iPhone to the rescue!

Marketwatch has posted an intriguing story about how the iPhone could help AT&T to battle Verizon, and yes it sure needs it

Since AT&T Inc.'s mobile-phone business took the U.S. market lead in 2004, Verizon Wireless has been steadily narrowing the gap, and was poised to recapture the No. 1 spot within a few years.

At least until the iPhone came along.

While it's too early to tell how well the Apple Inc. (AAPL) phone will sell, the introduction of one of the most anticipated consumer-electronic products in American history clearly has the potential to reshape an already intense rivalry between AT&T and Verizon.

At the end of the first quarter, Verizon cut AT&T's lead in the United States to just 1.5 million subscribers from a peak of 5.3 million at the end of 2004. Verizon already generates more revenue from its wireless business than AT&T (T) does -- something the company loves to tout in its press statements.

Verizon Wireless, a joint venture of Verizon Communications Inc. (VZ :

and Vodafone Group Pl (VOD) , now has 60.7 million mobile customers, compared with 62.2 million for AT&T.

What's more, Verizon Wireless has outgained AT&T by an average of 220,000 customers each quarter since the start of 2006.

Yet the release of the iPhone, which goes on sale Friday evening, could halt or even reverse that trend, at least for a quarter or two.

AT&T executives repeatedly have called the iPhone a "game changer" and say that more than 1 million people have signed up on the company's Web site to get more information. Hundreds of customers were lining up at AT&T and Apple stores early Friday to buy the device once it went on sale later that evening.

The iPhone, a unique touch-screen phone with Internet, music and video capabilities, could help AT&T in a number of ways. For starters, the company is certain to add tens of thousands of new customers in the first few quarters after the device goes on sale.

In addition, the iPhone will help AT&T to retain its customers and thereby reduce "churn" -- a key industry measure that counts how many subscribers cancel service.

AT&T's churn, at 1.7% in the most recent quarter, lags behind Verizon's industry-leading rate of 1.08%. The greater loyalty shown by Verizon customers partly explains how the company has whittled AT&T's lead.

In addition, thousands of customers are likely to trek to AT&T stores to check out the iPhone, and even if they can't afford its stiff $500 to $600 price, they could end up subscribing to another phone plan.

AT&T spokesman Michael Coe called such a scenario a "halo effect." "We think the iPhone will drive lots of customers to our stores," he said.

Verizon executives don't dispute the so-called halo effect, but insist that it won't be limited to AT&T. Indeed, they argue that the iPhone will also help Verizon sell more handsets by showing consumers all the cool things new phones do.

Of course, Verizon could have benefited directly had it chosen to align itself with Apple in the first place।
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