ATandT, Once iPhone's Biggest Backer, Looks to Windows Phone, Android

NEWS ANALYSIS: AT&T, once synonymous with the Apple iPhone, is building its portfolio to help lessen subscriber dependency on the iPhone, according to TBR. Can Microsoft's Windows Phone, with Nokia, as well as Android, benefit from supposed iPhone fatigue?

AT&T, after years of proudly aligning itself with the Apple iPhone, is aggressively diversifying its device portfolio in an effort to lessen subscriber dependency on the iconic smartphone, research firm Technology Business Research reported April 24.

€œAT&T currently depends on iPhone net additions to drive its postpaid subscriber net additions,€ TBR analyst Eric Costa wrote in the report, noting that the iPhone accounted for 78 percent of AT&T€™s smartphone sales during its 2012 first quarter.

€œAlthough AT&T continues to outsell Verizon in terms of iPhones€”4.3 million vs. 3.2 million [during the quarter]€”the operator is striving to replace some of those iPhone upgrades with Android and Windows devices,€ Costa added.

The iPhone has been something of a necessary evil for carriers. When AT&T scored an exclusive agreement with Apple to begin selling the iPhone in 1997, it was the envy of the industry. And though the iPhone has helped AT&T swell its user numbers, it has also pummeled the AT&T brand, as the carrier struggled to support a precedent-setting device that absolutely changed how, and the degree to which, consumers use their phones.

The strain that the iPhone puts on a network€”with traffic increasing by 5,000 percent over three years, AT&T launched a Mark the Spot app in 2009, turning to crowd-sourcing to help it identify network black holes€”was a major topic for speculation before the iPhone expanded to the Verizon Wireless network.

By the time Sprint received the green light to begin selling the iPhone, the talk had turned more to the financial burden of offering the iPhone; Apple charges more for it than competitors do for their phones, forcing carriers to pay a higher subsidy in order to offer the iPhone at a price comparable to other smartphones. Sprint CEO Dan Hesse has called lack of an iPhone the No. 1 reason that subscribers €œchurn,€ or leave the network, but he still had to aggressively defend his position to offer the iPhone, given the financial stress it introduced.

With the iPhone now available on three major U.S. networks, and T-Mobile hinting that it may be let in on the next new iPhone, the device isn€™t entirely the leveraging tool it once was, and AT&T plans to focus on offering a more well-rounded device portfolio.

€œAT&T is spending approximately $150 million in advertising for its LTE-capable Lumia 900 release, which launched in early April,€ wrote Costa. The campaign is part of a strategy to gain traction for Microsoft€™s Windows Phone platform before the launch of Windows 8 during the second half of 2012.

€œThis Windows device, along with new Android device launches, will help increase AT&T€™s non-iPhone net additions in 2012 and thus begin to reduce the dependency on the iPhone,€ he added.

During AT&T€™s April 24 earnings call, CEO Ralph de la Vega explained that €œupgrades are triggered when there's a new device that people love in the market.€ During the quarter, 79 percent of the new iPhones AT&T activated were for users already on the network.

€œWe feel very good about where we are right now, and we always give the customers choice,€ he continued. €œWe think we have a terrific lineup in every operating system, including the new Microsoft OS.€

Verizon CEO Lowell McAdam has also been open about the need for a third mobile ecosystem, telling the audience at a Sept. 2011 Goldman Sachs conference that over the next 12 months he expects the market to coalesce around €œa legitimate third ecosystem.€

During Verizon€™s first-quarter earnings call April 19, he broached the subject again, as it pertained to a need for options beyond Apple, noting, according to a transcript from Seeking Alpha:

"On the Apple iPhone, look, as I've said before, we look at every individual handset, we have a broad portfolio. We manage it handset-by-handset and manage our subsidy and again, that's just one aspect of our P&L. And this is just the nature of this business that's grown from the beginning of the industry that we subsidize handsets.I do think, though, it is important that there is a third ecosystem that's brought into the mix here. And we are fully supportive of that with Microsoft, and as we said, we [helped create] the Android platform from the beginning. And it is an incredible platform today €¦ We're looking to do the same thing with a third ecosystem. So that's how I think that we plan to go into the future here."