AT&T May Suck, But It’s a Huge Reason Apple Sold 1.7M iPhone 4s

Apple (s aapl) said today it sold 1.7 million iPhone 4s in the first three days, far outpacing last year’s record of 1 million iPhone 3GS handsets sold over the same time frame. In light of increasing competition from Google Android (s goog) devices, how did Apple manage to sell 70 percent more iPhones with this launch? An improved phone combined with strong marketing is part of the story — but for the rest, you need to look at AT&T.

iPhone 4 is impressing many with its improved feature set and design, notably how it packs four times as many pixels per inch as prior iPhone models and adds a front-facing camera complete with FaceTime software integration. Even more impressive is the masterful marketing behind the device. At a non-techie, family function I attended this weekend, for example, everyone was raving about how Apple seemingly invented video calling. This functionality has been around for at least two years, but FaceTime’s demonstrated ease of use won them over, as did other features that appeared “magical.”

Apple magic aside, AT&T (s t) had a hand or two helping to drive record iPhone sales. Instead of last year’s iPhone 3GS customers having to wait until next year for iPhone 4 upgrade pricing, many became eligible for an early discount. Indeed, AT&T advanced the eligibility date to some current iPhone customers by six months or more, giving such customers the $199 and $299 upgrade pricing during the handset’s launch weekend — which helps explain estimates why 77 percent of iPhone 4 sales were made by existing iPhone customers. Although it takes money out of AT&T’s pocket up front — the carrier subsidizes the phone, which Apple claims has an average selling price of slightly more than $600 — it locks customers into a 2-year voice and data contract. So while Verizon (s vz) may finally see an iPhone next year, all those new AT&T contract holders won’t be leaving without some hefty (and recently raised) early termination fees.

AT&T’s new data plans have helped as well. Although some consumers were upset earlier this month when AT&T eliminated unlimited smartphone data plans for all new contracts, others are happy to save money. Prior to the change, iPhone purchases required a $30 monthly data fee. But with the new plans — 200 MB for $15/month or 2 GB for $25/month — iPhone 4 could be construed as more affordable on a monthly basis. Although we didn’t upgrade the two iPhones in our home, we’re happy to be saving $30 each month now that my wife and step-daughter have the lowest rate plan.

So even though existing iPhone owners have had to deal with network capacity constraints and new customers have lost an unlimited data plan option, AT&T helped make the iPhone 4 more affordable and attractive.

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