For Now, a Cingular Sensation
Apple Gets Early Buzz With Its Snazzy iPhone, But There Are Obstacles on Its Way to Market

By Charles Babington
Washington Post Staff Writer
Saturday, January 13, 2007

The sleek new iPhone being developed by Apple is getting early rave reviews for its innovation, elegance and all-around coolness. Analysts say it potentially could become a breakthrough product that thrusts pricey "smart phones" -- now primarily a tool of business people -- deep into the American mainstream, blurring the lines between handheld devices designed mainly for work and not entertainment.

But the iPhone has considerable hurdles to clear before claiming a spot in the technology pantheon alongside its cousins -- the Mac computer and the iPod -- according to analysts, consumers and corporate rivals. Chief among them are its relatively high cost, unproven durability, complications involving a trademark lawsuit and long-term marriage to a single wireless provider with a mixed record of service.

When the iPhone hits the market in June, millions of consumers will have to weigh the $500 to $600 price tag and a carrier switch against a device that gives them more features than they might want: mobile phone, camera, music player, wireless e-mail, Web browser and video player.

"It does look very elegant," said Neil Strother, a mobile device analyst for the NPD Group. "But real people have real budgets."

Because Apple has worked out a "multiyear" exclusive agreement with Cingular Wireless -- which will become AT&T Wireless later this year -- customers of Verizon Wireless, Sprint Nextel and other wireless providers would have to switch and possibly pay early termination fees of $150 or more to get out of their current contracts.

"From a consumer standpoint, this is vile," Sascha Segan, PC Magazine's lead analyst for mobile phones, said of the exclusive arrangement. Americans seeking cellphone service, he said, "choose coverage, call quality and pricing, and then they choose their device. I don't believe more than a handful of, say, Verizon customers in New York City are going to jump over to Cingular."

Other analysts say the iPhone's appeal may be powerful enough to break loyalties, and contracts, with Cingular's rivals. "My Motorola Q is on Verizon," said Tim Bajarin, an expert on consumer products for California-based Creative Strategies. "But I tell you, I want that Apple phone. It probably means I'm going to end up switching carriers."

Verizon Wireless, in particular, hopes its reputation for solid service will keep customers from straying. Consumer Reports magazine recently found that Americans consistently rated Verizon at or near the top in customer-satisfaction surveys. In the Washington area, consumers gave Verizon their highest marks, followed by Sprint, T-Mobile and Cingular. The report disputed Cingular's claim of having the "fewest dropped calls."

"The iPhone is a cool innovation," said Verizon Wireless spokesman John H. Johnson. "But it's only as good as the network it's on. It will be six months before anyone knows how those two pieces will work together."

Some analysts suggested the exclusive deal with Cingular was the result of undisclosed agreements regarding profit distributions, shared advertising or other matters.

But Glenn Lurie, Cingular's president of national distribution, said the two sides reached compromises.

"Apple is used to getting what it wants, and we're used to getting what we want, so we both had to bend a little bit," he said, adding that Cingular took a risk by signing the agreement before seeing the device.

Likewise, Apple was looking for "a partner that was trying to innovate, and the similarities we've had with Cingular were more than you might expect," said Eddy Cue, Apple's iTunes vice president.

And with Apple's ambitions to market the phone globally, Cingular seemed like a logical choice. Cingular -- unlike Verizon Wireless and Sprint Nextel -- operates on a technology standard known as GSM, which most cellphone providers in other countries use.

"When you go to the world with a phone, it has to be based on world standards, it has to be GSM," Bajarin said.

Others, however, noted that T-Mobile also uses the GSM network but was left out of the deal with Apple. Some said Apple could develop an iPhone compatible with the CDMA network used by Sprint Nextel and Verizon Wireless.

Apple, and chief executive Steve Jobs in particular, seems to have called most of the shots, analysts said, but Cingular will benefit, too. "On the phone, Cingular is probably the big winner," said Rob Enderle, a San Jose-based technology analyst and writer. "It's going to be a store draw" for Cingular's retail outlets.

Before Apple ships the product to stores, however, it may have to win a courtroom battle. Cisco Systems, a Silicon Valley maker of computer networking equipment, claims the trademark to "iPhone" and has sued Apple in federal court in San Francisco. Cisco and Apple were engaged in negotiations before Jobs unveiled the iPhone prototype, and such disputes often are resolved before trial.

In Cingular stores in Washington this week, clerks said a few customers had asked about the iPhone, but the employees had no information to offer. Greg Kats, a Washington resident who owns an energy consulting business, said the product's price and unproven performance left him uncertain whether he would be an early buyer.

"I don't like clutter, and the Apple devices tend to be clean," said Kats, 47. The iPhone's touch-screen virtual keypad -- rather than raised buttons -- for sending e-mail also may be a plus, said Kats, who finds thumbing messages on his BlackBerry clumsy. But he worried that the exclusive arrangement might keep the iPhone's price from dropping.

Staff writer Yuki Noguchi contributed to this report.