Over the past few months, the government’s interest in the practice of handset exclusivity has intensified. On the heels of Congressional hearings in July, Verizon Wireless agreed to dial back its exclusive deals with cell phone manufacturers to accommodate smaller carriers. This week the FCC, which has already begun a review of handset agreements, has made the issue a focus of its regular monthly meeting. But no matter what the setting or circumstances, whenever U.S. lawmakers and regulators discuss competition in the wireless industry, the elephant in the room these days is almost always the iPhone.

Since Apple first gave AT&T exclusive rights to carry its groundbreaking device in the United States, concerns about unfair competitive advantages have become a hot-button issue. Apprehensions increased as AT&T sought to extend the deal beyond the 2009 deadline, and reached a fever pitch when Apple rejected a Google Voice application earlier this summer.

Nonetheless, many both inside and outside the industry question the need for more government intervention.

Indeed, before the iPhone came along, far fewer consumers (or lawmakers and regulators for that matter) cared a great deal about handset exclusivity, because most cell phones were utilitarian at best. According to Nielsen’s Mobile Insights report, which surveys 300,000 wireless users every year about their opinions and behaviors, in Q3 2006 – a full year before the iPhone launched – “device” was only the seventh most important factor in choosing a wireless carrier. The percentage of respondents on device has since increased from 2.9% to 6.4% in Q1 2009, yet the category remains in seventh place.

There is no doubt AT&T has benefited from the arrangement. New subscribers between the first quarters of 2008 and 2009 who signed up for “a phone not offered by my carrier” (i.e., the iPhone) jumped from 11% to 23%, and the company has reported that 40% of its iPhone customers switched from other services.
Still, the mobile industry is home to many operators who sell a wide variety of handsets. Currently, there are more than 100 different phones offered by the nation’s “Big 4″ service providers in their retail store, plus hundreds more from the large carrier’s websites and the more than 100 smaller carriers that are operating in the United States.

Even if every handset were required to be accessible across all four networks, only the largest of manufacturers could invest in the infrastructure necessary to produce identical products with different technologies. Neither legislation nor regulation could nor should be expected to change that situation.

It can be argued that exclusivity actually enhances innovation and creates more choice. If, for example, Apple’s iPhone or Motorola’s RAZR were initially available on all U.S. carriers, there would have been minimal incentive for handset manufacturers to create rival products. Though competition would exist, the options would be considerably less diverse.

What is more, the iPhone’s significant technological lead over virtually every other smart phone would probably have virtually destroyed the market for the other handset manufacturers. T-Mobile, like several other carriers, would have had less reason to invest in the development Android-based devices. Palm would not have been able to build the Pre and sell as many as it did in the first few weeks without the support of Sprint. In fact, Palm would have likely died without the Centro, which was custom built for Sprint under an exclusive pact that has since expired.

Beyond the iPhone’s distinct technological advantages, AT&T’s infrastructure would almost certainly limit competition as well. Early on Apple had decided to build its phone on a GSM technology path, the most popular standard for mobile phones in the world. But in the United States there are but two GSM networks – AT&T and T-Mobile. Were the iPhone originally available on both, consumers would pick their carrier based largely on price and coverage. Since pricing can be easily matched, T-Mobile’s nascent footprint would have a hard time going up against AT&T’s more built-out network.

In time – perhaps as early as next year – Apple will likely drop its AT&T exclusivity and build an iPhone in the U.S. that can be used across other wireless technologies. That is about to happen in Europe, where the company is reportedly moving away from exclusive deals because it can now derive greater profitability by not having restricted relationships with only single providers. At that point, new and current iPhone users will migrate to carriers that makes that the most sense for them – still driven by the factors other than “device.”

A version of this article also appeared at FierceWireless.com.

While public awareness of Apple’s iPhone has been significant since its summer 2007 launch, its influence on consumer purchasing decisions remains up for debate.

To try to better understand the iPhone phenomenon, I took a look at the most recent data from The Nielsen Company’s Mobile Insights survey, which asks 25,000 wireless users every month (a total of 300,000 per year) about their wireless attitudes and experiences, including why they chose their current wireless service.

When the results of 1st quarter of 2009 are compared with the 3rd quarter of 2006 as a control for the “iPhone-effect,” some interesting insights emerge. Q3 2006 was the last quarter without solid iPhone news that could sway consumers in their purchasing behavior.

At first glance, the most striking difference between 2006 and more recent data is what changed and what did not. Price remains the most important factor in choosing wireless service. Yet, even with the prominence of the iPhone, surprisingly the availability of a specific phone stayed flat as the 7th most important factor. While increasing in importance from 2.9% to 6.4% handset-choice alone did not bump up in the rankings. It seems that what makes for an outsize share of newspaper headlines, and congressional and regulatory attention, leaves the average American cold.

Not as surprising, economic factors are increasingly important. Family plans that let consumers call other family members for free and free in-network calling have shot up to near the top. Payment options, including pre-paid and unlimited calling and texting offers, are also substantially more important.

This translates into opportunity for:

• Pre-paid providers such as Tracfone
• Unlimited providers Boost Unlimited, Metro PCS, and Leap, each who offer unlimited calling and texting for as low as $40 per month
• The two largest wireless operators in the U.S. Verizon Wireless and AT&T due to the larger free calling circles

Perhaps the most unexpected outcome is the declining importance of network quality as a major factor from 2nd to 5th place. A testament to the success of its consistent advertising message, the number of consumers who perceive Verizon Wireless as having the best mobile network has shot up over the last two years and it leads its closest competitor now by an almost 2:1 margin. Consumer perception of the carrier’s quality has shot up over the last two years and it remains the single-most important reason consumers choose them. While handsets represent popular topics of conversation, economic factors are actually the major driver in the purchasing process.

In June, anticipation of the new iPhone 3G S sent blog mentions up 1,226 percent week-overweek on June 8, the day of the announcement. After the initial announcement, buzz dipped but again picked up after the phone became available to consumers on June 19, with blog mentions more than doubling compared to the week prior.

More hardware and gaming console data available in the Nielsen Online media release. ]]> http://blog.nielsen.com/nielsenwire/online_mobile/apple-tops-list-of-hardware-sites-rings-up-buzz-in-june/feed/ 8 http://blog.nielsen.com/nielsenwire/online_mobile/iphone-users-watch-more-video-and-are-older-than-you-think/ http://blog.nielsen.com/nielsenwire/online_mobile/iphone-users-watch-more-video-and-are-older-than-you-think/#comments Wed, 10 Jun 2009 19:33:37 +0000 Nielsen Wire http://blog.nielsen.com/nielsenwire/?p=12651 Upon Apple’s announcement of a new iPhone – the iPhone 3G S, slated to be available June 19 – Nielsen takes a look at iPhone insights on its users and usage.

• As of April 2009, Nielsen estimates that there are 6.4 million active iPhone users in the U.S., up from 2.1 million a year prior. The most impactful iPhone announcement this week may be the price reduction of $99 for the 8 GB version: cost has been one factor (in addition to AT&T exclusivity) that’s kept the overall iPhone audience modestly sized.
• 37% watch video on their phone (6x as likely as the typical subscriber)
• The iPhone audience is age-diverse: a device this powerful isn’t just for kids. There are roughly as many iPhone users 55 and older as there are 13-24.

• iPhone users look good to mobile marketers. Forty-percent have household incomes of $100K or more – twice the ratio among all subscribers (19%). That income may also be helpful for current iPhone owners who want to upgrade: in-contract iPhone owners may have to pay an additional $200 to upgrade before their contract expires.

• It’s not just for looks. 98% of iPhone users use the data features of their phone, services that should improve with the enhanced speed promised by the iPhone 3G S.

• 88% use the Internet (making them 4x as likely as the typical subscriber)

• 75% download apps (5x as likely as the typical subscriber)

• 72% used location based services (7x as likely as the typical subscriber)

Apple’s announcement came on the heels of the release of the latest so-called “iPhone killer” the Palm Pre smartphone. However, iPhone buzz continues to dominate the blogosphere.

Visitors to Apple’s site logged the longest average stay-times.

Recall refers to the percentage of television viewers who can recall, within 24 hours, an ad’s sponsor.

A traditional ad’s “recall score” is the percentage of television viewers who can recall, within 24 hours, the sponsor of an ad they were exposed to during the normal course of viewing primetime TV on the broadcast networks.

Recall scores are indexed against the mean score for all new traditional ads during the time period to calculate an ad’s “recall index.”

A recall index of 100 indicates average recall. A recall index of 195, for example, means that an ad has proven to be slightly less than twice as memorable as the average new ad during the four-week time period.

Read coverage of Nielsen’s findings in Ad Age.

Yahoo! and MSN/Windows Live rounded out the top three, with unique audiences of just over 116 million and 102 million visitors, respectively.

View the full press release.

View the top U.S. Web brands for September 2008.

A Snapshot Of The iPhone User

• Adults 35-54 make up the largest portion of iPhone users (34%)
• Hispanic subscribers make up a larger portion of the iPhone audience (21%) than of the total U.S. subscriber audience (13%)
• iPhone subscribers are twice as likely as total subs to have a household income of $100K+ (44% vs. 22%)

iPhone Usergraphics

• 98% of iPhone subscribers use at least one data service (yet it’s still notable that 2% of iPhone subscribers only making phone calls with their device)
• 13% of iPhone users have their employer footing the bill (compared to 7% of all subscribers)
• 43% of iPhone users have a monthly bill of more than $100 (compared to 20% of all subscribers).

iPhone Data Usage

• 70% of iPhone users listen to audio tracks on their phone (39% download music directly to the device)
• 66% of iPhone users download software and applications
• 35% of iPhone users watch video on their phones (making them seven times as likely as the typical mobile subscriber to do so)

For additional Nielsen analysis and information on the iPhone universe, contact us.

Read coverage of Nielsen’s findings in the Los Angeles Times and The Wall Street Journal.

For its part, the iPhone 3G has maintained strong growth, with a steady flow of mobile subscribers switching to AT&T for the iPhone in the two months since the device launched in mid-July, Nielsen Mobile reported Thursday.

Between June and July, the number of customers switching to AT&T for the iPhone increased by 97%.  Postpaid network adds for AT&T grew by 70% during the same period, according to Nielsen.

So far, the iPhone 3G has been especially popular in San Francisco and New York, where the number of mobile subscribers switching to AT&T for the device surged by 137% and 183%, respectively, in June and July.  The mobile industry as a whole averaged a switch rate of 113% during the same period.

View the full media alert.

Read coverage of Nielsen’s findings in Wired and Media Post.