iPhone Changes the Game

Manufacturers and service providers face upheaval over newest Apple gadget

By Jim Woods and Paul Carton

With the multi-function iPhone, Steve Jobs and company have introduced a product that gives their competitors heartburn.

According to ChangeWave's July consumer cell phone survey -- completed less than four weeks after the iPhone's much-ballyhooed release -- Apple's (AAPL) newest electronic device is changing the game in the telecom industry.

A total of 3,003 members of the ChangeWave Alliance participated in the survey, which points to an upheaval occurring among cell phone manufacturers and service providers alike.

Motorola Takes it on the Chin

Although iPhone sales are still in their nascent stages, the effect on cell phone manufacturers can already being seen -- and no company is bearing the brunt of this more than Motorola (MOT).

While it still led all other manufacturers in current market share with 31%, Motorola dropped two percentage points from our April survey to its lowest level in more than a year.

Even though it's been on the market only a month, the Apple iPhone already registered in our survey results -- garnering 1% of the current market share. But it's when we asked respondents about their planned cell phone purchases for the next six months that the full transformational impact of the iPhone was seen.

Among respondents who said they plan to buy a cell phone in the next six months, an astounding 16% said they'll purchase an iPhone -- catapulting Apple ahead of all other manufacturers.

For those of you who plan on purchasing/upgrading to a new cell phone in the next six months, which company is the most likely manufacturer of the phone you'll eventually purchase?

And where are Motorola's planned purchases heading?

For the third-consecutive survey, Motorola's future share of planned purchases among consumers suffered a dramatic decline -- falling from a high of 33% in October 2006 to just 14% currently.

View the chart below to see the dramatic collapse in future market share the survey showed for Motorola.

The survey findings were more upbeat for Research In Motion (RIMM). BlackBerry sales looked significantly stronger for the next six months -- up three points to 13%. (In an upcoming article we'll present complete survey findings on Research In Motion and other smartphone manufacturers.)

Consumer Satisfaction Levels

We also asked consumers how satisfied they were with their current cell phone and found the iPhone registered the highest satisfaction level of any device. An extraordinary 77% of iPhone owners said they were very satisfied with their new Apple product.

We acknowledge the potential for bias here, as we're speaking with people already favorably predisposed toward the gadget -- otherwise they wouldn't have rushed right out to get it.

But our ChangeWave Alliance is composed of early adopters who tend to be harsh critics of technologies that fail to live up to their expectations. So even though these are the first wave of buyers, there's a high likelihood their opinions are based on the real world merits and flaws of the iPhone.

We noted that Research In Motion also received a relatively high customer satisfaction rating, with 50% of owners reporting they were very satisfied.

At the other end of the spectrum, just 36% of Motorola owners, 34% of Palm (PALM) Treo owners and 29% of Sony (SNE) Ericsson owners reported that they were very satisfied with their cell phones.

The following chart ranks cell phone manufacturers by the percentage of their customers who reported they were very satisfied.

The Upheaval Among Cellular Service Providers

We also looked at the cellular service provider market, where the survey found clear signs of the impact Apple's exclusive agreement with AT&T (T) is having on the competition.

In terms of current market share, for the first time in more than a year, Verizon (VZ) registered a one-point decline, falling to 29%. T-Mobile also declined a one-point to 10%. AT&T, on the other hand, increased its market share one point to an all-time high of 28%.

But once again, when we queried respondents who reported they'll switch their service providers during the next six months, the full impact of the iPhone on service providers could be seen.

AT&T -- up two points to 30% -- added to its ever growing lead over Verizon in terms of future buying, and was the top choice among those likely to switch service providers.

At the same time -- and for the third-consecutive survey -- Verizon continued to trend down among this critically important group, falling three points to 19%.

The chart below paints a striking picture of this trend:

The outlook going forward also appeared bleaker for T-Mobile, which was down one point to 5%, and Sprint Nextel (S), which was down one point to 3%.

The one bright spot for Verizon was a continued lead in customer satisfaction -- 46% of its current customers said they were very satisfied with their Verizon service, and another 46% said they were somewhat satisfied. In comparison, the ratings for AT&T were not nearly as high -- 31% said they were very satisfied and 54% said they were somewhat satisfied.

This is an issue we will watch closely as new iPhone users continue to migrate to the AT&T network.

The iPhone momentum ChangeWave identified in our January and April surveys, coupled with the exceptionally strong momentum found in the current survey, point to an upheaval among cell phone manufacturers and service providers due to Apple's new multifunctional device.

The Alliance is a network of 10,000 highly qualified business, technology and medical professionals in leading companies of select industries. The Alliance is surveyed weekly on a wide range of business and investment research and intelligence topics.