The iPhone: What it Means for AT&T

Last Updated Aug 20, 2007 6:53 PM EDT

AT&T at iPhone PresentationAT&T is the exclusive iPhone carrier for the United States, which means you can expect every AT&T store in the country to overflow with customers at 6:00 PM local time on June 29. Demand is expected to be so high that AT&T stores reportedly will close shop for about two hours before the 6:00 PM launch, installing iPhone displays and roped queues to handle the anticipated lines. But earnings simply from retailing the iPhone won't be AT&T's biggest boon from its Apple partnership. Anyone wishing to be an iPhone-owner has to sign a two-year AT&T service contract, which means the telco could steal millions of customers from rivals like Verizon, Sprint Nextel, and T-Mobile.

AT&T chief executive Randall Stephenson said today that about 40 percent of people who showed an early interest in the iPhone are not AT&T wireless customers -- a strong indication the "ultimate digital device" will help the company pull customers away from rivals. If Steve Jobs is proved correct in his forecast of 10 million handsets sold worldwide by the end of next year, that could mean an additional 3 million customers for AT&T.

But it's not clear sailing for AT&T or Apple. The iPhone will operate on AT&T's EDGE network, one generation behind the latest data networks, which means Web pages will take longer to download on the iPhone than other devices operating operating on competitors' third-generation networks. And there's plenty of direct competition among super-smart handsets -- Dan Frommer at Forbes put together a thorough list of nine iPhone alternatives, and points out that every major cellular company is poised to offer a direct iPhone competitor:

Don't write eulogies for the other cellular companies yet. The iPhone is a threat to the wireless industry, but it's also helped convince millions that spending $500 or more on a cellphone, and another $40 per month for a wireless data plan, is completely within reason. Each competing carrier and handset company has juiced up its product line, marketing one or more new, high-end smart phones that mix phone calls, the Internet and multimedia capabilities like music and video players.
One point remains firmly in place, however: the iPhone is definitely the sexiest phone of the lot. But it's still in the air whether that chic styling and all the media hype can overcome a slower network, unfamiliar interface, and nine competing products. Stay tuned.
(Image of AT&T at Apple iPhone Presentation by Kainita, CC 2.0)