AT&T’s massive iPhone blunder
Some numbers:
- Verizon Wireless has about 87 million subscribers. (ref)
- Before the iPhone’s release, Verizon had about 61 million subscribers (ref). Much of their growth to 87 million was from the recent acquisition of Alltell, which brought about 15 million. (ref)
- AT&T has about 77 million subscribers. (ref)
- Before the iPhone’s release, AT&T had about 62 million subscribers. (ref)
- About 21 million iPhones have been sold worldwide. (ref)
- Most new subscribers to AT&T since the iPhone’s release have been iPhone buyers (ref, ref). Presumably, a very large portion of them had previously owned another mobile phone, so they came over from another carrier. And, given Verizon’s size, it’s likely that a very large portion of them came from Verizon. By the numbers and their relative growth rates, it seems reasonable to assume that Verizon has possibly lost 5 million subscribers to AT&T just for the iPhone.
Getting the iPhone exclusive could be the best thing that AT&T has ever done for their wireless business.
And what have they done with that great fortune so far?
Well, one thing they haven’t done is adequately expand their capacity. Cellular networks have been able to add major features (such as web browsing, conference calling, photo- and video-MMS, media streaming, and tethering) quickly in the past because an incredibly tiny percentage of people would ever figure out how to use them. The networks were hardly touched for anything except voice calls and SMS. Most people didn’t buy smartphones, and those who did rarely used anything beyond a regular phone’s data capabilities except email. They hardly even browsed the web because mobile browsers were so awful.
The iPhone has dramatically changed that. iPhone owners actually use the data network far more than owners of other devices because the functionality is finally accessible and pleasant to use, and many iPhone buyers have never owned another smartphone — they came straight from dumb flip-phones.
So while the iPhone has been a boon to AT&T — not only did they get a huge influx of customers, but iPhone users spend twice as much as AT&T’s average on their monthly bills — the additional network burden is significant. As soon as these trends became apparent to AT&T (easily within 2 months of the original iPhone’s 2007 release), they should have scrambled to expand their data-network capacity.
Instead, they sat on their asses and enjoyed the extra profits. AT&T has always been a “cherry-picking” network, building out coverage and upgrading speeds only when absolutely forced by competitors, and then only doing the bare minimum and only serving the most profitable areas.
I certainly can’t disagree with the fact that AT&T hasn’t been investing part of their proceeds from iPhone revenue into their clearly deficient network. But I think it’s worth questioning whether Verizon’s or Sprint’s network could manage the same number of iPhones that AT&T is struggling with. As you mentioned, iPhone owners are far more likely to use data-intensive services than owners of other smartphones (let alone cell phones as a whole), and I think it’s very likely for the two other major US carriers to at least have issues with a CDMA iPhone deployment, even if they aren’t to the same scale that AT&T has faced.
Their mistake was in the assumption that AT&T was getting a bunch of new, loyal customers. In reality, iPhone owners are loyal only to the iPhone. The carrier is just a required utility given a few pixels in the corner to show their name. That’s it. We’re as loyal to AT&T as we are to our electric company.
The same passion that drove all of these customers to abandon the excellent Verizon network for this awesome device is also pushing them to demand more functionality and more bandwidth. iPhone users pay twice as much as flip-phone users, but AT&T can’t just pocket the difference — we have high data needs that we expect to be served for that additional money.
And now, the network is so strained and AT&T is so slow-moving that they’re holding Apple back, cramping the iPhone’s growth, and leaving them vulnerable to competing devices on better networks.
This is a type of situation that seems to occur on occasion in the world of technology. Beta was technically superior to VHS, but lost out, partially due to VHS taking hold of the rental market (the analogy to the superior networks, if you will). I can’t see the iPhone ever being another Beta, given its success, but stranger things have happened.
AT&T was given a great fortune with the iPhone exclusive, but they’ve completely failed to do anything to hold onto it. As soon as there’s a better option, they’ll lose a big portion of iPhone users who feel no loyalty to them because they’ve done absolutely nothing to deserve any.
