Apple Says IPhone to Sell Since Free Phones Worthless

[David Farber <dave () farber net>]

Begin forwarded message:

From: "CONNIE GUGLIELMO, BLOOMBERG/ NEWSROOM:"  
<cguglielmo1 () bloomberg net>
Date: March 1, 2007 1:36:27 AM JST
To: dave () farber net
Subject: (BN ) Apple Says IPhone to Sell Since Free Phones Worthless


Apple Says IPhone to Sell Since Free Phones Worthless (Update2)
2007-02-28 11:21 (New York)


     (Adds AT&T executive's comment in 7th-9th paragraphs.)

By Connie Guglielmo
     Feb. 28 (Bloomberg) -- Apple Inc. predicted that 10 million
customers will pay at least $499 to buy an iPhone next year
because they realize most free mobile phones are worthless.
     ``A lot of people pay zero for the cell phone. Guess why?
That's what it's worth,'' Apple Chief Operating Officer Timothy
Cook said yesterday at a conference in Las Vegas. Some wireless
providers win customers by offering phones that lack the latest
features free with service contracts.
    The iPhone, scheduled to ship in June in the U.S., combines
Apple's best-selling iPod music and video player with a mobile
phone that offers Internet and e-mail access. Chief Executive
Officer Steve Jobs said in January that Apple expects the iPhone
to capture 1 percent of mobile phone sales, which may total 1
billion devices in 2008.
     ``This will be a big piece of the Apple story for years to
come,'' Cook told attendees at the Goldman Sachs Group Inc.
technology conference. ``If we offer something that has
tremendous value, that is sort of this thing people didn't have
in their consciousness -- it was not imaginable -- then I think
there's a whole bunch of people that will pay $499, $599.''
     When asked how the Cupertino, California-based company
estimated the market of opportunity for the iPhone, Cook said
Apple rejected traditional approaches that call for comparing the
product to devices sold in a similar price range. Apple plans to
offer two iPhone models priced at $499 and $599.
     ``That kind of analysis doesn't make really great
products,'' Cook said. ``The iPod would not have been brought to
market if we would have looked at it that way -- how many $399
music players were being sold at that time?''

                          More AT&T Sales

     Up to 75 percent of U.S. iPhone buyers probably will be
first-time subscribers to AT&T Inc.'s mobile-phone service, AT&T
Chief Financial Officer Rick Lindner said today. The phones will
only work on AT&T's wireless network, formerly known as Cingular
Wireless LLC.
     ``The majority of those customers, two-thirds to three-
fourths, will be coming from outside of our current wireless
customer base and that's a good thing,'' Lindner said during a
speech at a Merrill Lynch & Co. conference in New York. AT&T is
the largest U.S. phone company and its mobile-phone unit is the
biggest U.S. wireless carrier.
     The iPhone is likely to draw more customers to AT&T stores
``at the launch and throughout the rest of the year,'' Lindner
said. ``Creating more traffic in the stores means more sales.''

                          IPod's Success

     Apple has sold more than 90 million iPods since Jobs
released the player in October 2001, helped by new, smaller,
higher-capacity designs, Cook said. Apple shipped a record 21.1
million players during the 2006 holiday season. It's too early to
tell whether the iPhone will damp demand for the iPod, he said.
     ``These are being sold for a wide variety of usages, there's
a wide variety of form factors, wide variety of capacities, and
wide variety of price points,'' Cook said. ``We'll just see what
happens.''
     Shares of Apple rose $1.45 to $85.38 at 11:19 a.m. in Nasdaq
Stock Market trading. They advanced 18 percent in the past 12
months before today. Shares of AT&T rose 57 cents to $36.72 in
New York Stock Exchange composite trading and have climbed 30
percent in the past 12 months.

--With reporting by Molly Peterson in Washington. Editor: Alnwick
(lwo)

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