Wednesday, April 18, 2007

iPhone launch not a guaranteed success


Posted Apr 18th 2007 8:30AM by Eric Buscemi
Buy- and sell-side analysts are running around Wall Street's high-tech conferences questioning the impact iPhone's launch could have on the wireless handset market and smartphone devices like Blackberrys and Treos.

The presumption is Apple Inc's (NASDAQ: AAPL) move is an offensive one and a natural extension of the 100 million iPods that have been sold around the world. It is also presumed that iPhone's launch will succeed.

However, remember that linking up wireless devices to wireless networks is hard stuff. The service providers could play hardball with Apple. Supposedly, Palm Inc (NASDAQ: PALM) missed its recent holiday sales target for its Treo products due to AT&T Inc (NYSE: T) wanting to focus market dollars behind its own offering -- Samsung's Blackjack.

Also remember, when the Telecommunications Act of 1996 was passed which allowed new competitors to use the Baby Bells wireline networks, the Baby Bells made it very hard for new competitors to emerge and operate profitably, with virtually every new competitor filing for bankruptcy.

The point is, unlike wireline Internet access where the baby bells and cable companies compete, if you want to use a wireless network the competitive offerings are limited, these network providers have a lot of power and tend not to compete too aggressively on price with new product offerings.

As an avid iPod user who is always on the road, you need to have a lot of music and always want to refresh your selection. Recent advertisements from the big wireless service providers like Verizon Communications Inc (NYSE: VZ), AT&T and Sprint Nextel Corporation (NYSE: S) to easily download music to wireless handsets are tempting.

Of course there will be a lot of problems with the wireless service providers' offerings -- the quality and software will be substandard.

However, the old Baby Bell mentality will attempt to limit competitors from using their networks, making it hard for iPhone to succeed. This is simply the closed-minded mindset that exists at big bureaucracies. Don't assume iPhone's success is a given. Apple will have to place the wireless network providers in must-act position before they embrace the iPhone in a big way.

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