Monday, January 10, 2011
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After enduring months of rumors about competition for the iPhone, AT&T Inc. executives are finally about to face their moment of truth.
On Tuesday, Verizon Wireless is expected to announce that it is getting the Apple Inc. phone around the end of the month, people familiar with the matter have said, ending AT&T's three-and-a-half-year exclusive run with the iconic device.
The announcement will kick off a battle as the two carriers fight to lure defectors and win over new customers. AT&T is expected to run new ads that will highlight what the carrier says are the iPhone's greater speed and better functioning on its network, a person familiar with the matter said.
Verizon Wireless declined to comment but has previously said its network is more reliable.
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AT&T Mobility CEO Ralph de la Vega says his network has been preparing for years for the loss of exclusivity for Apple's iPhone.
Beyond marketing, AT&T has taken other steps to prepare for losing exclusivity. It beefed up its investment budget last year to improve the quality of its oft-criticized network, rolled out a slate of new devices, cut the price of older iPhones and accelerated upgrades to new iPhones to lock more customers into long-term contracts.
Ralph de la Vega, chief executive of AT&T's wireless business, said the company has been preparing to lose its exclusive hold on the iPhone for a number of years and welcomes the competition.
"We are ready for it," Mr. de la Vega in an interview Monday. "The short- and long-term viability of AT&T will be good whether we have exclusivity or not. We are much bigger than this."
Last summer, when Apple released the iPhone 4, AT&T allowed any iPhone customer who would be eligible for an upgrade at some point in 2010 to immediately trade up to the new device as long as they signed up for a new two-year contract.
The tactic appears to have had some success. Credit Suisse estimates that AT&T will have 18.4 million iPhone subscribers at the end of 2010, of which 15.9 million, or 86%, will be under contract.
Morgan Schmit, 20, of Moberly, Mo., said her AT&T service is fine back home, but it suffered when she lived in New York City this summer. Although she plans to move to New York permanently, she won't be switching to Verizon any time soon.
"I just got this one so I'm stuck with a two-year contract," she said.
Sales estimates vary, but analysts think Verizon will likely sell seven million to 13 million iPhones this year.
Credit Suisse analyst Jonathan Chaplin estimates Verizon will sign up 9.6 million iPhone subscribers through 2012, and that 1.3 million of them will be defectors from AT&T, which had 67.7 million contract subscribers at the end of September.
A Consumer Reports survey last year ranked Verizon first and AT&T last in terms of network quality for major carriers.
New York City resident Bella Vellaguerre, 25, said that she was happy with her iPhone service until this past summer, when dropped calls became more frequent. She even decided to forgo an upgrade to the iPhone 4 this summer, because she didn't want to renew her contract with AT&T.
Now, with the Verizon iPhone on the way, she's considering a switch.
"I'm giving AT&T the benefit of the doubt, but if this does continue, I will switch," said Ms. Vellaguerre, who is a student at New York University.
Madison Avenue could be among the winners when AT&T and Verizon go head to head. The country's top two carriers are also among the biggest advertising spenders in the country.
In 2009, for example, AT&T spent $1.5 billion in the U.S. to pitch its wireless devices and services, while Verizon shelled out $1.8 billion on wireless ads, according to Kantar Media, an ad-tracking firm owned by WPP PLC.
During the first 10 months of 2010, each spent about $1.2 billion, according to Kantar.
"People are so excited about Verizon having the iPhone, AT&T has to respond," says Dean Crutchfield, chief engagement officer of brand agency Method. "I expected AT&T to go big with advertising especially in major markets such as New York, where they have had issues. The cards are stacked against AT&T, because people have been waiting for Verizon to get this phone for so long, but AT&T has to protect itself."
—Suzanne Vranica contributed to this article
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