AT&T makes amends on iPhone 3.0
With the official launch of the iPhone 3G S today, AT&T is adjusting its practices towards WiFi, eligibility, prepaid iPhone owners
Those who attended Apple’s (NASDAQ:APPL) developer conference earlier this month picked up on a few black marks against its exclusive United States partner AT&T (NYSE:T) – namely its lack of tethering and MMS support - as it unveiled the new iPhone 3G S. But this week, in preparation for the official launch today, AT&T has made several concessions to its consumers and to its network.
Forthcoming tethering and MMS support are still just rumors at this point, but AT&T did announce this week that it will support auto-authentication for consumers using the iPhone 3.0 operating system and wanting to connect to AT&T WiFi Hot Spots. The service automatically takes consumers off AT&T’s 3G network and connects them to WiFi without the need for the previous two-step prompts. All AT&T customers can access its more than 20,000 hot spots in the US for free, but the auto-authentication will make it faster and seamless for iPhone users. For AT&T, it means less capacity constraints on its 3G network.
“There are compelling benefits for the end user and for the operator when the device is on the WiFi network,” said Edgar Figueroa, executive director of the WiFi Alliance. “Among them are performance, especially with all the multimedia features that are becoming popular; the end user benefits. And the operator is using the unlicensed frequency and reserving the licensed spectrum for value-added services like their phone service.”
AT&T has been upgrading its 3G network with plans to start migrating it to evolved-high speed data access (or HSPA+), which would triple peak speeds. At the same time, it has also been building its hotspot presence, acquiring hotspot provider Wayport in December for access to 60,000 global hotspots. In Starbucks alone, the carrier has increased hotspots to 7,000. AT&T also reported authenticating 10.5 million WiFi connections in total across the country in the first quarter. According to AT&T, smartphones – including the iPhone 3G – accounted for more than four million of these WiFi connections made on its hotspots in Q1.
On the other hand, AT&T has also restricted certain apps, namely the Skype app and SlingPlayer on the iPhone, to use only on WiFi. Figueroa quoted ABI Research’s findings that three out of four people with WiFi on their device actively use it, so today’s announcement could help decrease the instances in which this is a limiting factor. “I don’t know how many [carriers] are doing this now, but it’s a trend you are going to continue to see,” he said.
NO MORE PREPAID IPHONES
Earlier in the week, AT&T also informed its prepaid customers that they would no longer be eligible for iPhone service following the iPhone 3.0 update, released on Wednesday. According to JBB Research principal analyst Julien Blin, it was a smart decision on the carrier’s part. Now that the original iPhone 3G is available for only $99, AT&T’s low prepaid average revenue per user (ARPU) could have weighed on its total ARPU, potentially even cannibalizing it as the $99 phone gained traction amongst prepaid customers. While AT&T’s prepaid customer base is significantly less than its postpaid business, Blin said the carrier most likely didn’t want to risk damaging total ARPU over time.
“Today, while leading carriers are not seeing the full impact of the prepaid offering, many leading carriers are still experimenting, trying to find the right formula and take advantage of the fast-growing prepaid market without cannibalizing their postpaid offering and impacting their total ARPU and churn,” Blin wrote in a research note. “Carriers like Boost Mobile have done a good job managing such issue, but I am not sure that AT&T would have been able to do so.”
MORE CUSTOMERS UPGRADE ELIGIBLE
AT&T’s decision to cut off prepaid users may have been smart, but its decision to double the charge for existing iPhone users was anything but savvy. In a concession to existing AT&T users and the more than 4,000 consumers who petitioned against it, AT&T said this week that it would do away with the hefty upgrade fees for those customer eligible for upgrade anytime between now and the end of September – as long as they also pay at least $99 per month in service fees per phone line.
Prior to this change, the iPhone 3G S would have cost those non-upgrade eligible customers $399 versus the $199 it will cost others. Only new customers and those who had owned the iPhone for 12 to 18 months would get the advertised prices of $199 for the 16-gigabyte version or $299 for the 32GB version. With the new adjustment, those consumers who still don’t fall in the eligibility period can purchase the iPhone 3G S today for $599 for the 16GB version or $699 for the 32GB version sans a two-year contract. Or, they can wait until they are eligible with AT&T’s apologies.
“Like most U.S. carriers, we offer a variety of phones that we sell below our actual cost when customers agree to sign service agreements,” AT&T said in its memo to customers. “In general, the more a customer spends with us, the quicker they become eligible for a price break on a new device…All of that said, we’ve been listening to our customers. And since many of our iPhone 3G customers are early adopters and literally weeks shy of being upgrade eligible due to iPhone 3G S launching 11 months after iPhone 3G, we’re extending the window of upgrade eligibility for a limited time.”
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