Prepare for the iPhone Backlash

My current assumption is the following combination:

• AT&T will have several years of exclusivity on all Apple handsets;
• AT&T will chain iPhone into contracts that last a minimum of two years and cost at least $90 per month with barebones text messaging and mobile data add-ons;
• iPhones will be crippled for mobile VoIP applications.

Apple undoubtedly extracted major concessions from AT&T, including veto power over key marketing and distribution decisions and a strong link between the iPhone and the iTunes service. The latter may effectively sideline AT&T in the content-distribution business built around the mobile device it sells -- something that used to be a deal-breaker for any self-respecting mobile operator.

But if the aforementioned assumed limitations AT&T wants to place on iPhone turn out to be real, the handset's sales trend will be extremely interesting to watch in the fourth quarter and particularly the first quarter of 2008. By then, some iPhone variation should be on sale in Europe and Asia. Investors will find out the extent of the iPhone's American appeal outside the hardcore Apple fans at roughly the same time that the model's international version goes on sale.

Needless to say, some recent projections for iPhone sales have been fever dreams, particularly those calling for a 7% U.S. market share by 2009. That would mean taking over 30% of AT&T's entire phone range in just two years.

Even the oft-cited 1% global share is an astounding goal; the market-share range for all mobile phones that retail for $500 or more is about 2% to 3%. So will Apple take over half the global premium market or simply change worldwide consumer behavior? I have a hard time seeing Apple entering the $200 phone segment, either; selling midpriced phones is the toughest gig this side of being a Hilton family lawyer.

Winter Hurdles

Surely, iPhone shipments will sell out during the third quarter; the 2 million to 3 million American Apple loyalists are in the bag, no matter what the specifications are. But modeling sales beyond the first wave will be extremely tough.

The biggest smart-phone selling points in Europe and Asia this summer are GPS support, mobile VoIP functionality over WiFi and 3G-speed browsing and downloading of mobile content. Apple's first iPhone will offer none of these -- but it will cost more than models that do.

Will any of this bother U.S. consumers next autumn? Or will they accept the lower data transmission speed of EDGE technology (80-200 kbps) as well as the lack of GPS and VoIP over WiFi? It's true that the American handset market still supports high-end devices with low-tech features; it's the last affluent market with healthy demand for second-generation models, even at the pricier end of the market. This may change as AT&T and T-Mobile both ramp up their W-CDMA services near the end of this year.