Apple, AT&T: Friday Could Bring iPhone Chaos

Tomorrow morning, Apple (AAPL) and AT&T (T) stores will start selling the much awaited iPhone 3G, and demand is likely to be huge. The new version of the phone is half the price of the original iPhone, but runs on 3G networks, making for much faster Web browsing and emailing. While reviewers pick some nits with the device, in general the early assessments are glowing. If you plan to buy one tomorrow, get to the story early. Maybe you should get in line now.

Eric Kainer, an analyst at ThinkPanmure, notes that the new rules requiring in-store activation of the phones could result in significant bottlenecks at Apple and AT&T stores tomorrow. He notes that the launch of the first iPhone last June “was the most successful product introduction in telecom history,” thanks in part to the ability of buyers to activate the phones at home via iTunes.

“We do not expect similar success with tomorrow’s 3G launch,” he says. This is no reflection on demand: He simply thinks the process is going to be far worse. In short, this time around Apple and AT&T are requiring a traditional in-store activation process. “AT&T has chosen what we believe is the most ridiculous, inconvenient and ineffective process to activate the new phones,” he writes. Kainer says activation is likely to take at least 10-12 minutes per phone.

“With long queues likely for the expected 8 a.m. launch, we expect prospective subscribers becoming unruly, although, we believe AT&T leadership accepts this possibility,” he says. “However, Apple leadership may not understand this possibility.” Kainer writes that “in an informal survey of stores through last night, Apple store employees universally claimed not to know what the iPhone sales process entailed.”

Kainer’s warning:

Without a streamlined process…we believe there will be troubles in AT&T stores, and chaos in the Apple stores.

Kainer thinks the company had better options: He says they could have set up in-store terminals for activation, or used an in-home activation model. To avoid the unlocking issue that plagued the first-generation phones, he suggests the company could have offered the phones for sale at the unsubsidized price in the stores, and then given customers rebates once they were registered online.

 

Now, I should note here that Kainer wrote all this in the context of a research note on Synchronoss Technologies (SNCR), which the first time around had a deal to provide activation services for AT&T for the phone. He thinks Apple and AT&T could have created a much faster process - and saved themselves over $10 per activation - by using SNCR’s services again. He doesn’t anticipate a reversal of the new plan, and in fact today cut his target price on SNCR shares to $11 from $16. But he writes that “neither do we dismiss the possibility” that SNCR could yet play a role here.

“We believe Synchronoss’ role in driving customer satisfaction by engineering and automating an elegant iPhone activation process will be irrefutable when comparing the 6/29/07 and 7/11/08 customer experiences," he concludes.

Comments

[bbzz24]

The reason for the in-store activation is completely different: sign the contract right there or charge extra if the customer wants to use it with t-mobs. Luckily I purchased my 1st gen iPhone in a store, walked out and used the sim unlock utils that come with it to use it on the t-mobs network. This is why now it is 'cheaper' to buy it.

[User 224514]

"If you plan to buy one tomorrow, get to the story early."

Do you guys not have an EDITOR?

[Mac'em X]

@User 224514: Everyone's entitled to the occasional typo, and overall Mr Savitz's article passes muster.

But reading some of the <i>other</i&g... writers at Seeking Alpha, I would assert without hesitation that this site most definitely does <i>not</i> employ editors. : /

[Mac'em X]

HTML tags don't work. Thanks for the warning, Seeking Alpha. : /