TEN MILLION IPHONE SALES

It's hard to argue that the Apple iPhone isn't the one product that turned the telecom industry on its head in the past year. And it's not done yet. In its most recent quarter, Apple sold 1.7 million iPhones and restated its goal of selling 10 million units in 2007. If so, Apple will have to pick up its pace; at its current rate it will barely reach 7 million iPhones sold.

Driving that hoped-for accelerated growth in the second half of 2008 could be two developments: a new 3G-ready iPhone, rumored to be released this summer, and the release — also this summer — of the iPhone 2.0 system software, highlighted by the first commercially available apps built using the new iPhone software developer kit (SDK). More than 200,000 developers have downloaded that SDK so far, and Peter Oppenheimer, chief financial officer for Apple, claimed that more than one-third of Fortune 500 companies are using it to develop internal applications for the iPhone. Also notable: The iPhone's Safari Web browser accounts for 23% of all mobile browsing, less than a year into its existence.

Those developments have led one analyst, Shannon Cross of Cross Research, to predict that Apple could sell as many as 13 million iPhones by year's end.

AT&T looks to be the biggest benefactor of such growth, though global telco partners such as O2, Orange, T-Mobile and Vodafone are also in the mix. The iPhone certainly seems to be delivering good news for AT&T, with chief financial officer Rick Lindner reporting ARPUs for iPhone users reaching the upper 90s (compared to the 50s for typical cell phone users), with more than 40% of iPhone users being new subscribers to AT&T.

While the iPhone's success may seem inevitable in hindsight, Jonathan Hurd, analyst for Altman Vilandrie & Co., called its subscriber targets “one of the most surprising numbers. A year ago, if you were to say a mobile handset from a new manufacturer — not subsidized and costing several hundred dollars at least — was going to come in and win market share, you wouldn't have believed it.”

Bottom line: Consumers are open to new devices and services, as evidenced by the popularity of the iPhone. And such products can have a nice effect on network revenues as well. The iPhone, wireless service and wireless data is one example; the emerging world of IPTV and video is another. …

ONE MILLION IPTV SUBSCRIBERS

While it's not quite 10 million, you can't beat “1 million” for a nice, round number. That's the subscriber goal for 2008 for AT&T's U-verse IPTV service. In the first quarter, the service provider added 148,000 new U-verse customers, giving it about 379,000 overall. Its goal: 1 million video customers by the end of the year. Currently turning up about 12,000 new subs per week, it will need to reach 15,000 per week soon to meet its goal. One note of caution: In the fourth quarter of 2007, AT&T added 235,000 satellite subscribers versus just over 100,000 IPTV subs — demonstrating how early it still is in its IPTV rollout.

And what about Verizon and its much-touted FiOS service? It reached its first million users last summer, and that's on a network delivering greater raw bandwidth. (On the data side it has delivered 50 Mb/s and has tested 100 Mb/s to the home.) For Verizon, the “by the numbers” figure in question is on the cost side. It has said it plans to spend $18 billion on the new network through 2010.

“The success that FiOS has had in winning video subscribers is very notable,” said Hurd. “There was a lot of skepticism in the market about whether we'd see enough take rate to justify the investment.”

Bottom line: Telcos look like they can grow a video business. With complex, IPTV service, however, the challenge will be to maintain customer satisfaction and to design network architecture to keep up with service and bandwidth demand. That will be important because even as video gets to the take-off ramp, overall residential broadband/DSL growth appears to be slowing. …

IPTV IN ITS INFANCY IN THE U.S. BUT GROWING AROUND THE WORLD

By 2011: Worldwide telco TV subscribers will reach 54 million.

Telco TV subscription revenue will reach $19 billion.

Meanwhile, the IP set-top box market doubled in 2007 to more than 8 million units.

-35% BROADBAND SUBSCRIBERS

Source: In-Stat

While we didn't quite have Q1 numbers for both carriers at press time, Verizon net broadband adds were down 35% in Q4 2007 versus a year earlier, according to Teresa Mastrangelo, principal analyst for broadbandtrends.com. The news wasn't any better at AT&T, which was down 30% in the same time frame, she said.

Those losses were offset by video sub adds and by the fact that with U-Verse and FiOS, broadband-plus-video users spend more than broadband users alone.

“The video component not only makes bundles more competitive against cable, but it offers the ability for significant revenue upside as customers add premium channels and features and/or purchase premium content from on-demand,” she said. “Additionally, both companies have stated that video is proving to be more important to customer retention than broadband or voice.”

Bottom line: Is wireline broadband already a “legacy” business? Wow, that was fast. Carriers say they don't want to be dumb pipes, and their sales tactics show they are serious. But it's dangerous when established business lines start to slow or stagnate, there being no better example than residential wireline. …

AT&T AND VERIZON REPORTED SOME OF THEIR LOWEST DSL LINE ADDS IN Q4 2007

Verizon
264,000 lines

AT&T
396,000 lines
Source: Information Gatekeepers

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