probably took no small pleasure in producing commercials promising "I can hear you now" with the iPhone. By the end of the first quarter of availability, Big Red had signed up 2.2 million iPhone users to its network, and will most likely continue adding more as the year continues.
But what of AT&T?
AT&T reported no major churn of iPhone customers in its first quarter 2011 earnings release, hinting that its installed base of iPhone users remained strong and was still larger than what Verizon Wireless had. This was proof that the sky had not fallen and that the sun still came up the next day for AT&T.
The story could just stop there and we could re-assess the results in both companies' second quarter 2011 results next quarter. But take a look at what AT&T has been up to, other than the iPhone. Yes, the first story that comes to mind is its bid to purchase T-Mobile, and that should not be overlooked. AT&T has also been quietly building its Android-powered smartphone portfolio, something that it had not yet fully developed as its competitor carriers had done. Last year, while T-Mobile had its lineup of self-branded Android smartphones, Sprint with its Evo 4G smartphones, and Verizon Wireless with its immensely popular Droid smartphones, AT&T offered only a few models like the HTC Aria, the Motorola BackFlip, and the Samsung Captivate. But look how its Android portfolio ramped up since January of this year to compete with Verizon Wireless.
- Motorola Atrix 4G. The release of the Motorola Atrix 4G in February raised two important points. First, that just as AT&T was preparing for the release of the iPhone at Verizon Wireless and looked for a response, Motorola was also preparing for the same, and looked for a competing carrier in search of a response. It was a win-win situation for both companies. Second, AT&T took the battle to a still untapped segment for potential Android customers: enterprise users. To date, most Android smartphones primarily targeted consumers. Motorola had just released the DROID Pro at Verizon Wireless at the end of 2010. Both the Atrix 4G and the Droid Pro have much in common, but the Atrix 4G upped the ante with the Lapdock keyboard.
- HTC Inspire 4G. Much ado was made when the HTC ThunderBolt arrived at Verizon Wireless in March, and deservedly so: it was the company's first LTE smartphone, complete with its own marketing campaign. The ThunderBolt delivered on promised LTE speeds, and was altogether a solid Android experience. It only suffered from a series of delays to market and fast battery drainage. What did AT&T have to offer? The HTC Inspire 4G. Launched nearly a month before the ThunderBolt, the Inspire 4G featured many of the same features and specs (minus the LTE connectivity), and likewise offered a solid Android experience.
- Samsung Infuse 4G. This is AT&T's most recent addition to its Android family, sporting a generous 4.5 inch screen and a 1.2GHz processor. Its counterpart at Verizon Wireless? Perhaps the Samsung Droid Charge, which offers a slightly smaller screen (4.3 inches) and a slightly slower processor (1 GHz processor). Given their similarities, it's safe to assume that both carriers are going after the same market segment.
Now that AT&T has proved that there is indeed life after iPhone exclusivity and that Android is a big part of that, what comes next? For as much as the smartphone market has grown in the United States over the past several years, it's still the Wild West out there. Moreover, it's not just an AT&T vs. Verizon Wireless contest, as Sprint and T-Mobile also have vibrant smartphone communities themselves, in addition to numerous smaller carriers growing their own smartphone portfolios and customer bases. Still, there are opportunities to be had:
- Operating Systems. No carrier has stepped up as the champion for Windows Phone or webOS smartphones yet. Both operating systems are in their early days, and provide a well-differentiated experience from what is currently available on the market today.
- Prepaid smartphones. This is an interesting battlefront yet to be fought. Prepaid services remain a popular option for many users in the United States, but smartphones continue to elude this segment of the market. Only recently have carriers begun experimenting with prepaid smartphones (AT&T recently announced the LG Phoenix/Thrive for prepaid customers), but this is still the exception and not the norm.
- Entry-level and mid-range smartphones. Feature phone users continue to switch over to smartphones, but not all of them will be ready for something fully featured. To that end, entry-level and mid-range smartphones with slower processors and smaller screens will do well to serve this segment of the market.
- Lower prices for high-end smartphones. When AT&T launched the HTC Inspire, it retailed at $99.99, something nearly unheard of for a high-end phone. Will we see a new iPhone retail at that price? Unlikely. But it is a trend worth watching in the market as carriers attempt to put more smartphones into customers' hands.
Ramon Llamas is a senior research analyst with IDC's Mobile Devices Technology and Trends team. In his role, Llamas tracks the quarterly results of the leading and emerging mobile device vendors, and uses the data to forecast the short-term and long-term direction of the mobile device market, and how it affects handset vendors, carriers and customers. He recently released his worldwide mobile phone and smartphone 2010 - 2014 forecasts, as well as a worldwide forecast of the mobile phone touchscreen market. In addition to being featured in FierceWireless, Llamas has been featured on Bloomberg Radio, National Public Radio, and quoted in Investor's Business Daily, the New York Times, and the Wall Street Journal. Llamas can be reached at [email protected].