Analysts Weigh iPhone 4 Potential To Grow Share

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NEW YORK — New features, better performance, lower-cost pricing plans from AT&T, and a financial incentive to current iPhone users to upgrade to the iPhone 4 will drive up iPhone sales this year, but it’s not certain whether Apple will continue to gain U.S. smartphone share in the face of continued AT&T network congestion and growing competition from the Android OS, some analysts said.

“The level of competition in the North American smartphone market continues to increase, and handsets like Droid-branded phones from Verizon Wireless, the Evo 4G from Sprint, and upcoming handsets like the Samsung Galaxy S will be an attractive alternative,” said Strategy Analytics analyst Alex Spektor. “AT&T has addressed the issue of monthly data cost in order to help its attractiveness, but congestion remains an issue — especially in areas like New York and the Bay Area — which may cause potential iPhone buyers to look elsewhere.”

iSuppli senior director Jagdish Rebello said he believes the iPhone 4’s highresolution “retina” display, iPhone 4-to iPhone 4 video chat capability via Wi-Fi, HD video recording, and high-flux LED flash (comparable in intensity with Xenon flashes but with no recharge time) “will help drive some of the upgrade cycle and bring in new users.” Given the iPhone’s already large installed base and Android’s competitiveness, however, he’s not sure the growth momentum behind the new iPhone will be as strong as it was for previous-generation models.

All three of AT&T’s national competitors, Rebello noted, offer Android phones, and the OS “provides something to counter” the iPhone. Although “Android doesn’t lure customers from Apple, it makes customers think twice about jumping to another network [AT&T].” “In many cases,” he noted, “Android is as good as the iPhone.”

Another potential challenge facing Apple in raising its market share, according to a Nielsen Company survey, is that given the iPhone’s larger user base, “more iPhone consumers are willing to try Android” than the other way around. Nonetheless, 80 percent of iPhone users want the iPhone OS in their next smartphone, whereas 70 percent of Android users say the same about their OS, the survey noted.

For now, demand for the iPhone 4 has been strong, based on preordering volumes. Consumers in five countries, including the U.S., preordered more than 600,000 iPhone 4 smartphones on June 15, the first day the device became available for preorder.

The unexpectedly high volume, Apple admitted, caused Apple and carriers to suffer “many order and approval system malfunctions.”

In the U.S., AT&T said its pre-order sales on June 15 were 10 times higher than they were for the first day of iPhone 3G S preordering.

Should growth in iPhone share stall despite initially strong demand, iPhone sales nonetheless will likely continue to grow because the overall U.S. smartphone market is growing. “The capabilities of smartphones are convincing more and more consumers to make the leap from a simple mobile phone to a more sophisticated device,” said Nielsen Company analyst Don Kellogg. He noted that 23 percent of U.S. cellphone users owned a smartphone in the first quarter, up from 16 percent in the second quarter of 2009.

He also noted that the iPhone and the Android OS both increased their share of the smartphone user base by 2 percentage points in the first quarter compared to the fourth quarter of 2009, bringing iPhone share to 28 percent of all smartphones in use and Android share to 9 percent. BlackBerry share fell 2 percentage points to 35 percent, and Windows Mobile share fell 2 points to 19 percent.

One development that could help the iPhone continue to gain share is AT&T’s launch of two less-expensive smartphone data plans, priced at $15 and $25 per month for preset amounts of data usage, and the elimination of the company’s $29.99/month unlimiteddata plan for new subscribers. The unlimited plan had been the only data option available for AT&T smartphones.

AT&T described the change as a way to expand the potential smartphone customer base, although analysts also saw it as a way for AT&T to control data usage by a small percentage of subscribers — mainly iPhone subscribers — who use a disproportionate amount of data traffic and slow data service for other users.

Although the new data options apply to any AT&T smartphone, it incentivizes smartphone users to jump to the iPhone from other networks where higher priced unlimited-data plans for smartphones are the only option.

Current iPhone users who prefer to keep their unlimited-data plans will be allowed to if they trade up, an AT&T spokeswoman added.

AT&T’s other incentive to keep the iPhone’s share-growth momentum going is the carrier’s decision to offer discounted new-subscriber pricing to existing iPhone users who would be eligible for a discounted phone before the year is out, analysts noted.

Feature upgrades will also drive iPhone replacement sales, analysts said.


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