AT&T is Winning an iPhone Battle It Doesn't Even Want to Win

This morning's earnings report from AT&T confirms that it sold more iPhones than its competitor Verizon last quarter, something it probably isn't too ecstatic about. It's not that AT&T doesn't delight in the additional 4.3 million iPhone activations, which bring in more data, talk and text plans -- the real money makers. But, the wireless company is getting tired of Apple dominance, which has started to eat at wireless carrier control of the consumer.

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"There clearly is a danger now that iPhone is going to get a stranglehold of the U.S. smartphone market, and I don’t think operators are crazy about that," Tero Kuittinen, a mobile analyst told Bits Blog's Brian X. Chen. And it's doing pretty well on that road to stranglehold. Last quarter, half of Verizon's 3.2 million smartphone sales came from Apple's beloved product. And the fraction was even greater for AT&T, which sold a total of 5.5 million smartphones, meaning Apple drove nearly 80 percent of their fancy-phone business. Of course sales are good, especially in the data-dependent land of iPhones. But: "The carriers are tired of Apple calling all the shots," writes Chen.

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Those shots include the whole subsidy issue, which, as the earnings report details has gotten worse for AT&T. Because of these subsidies, AT&T's operating margin income has dropped from 30 percent two years ago to 27.2 percent. But since the phone sells so well, AT&T doesn't have much bargaining power. "Carriers have very little leverage with Apple now. If the iPhone market keeps growing, pretty soon they’re going to have no leverage at all," Kuittenen told Chen. These companies also worry that Apple has too much control over all the money-making aspects of the phone biz. Apple now makes the hardware and the software and it sells the apps. All that's left for the carriers is bandwidth, an admittedly essential part of phone use. 

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To deal with this Apple problem, AT&T has put lots of marketing and faith in Microsoft's efforts. So far, Microsoft hasn't made much of a dent, with only 5 percent of the smartphone market as of December 2011, according to data from ReadWriteWeb. And, even worse, Microsoft users are getting rid of their devices faster than they are buying them. But, both AT&T and Verizon still believe the comeback will happen. Before the newest iPhone alternative, the Nokia Lumia Windows-powered phone came out a few weeks ago, the wireless company predicted it would sell better than the iPhone, as it announced a big TV campaign for the phone. Though super-official numbers haven't come out, one analyst predicts 1 million sales in Q2 so far, which is enough to sell-out in physical retails stores and online, but not enough to best the iPhone 4S's debut weekend, in which sales reached the 4 million mark.

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Though Verizon has not signed on with Microsoft for the phone that's supposed to save both Microsoft and Nokia, it still hopes to add some competition. "We’re really looking at the Windows Phone 8.0 platform because that’s a differentiator,” Fran Shammo, Verizon’s chief financial officer, told Reuters after the earnings report came out. "We’re working with Microsoft on it." Considering all the ooing and aahing the techies have done over Windows 8, which should come out in the next few months, a Windows 8-powered phone might draw the masses away from those shiny iPhones. It's really not that absurd. Impressed reviewers predict a similar migration with the iPad.