Competitors Comforted by iPhone's High Price

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Apple Inc. (AAPL) aims to build on the success of its iPod music player with the new iPhone wireless device, but it faces a crowded and competitive market in taking on established cell phone makers.

Global phone makers such as Nokia (NOK), Sony Ericsson and LG Electronics Inc. already sell music phones that the iPhone will challenge, while Research In Motion Ltd.'s (RIMM) Blackberry e-mail device is loved by professionals.

Rivals of AT&T Inc. (T), the U.S. wireless service that will exclusively sell iPhone for at least two years, will also turn up the heat by promoting their top music-phones.

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"The iPhone has Harry Potter consumer interest, but it's not going to have Harry Potter sales because it's a premium device," said Strategy Analytics analyst David Kerr, referring to author J.K. Rowling's blockbuster series about a boy wizard.

The iPhone goes on sale in the United States on Friday for $500 and $600, depending on storage space and not including a required two-year service contract.

The price alone will minimize the early competitive threat, as 85 percent of U.S. consumers tend to spend $100 or less on cell phones.

"If Apple was to come out with a $150 device, that's what would scare the heck out of Sony Ericsson, Motorola, Samsung and LG," said Kerr.

He expects the iPhone to sell 2 million units in 2007 out of a forecast of 20 million total advanced phone sales and 168 million total phone sales this year.

Gadget reviewers have already lauded the iPhone's smooth touch-screen that replaces regular phone keys, as well as its relatively large screen, Web browser and media player.

Advanced phones on the market don't have enough similar features for a direct comparison, but rival carriers to AT&T, such as Sprint Nextel Corp. (S) and Verizon Communications Inc.'s (VZ) Verizon Wireless venture with Vodafone Group Plc (VOD) will aggressively push their existing music phones, analysts said.

They could also reap an indirect benefit should the iPhone get consumers excited about the general market for smart phones.

"Whichever (phone) is being promoted the heaviest, whichever is most like a music player," could benefit from the increased focus on media-playing phones, Current Analysis analyst Avi Greengart said.


LG's Muziq model, unveiled by Sprint on Tuesday; LG's Chocolate, a best seller at Verizon Wireless; and Samsung's Upstage, Sprint's best selling high-speed data phone, may lure thriftier mobile music fans at $100 or less, analysts said.

On the high end, analysts see Sony Ericsson, a venture of Sony Corp. (SNE) and Ericsson (ERIC), and No. 1 handset maker Nokia as the ones to watch against Apple.

"The Sony marketing dollars and their touch-screen approach will be a strong competitor to the iPhone on the multimedia side," said Kerr.

Sony Ericsson's digital Walkman phone has sold 25 million units in 18 months, beating Apple's ambition for 10 million iPhones. Nokia's fanciest media phone, the N95, is priced higher than the iPhone at $749.

But such handsets, while selling well in Europe, are not sold in the United States through wireless carriers, presenting a huge stumbling block to reaching local consumers.

LG's Prada phone is often cited as the closest device to iPhone for its touch screen, but it has yet to arrive here.

Among carriers, Sprint is already looking at its options for selling a touch-screen phone with LG and other phone makers, product manager Brita Horton told Reuters.

A more surprising rival could be the Ocean, a $295 phone designed and sold by upstart U.S. service provider Helio, a venture of SK Telecom Co. Ltd. and EarthLink Inc. (ELNK)

Helio goes after the same tech-savvy, heavy-spending customers that are often Apple fans and has won about 100,000 subscribers so far.

The Ocean is built for easy text messaging and e-mailing, with a keypad each for typing and dialing.

"When you want to type and do it rapidly without making mistakes, you need that feeling that I pushed a button," Helio Chief Executive Sky Dayton said in an interview.

But Greengart, who described Ocean as the "anti-iPhone" for all its buttons, said that in coming months some consumers will settle for nothing but iPhone, regardless of other offers.

"They're looking to buy into the hype and buy some of it for themselves," he said.