The iPhone's Wary New Rivals

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What's more, some loyal Mac-heads are rebelling against high prices to upgrade to the iPhone 3G S. Existing users upgrading to a newer device typically account for about 20% of new-model sales during the first quarter of availability. But many 3G S upgraders will have to shell out an extra $200 to move to the new device. A petition circulating on the Twitition site asks Apple and AT&T to let existing iPhone users upgrade at the same rate as new users. It gathered more than 11,400 signatures in a matter of days.

But AT&T and Apple may have ways to create headaches for rivals. AT&T is considering reducing its iPhone plan rates. The company is finalizing a slew of new, more affordable family and business calling plans, as well as cheaper data plans that will be exclusive to the iPhone, says Richard Doherty, director at consultant Envisioneering Group. The new plans are expected to be announced in the coming weeks, though possibly not in time for the iPhone 3G S launch on June 19. For weeks, however, AT&T has been mum about any move toward more flexible iPhone pricing. "Our rate plans for iPhone 3G S are unchanged from iPhone 3G," writes AT&T spokesman Mark Siegel. "We don't have further comment on this."

Verizon and Sprint Could Suffer Most

Today, an iPhone plan costs at least $1,680 over the two-year term of a contract. That amount needs to come down by at least $240 over two years for AT&T to grab mainstream phone buyers and boost iPhone sales by as much as 25%, Sharma estimates. Apple has sold 21 million iPhones in the two years that the device has been on the market. The boost would give AT&T even more of a lead in smartphone services; the company already claims it has twice as many smartphone users as any other U.S. wireless service provider.

As subscribers move to AT&T for the iPhone, Verizon Wireless and Sprint Nextel could suffer the most. While it has a temporary exclusive on the popular Palm Pre device, Sprint "does not have a product it can offer at $99 that can be a strong competitor to the iPhone," Rubin says. As the next-largest rival, Verizon Wireless may have the most to lose, he says. T-Mobile USA may be on safer ground, he adds. "T-Mobile users tend to spend less on data, and it's unclear if in this economy they'd make a jump to AT&T," he notes.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.

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