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New iPhones Should Expand Apple’s Share

The expansion of Apple’s iPhone lineup, and the re-pricing of the 8GB iPhone 3G to $99, will expand Apple’s cellphone market share and put downward pressure on the price of other phones that feature touchscreens but lack hard QWERTY keyboards, various analysts contend.

The expanded lineup includes two variations of the new iPhone 3G S, due in a $199 16GB version and a $299 32GB version on June 19 through AT&T, Apple, Best Buy and Walmart stores. The line also includes the current 8GB iPhone 3G, re-priced down to $99 from $199, and the 16GB iPhone 3G, reduced to $149 from $299. The latter will be available only while supplies last, but the 8GB 3G will continue to be “actively offered,” an AT&T spokesman said.

The 3G S models feature faster processors, faster wireless-download speeds and more memory capacity than the current iPhone 3G models, and they will ship with an iPhone 3.0 OS that enables wireless downloads of movies and TV shows wirelessly from the iTunes store. The 3.0 OS will also be available for free downloading to current iPhones on June 17 and to the iPod Touch.

The prices are available only with a two-year service contract and qualifying service plans starting at $69.99/month, including unlimited data usage. iPhone service-plan prices and features have not changed with the launch of the 3G S, AT&T said. Without service plans, the prices of each phone jumps by $400. Special upgrade prices will be available to existing AT&T subscribers who are about 18 months into their two-year contracts, but the prices won’t be as low as they would be with a new two-year contract.

The iPhone’s new starting price of $99 will expand the potential customer base for the iPhone, and it will put some pricing pressure on competing phones, said Carl Howe, a Yankee Group research director, but he cautioned that the market-share impact would not be outsized. The iPhone is after “a targeted piece of the phone market, and it’s a high-end one,” he said, citing average monthly service costs of at least $69.99. In addition, because the iPhone lacks a hard QWERTY keyboard, it does not appeal to consumers who prefer a hard keyboard for email and texting. Those consumers include BlackBerry aficionados as well as people who would buy the new $199 Palm Pre, which combines touchscreen with slide-out keyboard. (See p. 6 for other cellphone introductions.)

The $99 iPhone “puts some pricing pressure on the competition,” he said, but the price pressure will be felt more by touchscreen-only phones, including Windows Mobile and Android touchscreen-only smartphones and new touchscreen-only multimedia phones from the likes of LG and Samsung.

As for future iPhone market share, Piper Jaffray analyst Gene Munster said sales of the iPhone 3G doubled after the opening price was reduced last year to $199 from $399. Given the economy and the already large installed base, however, it’s not certain whether sales would double again because of the economy and the already large installed base of iPhone users.

The 3G S looks like the current 3G, but besides the previously announced upgrades enabled by the 3.0 OS, the iPhone 3G S adds 7.2Mbps high-speed downlink packet access (HSDPA) cellular-data technology. The AT&T network technology doubles theoretical peak download speeds from the 3.6Mbps available to the iPhone 3G, whose actual throughput averages 700kbps to 1.7Mbps. AT&T will roll out 7.2Mbps HSDPA beginning later this year and will finish the rollout in the latter half of 2011, a spokesman said.

Besides the new OS, the new iPhones add the following features not available previously:

  • upgraded camera with 3-megapixel resolution, autofocus, auto white balance, macro focus, low-light capability and a “tap to focus” feature in which users tap on an object in the display to adjust focus and exposure;
  • digital compass integrated with map displays;
  • voice control of phone functions, applications and dialing;
  • reduced application launch times;
  • longer battery life;
  • OpenGL ES 2.0 standard for improved 3-D graphics; and
  • built-in communication with the optional $19 Nike+iPod sensor to track miles run or sync with the latest generation gym equipment.

The 3.0 OS itself delivers the following new features:

  • remote wipe, which lets subscribers remotely delete all stored data from a lost iPhone;
  • a Find My iPhone feature, which lets users push messages to lost phones to notify the finder to call the owner at a certain number; if the iPhone is returned, wiped-out data can be restored by connecting to the iTunes site; and
  • downloading of purchased or rented movies, TV shows and music videos from the iTune store.

These three features were not among the features mentioned by Apple earlier this year when it announced plans for the iPhone 3.0 operating system, but the company did disclose more than 100 other OS features at the time,

The 3.0 software is available June 17 as a free software update to existing iPhones but costs $9.95 for Touch users.