As Verizon rolls out its own version of the iPhone, the AT&T business model is being tested. AT&T’s market share growth was largely dependent upon exclusive availability of the iPhone. iPhones went from 0% market share in late 2007 to 25% of all U.S. handsets in 2010. With Verizon now offering inexpensive iPhones on a better network, is the AT&T business model in trouble? A survey by Chitika claims that Verizon has already captured 12.7% of the U.S. iPhone market just weeks into its availability at Verizon. In addition, two-thirds of those switching to Verizon’s iPhone model are paying a termination fee to AT&T for the privilege.
Even with the enormous clout of the iPhone, AT&T has only been able to hold their market share constant at around 27% while Verizon has grown market share from 26% in pre-iPhone 2007 to 31% in 2010.
| Mobile Carrier Marketshare | ||||
| 2007 | 2008 | 2009 | 2010 | |
| AT&T | 26% | 28% | 29% | 27% |
| Verizon | 26% | 27% | 32% | 31% |
| Sprint | 23% | 19% | 18% | 12% |
| T-Mobile | 11% | 12% | 12% | 12% |
| Others | 14% | 14% | 9% | 18% |
It appears that “The Network” business model trumps the iPhone business model. Pre-iPhone, AT&T enjoyed 26% of the market. This percentage peaked at 29% in 2009 when network availability issues plagued iPhone users.
Loss of iPhone exclusivity raises several questions:
- Was the loss of the business model trump card the reason for purchasing T-Mobile?
- How can AT&T duplicate the iPhone business model success?
- Does AT&T need another iPhone-type winner to reinvigorate their business model?
- Does the merger with T-Mobile fix the over-capacity network issue or make it worse?
- T-Mobile’s pricing model was closest to Sprint’s. What percentage of T-Mobile customers defect to Sprint vs. stay with AT&T?
For business owners, the AT&T/iPhone experiment created several lessons. We can improve our own business models by paying attention to these lessons.
1st: Verizon may have a better network, but a cool phone trumps a better network
2nd: Customer service is over-rated. Scratch that – customer service is over-rated if you are the only one who can sell the cool phone. AT&T infuriated customers over dropped iPhone calls and sporadic network issues. However, virtually no one switched to the reliable Verizon network.
3rd: Partial exclusivity isn’t the same as total exclusivity. Customers are severely damaging AT&T’s business model by defecting to Verizon despite older iPhone technology.
4th: Apple proved that the phone matters more than the carrier. The mobile carriers spend billions building a network and the buying decision comes down to a $200 phone. It will be interesting to see if other headset manufacturers follow Apple’s lead and flex more muscle towards the carriers?
