With iPhone, everybody wins: Verizon, AT&T and Apple

Carrier doesn’t seem to matter much with first quarter iPhone sales

iPhone sales at both AT&T and Verizon Wireless were healthy enough in the first quarter of 2011 to raise this question: Does the iPhone matter more than the network it runs over?
Verizon announced Thursday that it sold 2.2 million iPhone 4 units between Feb. 10 and March 31. By comparison, AT&T said Wednesday it had sold 3.6 million iPhones during the first three months of the year – sales that are proportional to Verizon’s, given the extra days AT&T had.

AT&T’s iPhone sales total for the first quarter also includes the iPhone 3GS, which went on sale for the bargain price of $50 with a service contract a month before Verizon sold its first iPhone 4. AT&T also sold the iPhone 4 over its own GSM/EVDO network, but still holds the iPhone 3GS exclusive. (AT&T didn’t break out sales for iPhone 3GS.)

What those numbers might reflect is that no matter which network it runs over, the iPhone is simply a terrifically popular smartphone. Apple’s latest quarterly results, also released on Wednesday, support that notion: Apple said it sold a record 18.6 million iPhones globally in the first quarter, the third consecutive quarterly record.

“The big message from the first quarter earnings is that Apple had a kick-ass quarter, and that the network to some extent is becoming irrelevant,” said Jack Gold, an analyst at J. Gold Associates. “Customers said, ‘I want an iPhone and will go to my favorite network to get it.’”

Gold added that, clearly, early termination fees and the need to buy a new iPhone that works on different network technology prevented some AT&T customers from jumping to Verizon. “That could be more than $600 with fees and a new phone, so there probably wasn’t a lot of network hopping [to Verizon], but we’ll see what happens when two-year contracts expire on a rolling basis in coming months.

“To some extent, there were people already on Verizon waiting for an iPhone to show up,” he said. “There was clearly pent-up demand.”

AT&T said last fall that it expected some disruptions when its iPhone exclusive in the U.S. ended, and executives cited that concern again on Wednesday. “Going into the quarter, we knew that with another carrier offering the iPhone for the first time, there was the possibility of some natural volatility and our mobile broadband strategy would be tested as never before,” said AT&T CFO Rick Lindner.

Ralph de la Vega, CEO of AT&T Mobility, added that “even though iPhone exclusivity ended in the first quarter, the churn impact was minimal.” He noted that the 3.6 million iPhone activations were up by 1 million from the first quarter of 2010, with 23% of those subscribers new to AT&T.

Kate Price, an analyst at TBR, said that AT&T had record sales of 5.5 million smartphones in the first quarter, including the 3.6 million iPhones, which “demonstrate[s] that the company successfully retained many current subscribers and prompted them to sign new contracts by upgrading them to new devices.”

With Verizon’s sales of 2.2 million iPhones in less than two months would put it on pace to sell 13.2 million in a year, or about 11 million in all of 2011– exactly what Verizon had predicted before its iPhone sales began.

Verizon’s ability to lure AT&T iPhone customers is thrown into question by this week’s first quarter results. Many customers had attacked AT&T network performance for the iPhone in its first three years in the U.S., especially in New York and San Francisco, which led some to predict a wholesale departure of AT&T iPhone customers to Verizon. Some analysts had even predicted half or more of the 11 million new Verizon iPhone customers in 2011 would leave AT&T.

While some iPhone customers may be dumping AT&T for Verizon, there also seem to be plenty of customers without an iPhone willing to join either network just to get the device. That’s a scenario where Verizon, AT&T and Apple all win — thanks to the popularity of the iPhone.