The AT&T iPhone exclusive has proved a major coup for its operator, despite onerous contract terms, but what of the US-based HSPA user who has not been captivated by the Apple device? The gulf between the range of smartphones available on US W-CDMA/HSPA networks, and those available in other countries, or on US CDMA systems, is growing larger, as more and more cutting edge HSPA models debut with no US carrier in sight. This could see AT&T or T-Mobile consumers defecting to CDMA carriers, or going down the open access route more quickly than is comfortable for the control-loving carriers. And if, as heavily rumored, Verizon Wireless gains its own iPhone as soon as one year away, AT&T’s over dependence on a single star performer could be cruelly exposed.
Although the terms of AT&T’s deal with Apple are a closely guarded secret, many sources indicate that it could ‘ at the worst case for AT&T, and depending on several variables ‘ come to an end in late 2009. Although the original deal was widely believed to be a five-year contract, lasting until 2012, when Apple revised its revenue sharing policies with the 3G launch, it supposedly got more flexible, performance-related terms on the length of exclusivity, and at least the option to end its deals around 2010. This has sent AT&T and the UK’s O2 scurrying to boost iPhone sales and keep Apple sweet.
Possibly in readiness for a multicarrier scenario in the US, Apple is reported to be working on a CDMA version of the iPhone, a move that would enable it to offer the handset to a new set of operators, notably the Koreans, plus some cellcos in India, China and Latin America. Once its exclusive with AT&T (and Rogers in Canada) ended, it could also offer its popular handset to Verizon Wireless, Alltel, Sprint, Telus and Bell Canada ‘ and some even speculate that it could classify a CDMA iPhone as a different product and so get it into the US CDMA market even before the AT&T contract runs out.
Insider reports say that Apple has been looking to hire CDMA engineers for several months and could unveil the new iPhone as early as Macworld 2009 in January.
“No matter how big AT&T is and how much range they cover, leaving out Verizon and to a lesser extent Sprint, will be eliminating a broad swathe of the US wireless market. If Apple is serious about competing with BlackBerry, Symbian and Android, it will have to broaden their carrier footprint,” commented one analyst. This may, however, miss the point of the CDMA activity, which could be geared more immediately to pushing the iPhone’s presence in emerging markets, where it has only a nascent presence, and which will be crucial now that Apple is dropping prices and looking for volume, especially with Nokia shifting the goalposts to create a midpriced mediaphone subsector heavily geared to India (see separate item on Tube).
In the US, Verizon Wireless and its co-parent Vodafone were the carriers originally approached by Apple, but rejected its burdensome terms. Vodafone has now agreed to take the iPhone in various territories, though on a non-exclusive basis and with more carrier friendly agreements in place, and so Verizon Wireless may well be thinking on the same lines. With new figures indicating that nearly half of US iPhone subscribers are defectors from another network, Verizon will certainly be keen to get its share of the Apple effect, especially as its advanced EV-DO network could well deliver a superior iPhone experience to the glitchy AT&T one. Apple’s COO Tim Cook recently added fuel to the fire of speculation by commenting that the company was ‘not married’ to any one carrier.
Apart from doubtless tricky contract negotiations, and potential legal battles, with AT&T, there would be some other obstacles to getting an iPhone on to CDMA networks any time soon. For instance, Verizon would not be able to offer the device as a lure for its network-in-progress in 700MHz, since this has to be open access, and the locked-down iPhone would go against the new open approach that the CDMA leader is marketing heavily, and with which it hopes to steal a march on AT&T among the mobile web community, the big spenders on cellular services.
There would also be some conflicts, in terms of margin, marketing position and revenue share, with other Verizon star handsets. The carrier will be reluctant to damage the significant hold it has, in terms of influencing design and branding, over phonemakers that have remained loyal to the CDMA network even amid its likely decline. The CDMA ecosystem is a far tighter and more inter-dependent beast than the GSM/HSPA equivalent, and balances of power must be carefully protected, especially with Verizon in the position of lead cellco and king of the hill in the sector.
Its influence over network and device technologies in CDMA have helped it achieve a 3G system that is more efficient and more highly performing, especially in IP terms, than AT&T’s or the nascent T-Mobile 3G network. This, in turn, has attracted some strong smartphones, despite the negative impact of the iPhone marketing machine. Without iPhone ‘ and, possibly, the future impact of Android phones like T-Mobile G1 ‘ the HSPA network user in the US looks sadly hard done by.
Most of the hot smartphones of the pre-holiday season this year are debuting first in western Europe, currently the hotbed of webphone demand and innovation (in Japan and Korea, there is less excitement because the consumers are more used to the advanced, though semi-proprietary, mobile software experience that they have been offered for years). As HSPA networks extend their range by the day, European consumers will face a stunning array of smartphone choices that the vendors hope will tempt them to spend their Euros even during a downturn ‘ with the Nokia Tube, Sony Ericsson Xperia X1, LG Renoir, Samsung Omnia and RIM Storm just some of the contenders.
Many of these phones have no plans ‘ or delayed plans ‘ to launch in the US, unless they can win a carrier deal to justify the expense of tailoring the device and marketing it for north America. But this looks unlikely in many cases, because of the heavy focus of AT&T on the iPhone and T-Mobile on the G1, which will make them wary of inviting competitors into the fold. More generally, there are cultural differences in how these carriers deal with phonemakers, compared to their European counterparts, and AT&T in particular prefers to rely on US-based device vendors, which are more used to its holding a large measure of control, or smaller manufacturers, which are easier to influence than Nokia and Sony Ericsson.
Because AT&T and T-Mobile are the only major carriers supporting W-CDMA/HSPA ‘ and their networks are currently well behind those of Europe and Japan in tuning and functionality ‘ there are severely limited channels for new devices.
This has kept Nokia and Sony Ericsson on the sidelines, and although LG has made significant progress in the US on the CDMA networks, the HSPA market is far higher risk ‘ it would have to create rebanded models and possibly be left selling them directly rather than via a major cellco.
Of course, as the iPhone’s very ordinary camera shows, there is less demand in the US for top-of-the-range photography or other multimedia features, so superphones like the Renoir or Nokia N96 might currently be overkill for the market ‘ though arguably Americans buy less highly specified mediaphones because they are not offered them, at least on HSPA. This has put the CDMA networks well ahead in terms of high end handset choice, with LG thriving with sophisticated models like the Chocolate.
This leaves AT&T and T-Mobile making a massive fuss about the cutting edge devices they do have ‘ notably the iPhone and Android G1 ‘ but severely over-dependent on the continuing success of a few, largely homegrown, handsets, in a notoriously fickle market. Loss of the iPhone exclusive, and the likely appearance of Android models on CDMA and WiMAX in the first half of next year, will put the HSPA carriers in a serious dilemma, which may prove the moment for Nokia to strike.