IPhone will test loyalty of cellular customers

Computerworld - Sprint Nextel recently lowered online music prices and introduced a feature-rich but low-priced music phone. Verizon Wireless is allowing potential subscribers to try its network for free for 30 days. Phone vendors are announcing a steady stream of flashy music phones, such as Samsung Electronics Co.'s Ultra Smart F700 and LG Electronics Inc.'s Prada.

Many believe there's one reason for this burst of activity: the iPhone. Few have seen Apple Inc.'s forthcoming phone/media player, which AT&T Inc./Cingular Wireless says it will release in June, but it has been the topic of frantic, sometimes fanatical, online discussion. And other cellular operators appear to be busily preparing themselves for its release.

Another word -- loyalty -- sums up the reasons for the strong response from AT&T's competitors. Some analysts say that AT&T is attempting to use the iPhone to radically change the loyalties of cellular subscribers. These analysts note that while most subscribers aren't very loyal to their cellular operator, many people are fiercely loyal to Apple and its iPod media players.

"We did a survey and we found ... carrier loyalty wasn't a big issue. People aren't that loyal," said Miro Kazakoff, director of the wireless practice at market research firm Compete Inc. "So [AT&T] is trying to transfer loyalty to the device, not the carrier."

In other words, Kazakoff said, AT&T is using the iPhone to create customer loyalty where little loyalty exists. That, in turn, could translate into more subscribers who are less likely to leave the AT&T fold. Seen in this light, the iPhone is a potentially powerful marketing tool that AT&T's competitors can't ignore.

Nonchalant competitors

Superficially, Verizon Wireless and Sprint, the second- and third-largest cellular operators in the U.S., respectively, behind AT&T, are nonchalant about the potential challenges presented by the iPhone.

"Publicly, they've adopted the dual stance of being nonchalant about iPhone and trumpeting their own music offerings," Kazakoff said. "But they're working to build out their services to compete. They're not really nonchalant at all."

Verizon Wireless didn't return calls requesting interviews for this story. However, Alana Muller, Sprint's director of wireless data marketing, said that her company would have lowered prices from $2.50 to 99 cents per song and introduced new music phones even without the iPhone's imminent entry into the market.

Having said that, however, Muller drew a sharp distinction between Sprint's offerings and those of AT&T/iPhone. In particular, she spoke about Sprint's recent introduction of the Samsung UpStage music phone, which, at $149, is far less expensive than the $500 iPhone. And, unlike the iPhone, the UpStage can download songs over the air, she said.