Rivals must react to iPhone: analysts

To hear other wireless carriers tell it, the introduction of Apple Inc.'s iPhone on AT&T Inc.'s network is no real threat.

'Anyone who is being dismissive of Apple's entry into the cellphone market this week is probably not planning effectively.' Michael Gartenberg, Jupiter Research

Analysts aren't so sure.

"Anyone who is being dismissive of Apple's entry into the cellphone market this week is probably not planning effectively," said Michael Gartenberg, an industry analyst with Jupiter Research.

Competitors face not only Apple's cachet and marketing machine, but also a slickly designed device that combines the functions of a cellphone, iPod music player and wireless web device. Like the iPod and Macintosh computers, the iPhone's software is designed just for its hardware.

When people note that lots of other devices have similar capabilities, "it causes me to think that there are a lot of other music players out there that can do what the iPod does, but consumers don't buy them," Gartenberg said.

Whether the iPhone can live up to its lofty expectations once it goes on sale Friday evening has yet to be seen, but analysts say it may force competitors to offer steeper discounts in response.

Other wireless carriers insist that once the mania dies down, and customers can compare price, functions and network speeds, other services and phones won't suffer and may even gain a little from all the publicity surrounding all-in-one portable devices.

"We're going to be the beneficiaries of them hyping the marketplace," said Verizon Wireless spokesman Jeff Nelson.

Rivals may also see a rise in demand for their own high-end gadgets, especially if Apple can't meet demand.

Apple and AT&T have not disclosed how many iPhones will be available when they go on sale Friday evening in company-owned stores and on Apple's website. Whatever the number, it will be some time before it can capture more than a fraction of the 233 million wireless subscribers nationwide.

Sprint Nextel Corp. spokesman Aaron Radelet said interest in phones that can provide entertainment and web access will be stoked industrywide. The high cost of the iPhone at $499 US or $599 US depending on the model will be prohibitive for most customers, while others will want wireless music downloads that it can't do, Radelet said.

While they're careful to dispute any notion they are reacting to Apple and AT&T, competitors will soon offer new phones.

Verizon will have a slimmer, upgraded version of the LG Chocolate music-player phone, while Sprint will have the LG Muziq clamshell and a new smart phone, the HTC Mogul. T-Mobile USA just rolled out two phones, the Nokia 6086 and Samsung t409, that allow callers to use Wi-Fi.

The iPhone introduction and Apple's unique deal with AT&T also could force industrywide changes in the relationships between handset makers and carriers, particularly in the subsidies paid by the phone companies to manufacturers. Usually, carriers buy up phones upfront and see profits over the course of the contract with subscribers. AT&T is not subsidizing the iPhone.

"You'll see lack of subsidization, where you see more phones with more features that will cost more," said Yankee Group media analyst Josh Martin.

If the iPhone can prove profitable without long-term subsidization, it may encourage other handset makers to offer devices with more functions in the U.S. market.

AT&T CEO Randall Stephenson said in an interview earlier this month that he believes a handset as compelling as the iPhone can make the carrier just as profitable without subsidization.

"I like the economics of that model better," he said.