Apple iPhone faces line of challengers

Industry is accustomed to bruising competition

June 10, 2007|By David Ho | David Ho,Cox New Service

NEW YORK --To hear many wireless companies talk, the iPhone from Apple and AT&T is a welcome industry addition.

It will spur interest in mobile technology and music phones, they say, while posing little competition because of its high price.

But that hasn't stopped carriers and handset makers from bracing for a fight.

"iPhone killer" is the popular behind-the-scenes term at many companies, said Jupiter Research analyst Michael Gartenberg. "There're going to be things with big screens, with touch screens, things that are media-centric, that are music-centric."

"Expect to hear that phrase a lot in the months ahead as other handset vendors or carriers who aren't offering the iPhone are going to try to offer equivalent products," Gartenberg said.

While Apple Inc. revolutionized and then dominated the digital music world with the iPod and iTunes, questions remain about whether it can or even intends to repeat that success in the wireless market, where entrenched corporate giants are accustomed to rapid change, bruising competition and very different strategies.

Verizon Wireless, which passed on being an iPhone carrier and is the chief wireless rival of San Antonio-based AT&T Inc., is working with a handset maker to launch an iPhone response this summer, executives say.

With the iPhone initially an AT&T exclusive, New York-based Verizon also is emphasizing its network as a superior choice.

"For us to lose sight of that and focus on a single device wouldn't be good business," Verizon spokeswoman Brenda Raney said.

"Most of our customers walk into a store for a lot more than a device," she said. "The `idevice' isn't designed to meet the needs of all those customers, so the response could well be doing what we do well."

But by embracing Apple's product and hot brand name, AT&T has made itself stand out, said Hugues De La Vergne, a Gartner Inc. analyst.

"It gives them a significant advantage," De La Vergne said.

"Operators [such as AT&T] have traditionally focused on their networks and not the handset manufacturers. In this case it's a little different," De La Vergne said.

No. 3 carrier Sprint Nextel Corp. has its own response: Bring it on.

"Sprint has been leading the wireless industry in the area of music," said Oliver Valente, Sprint Nextel's senior vice president of product management and development. "It's a very competitive industry right now, and Sprint welcomes the competition."

The digital music player industry where Apple dominates makes money from hardware sales and not services, but it is the reverse with wireless, Valente said. "We're talking apples and oranges, no pun intended," he said.

This means a high-priced handset such as the iPhone, which is expected to cost $499 and up, "will not be a mass-market mover," Valente said. He said music phones costing less than $100 sell the most.

While Apple has been praised for the iPhone's elegance, many in the industry point out that some of its touted technologies, such as a touch screen, are not unique among the world's high-end handsets.

South Korea's LG Electronics Inc. teamed up with the fashion brand Prada to create a large touch-screen phone that's available in Europe and bears more than a little resemblance to the iPhone. Samsung Electronics Co.'s Ultra Smart F700, announced in February, offers up a phone-spanning touch screen plus a slide-out keyboard.

Apple says it intends to sell about 10 million iPhones next year, which would give it about 1 percent of the global handset market.

That relatively modest ambition is one reason the big players are not "shaking in their boots," said Charles Golvin, a Forrester Research analyst.

Nokia Corp., the world's No. 1 cell phone maker with more than a third of the global market, sees the iPhone as validating its vision for phone handsets that merge many technologies, said Bill Plummer, Nokia's North American vice president for multimedia.

But Gartenberg warned that people who are "dismissive of Apple's role in the phone market are going to do so at their own peril."

"Apple has shown a tremendous ability to understand what the market wants and to provide those products," he said. He said that if someone had said five years ago that Apple would in 2007 be the dominant player in digital music, "it would have been crazy."

Analysts say Apple's challenge is to build upon the iPhone the way it did with the original iPod, growing the new business quickly by unleashing a family of iPhone models that appeal to a broader audience.

"I would expect them to revise this product as quickly, if not more quickly, than they update the iPod product line," Gartenberg said.

However, there are limits to how low Apple will go in making iPhones affordable, Golvin said. He said Apple has no interest in ruling the world of cell phones the way it dominates digital music players.

"The bulk of what Nokia, Motorola, Samsung sell today are low-end phones," he said. "They're not really targeted to the type of users that Apple wants."

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