By Chris Smith

Published: 01:37 AM EST (10:37 PM PST)

Apple’s upcoming free messaging application iMessage in iOS 5 will likely disrupt wireless carriers’ thriving SMS texting business when it arrives on Tuesday, according to multiple analysts.

iMessage, a new app launching as part of iOS 5, will offer iPhone, iPad and iPod touch owners unlimited free messaging over Wi-Fi and 3G networks.

The New York Times reports that the forthcoming service is being perceived as a threat to mobile operators. iMessage and other similar services will allow smartphone users to rely on existing data plans and Internet service for text messaging functionality, thereby avoiding having to pay for high-margin SMS plans from wireless operators.

SMS – A multi-billion-dollar business in the U.S.

An SMS message offers the user the ability of sending short bursts of text of up to 160 characters. Report author Jenna Wortham noted that, at rates as high as 20 cents per sent and received message, a user would end up paying $1,500 to send 1MB of text data. The same amount of data costs just 1.25 cents on a $25 per month 2GB data plan.

Two trillion text messages are sent in the U.S. each year, according to Sanford C. Bernstein analyst Craig Moffett. That translates into $20 billion in revenue each year, with $7 billion a year taken in by Verizon alone.

One expert estimates that a single text message costs carriers just a third of a penny. University of Waterloo professor Srinivasan Keshav told the publication that SMS messages use the same network carriers employ for voice calls, piggybacking “on the phone railway,” with as much as “4,090 percent markup” for the service.

In the Netherlands, free messaging apps and social networks have already “shrunk texting traffic and eroded profits,” Wortham said. However, the report noted that some carriers are adapting to the imminent potential threat coming from Apple’s iMessage.

AT&T now offer its subscribers two choices, a $20 per month unlimited text plan or a flat 20-cent fee per sent and received message. The carrier's previous plan of $10 per month for 1,000 text messages is no longer available.

For its part, Verizon sees iMessage as a complementary feature to other communication standards. “From a business perspective, customers still need a data plan to connect to a device. They are only making choices on how they are using the data,” a company spokesman was reported as saying.

However, Apple devices only account for 5 percent of texting traffic each year, mobile analyst Chetan Sharma told the publication. Considering that iMessage is an iOS-only application right now, users will still require a texting plan to connect to mobile subscribers that do not own a supported iOS device.

iMessage – How it works

The application is part of iOS 5, the company’s latest mobile platform version which will be released on Oct. 12. iOS 5 will be compatible with various iOS devices: iPhone 3GS, iPhone 4, iPhone 4S, iPad, iPad 2 and third-generation and newer iPod touch models.

iMessage was unveiled at this year’s Worldwide Developer Conference in June at what turned out to be the last keynote the late Steve Jobs delivered. One report suggested that Apple’s carrier partners were unaware of the development of such an app, reportedly finding out about it at the same time as the general public.

The app will make instant text-messaging between iOS devices substantially cheaper, even free in some cases, as it only requires a wireless network or a 3G data plan to work. The service should draw special appreciation from users that send a significant amount of SMS messages to friends and family that live in other countries and also happen to own recent models of Apple’s mobile offerings.

Unlike SMS messages, iMessage texts are not limited to 160 characters per message. In addition to text, the application lets users share photos, videos, locations and contacts. Also, all sent and received iMessages are securely encrypted.

The app supports multi-device use, so users can pick up chatting with their contacts across any of the iOS devices they own. iMessage features single and group messaging and offers text delivery notifications.

A recent code discovery in Apple’s iChat application suggests the company may be interested in bringing iMessage support to its OS X Lion chatting platform.

Similar solutions from Apple rivals

iMessage has been seen as Apple’s answer to Research in Motion’s popular BBM messaging application that lets BlackBerry users instant message each other. Until the introduction of iMessage, BBM was considered an exclusive major smartphone feature that would draw some mobile consumers to BlackBerry devices and turn them into loyal brand followers.

Samsung and Google are also reportedly working on similar services that would allow Android users to communicate via free messages instead of pricier SMS texts. Meanwhile, Microsoft is said to be readying its own instant messaging system for the Windows Phone platform.

Other third parties offer free instant messaging clients for most smartphone platforms including iOS, but they are not natively integrated into the operating system and need to be downloaded from the appropriate application store.

By Josh Ong

Published: 08:19 PM EST (05:19 PM PST)

AT&T, Apple's original wireless carrier partner for the iPhone, announced on Friday that it had received more than 200,000 pre-orders for the iPhone 4S in the first 12 hours on offer, making it the most successful iPhone launch ever for the company.

The carrier said in a statement that it had seen "extraordinary demand" for Apple's new smartphone. "It's obvious customers like AT&T's 4G network, which is the only one that lets their iPhone download twice as fast and talk and surf simultaneously," the company wrote.

However, AT&T's claim is subject to some dispute. According to an alleged leak earlier Friday, the company is "working with Apple" to change the network indicator for the iPhone 4S on its network to read 4G. "Since iPhone 4S is an HSPA+ device, our customers will get 4G speeds from day one. Only AT&T has this unique network advantage," the document read.

Though Apple added a faster 14.4Mbps download capabilities to the iPhone 4S, AT&T is not actually set up to take full advantage of those faster HSDPA speeds. AT&T said in a public document last month that "current HSDPA devices commonly support peak rates of 3.6 or 7.2 Mbps, though typical user rates are lower than this."

It has been reported that AT&T is claiming the iPhone 4S is an HSPA+ and 4G device on a technicality. TiPB’s Rene Ritchie has noted that devices must simply support “any 3GPP release 7 feature” to be classified as HSPA+. Since the Qualcomm chipset found in the iPhone 4S uses 3GPP features, it technically counts as an HSPA+ radio, despite the fact that the handset can’t reach the 21Mbps HSPA+ speeds that had been rumored to arrive on the device.

Both AT&T and T-Mobile have sometimes advertised their HSPA+ networks as having 4G speeds, though the Long-Term Evolution is widely accepted as the 'true' 4G network.

Given that pre-orders for the iPhone 4S were also offered on Sprint and Verizon, Apple is expected to have smashed previous records for the iPhone set last year.

Last year’s iPhone 4 launch exceeded the previous iPhone 3GS demand by a factor of 10, causing a meltdown of AT&T's systems.

In fact, AT&T experienced its own problems this year, as well. A number of AppleInsider readers reported being unable to successfully complete pre-orders when they began at midnight on Friday. Also, both Apple and AT&T were late in initiating pre-orders for the iPhone 4S.

The iPhone 4S goes on sale on Oct. 14 in the U.S., Australia, Canada, France, Germany, Japan, and the U.K. The handset, unveiled by Apple on Tuesday, features the A5 processor, an 8-megapixel camera, an new antenna design and Siri voice recognition technology.

By Neil Hughes

Published: 08:56 AM EST (05:56 AM PST)

With 74 new carriers added since the iPhone 4 launched in 2010, Apple is predicted to easily top its personal best of 1.7 million handsets sold in three days with the launch of the fifth-generation iPhone.

Analyst Brian White with Ticonderoga Securities expects a “media blitz” and “unprecedented demand” after Apple announces its next iPhone on Tuesday, allowing the new model to “shatter” the sales records set by the iPhone 4. He noted that The iPhone is now available on 228 carriers worldwide, compared to 154 during the iPhone 4 launch in 2010, giving Apple an opportunity for even greater sales this year.

With an aggressive roll-out of the so-called “iPhone 5,” much like Apple’s accelerated international launch of the iPad 2 this year, White believes the company will be able to ramp up sales more quickly. Apple will also be aided by the CDMA iPhone, allowing it to expand to even more carriers worldwide, particularly in China.

He also thinks this year's iPhone could be a "world phone" compatible with both GSM and CDMA networks. That would allow Apple to build one handset for use on different carriers, such as AT&T and Verizon in the U.S.

Despite continued evidence that Apple’s next iPhone will sport an appearance similar to the current iPhone 4, White is still holding out hope that Apple plans to introduce a radically redesigned handset on Tuesday. He predicts that the “iPhone 5″ will feature an aluminum unibody design that will be “more aesthetically pleasing but also stronger, lighter, and avoid the back-side ‘glass breaks’ of last year.”

“With this new enclosure, we believe this will provide Apple with the opportunity to expand the display size by at least one half of an inch to 4 inches and hopefully bigger,” White wrote in a note to investors on Monday. “Apple will clearly need to upgrade the processor speed to at least a Dual Core 1.2GHz to match the Samsung Galaxy S II, while upgrading to a 8 mega pixel 1080p camera that is now also on the Galaxy S II.”

He does not expect that the next iPhone will be compatible with true 4G long-term evolution networks, but does believe that recent evidence of an HSPA+ compatible iPhone is legitimate. While not “true” 4G, HSPA+ has been advertised as having 4G-equivalent speeds, with theoretically downloads of 21Mbps.

A number of third-party cases have shown an iPhone 5 design with a thinner body and tapered sides similar to the iPad 2, but numerous leaked components have shown a device with a design much like the iPhone 4. The similarities between the iPhone 4 and the leaked components have led to rumors referring to the device as an “iPhone 4S,” a name that was also discovered in a pre-release beta version of iTunes.

For months there was speculation that Apple would release both a low-cost “iPhone 4S” and a redesigned “iPhone 5″ this year, but in recent weeks those claims have died down. But with just a day to go before Apple’s keynote, White continues to believe Apple will release two models, with the “4S” geared toward the huge prepaid smartphone market in China.

By AppleInsider Staff

Published: 09:15 AM EST (06:15 AM PST)

Click here for live, up-to-the minute coverage of Apple’s “Let’s talk iPhone” event, beginning at 10:00 am PT / 1:00 pm ET today.

By Katie Marsal

Published: 10:20 AM EST (07:20 AM PST)

The new iPhone 4S will help Apple continue to gain smartphone market share worldwide, but the updated hardware is not enough to slow the growth of Google’s Android platform, one analyst believes.

Alex Gauna with JMP Securities said he feels Tuesday’s iPhone 4S unveiling “lacked much of the panache seen in the past.” He said the presentations given on Tuesday showed off “attractive improvements,” but he believes attention will quickly turn toward a “true” fifth-generation iPhone.

Specifically, he said the lack of 4G long-term evolution data connectivity and a larger screen will allow competing Android handsets to differentiate from Apple and gain some traction in the smartphone market. He believes Apple will “want to remedy” those differentiators with an “iPhone 5.”

“At its event, Apple pointed out that according to comScore, iOS represents the number one smartphone operating system in the U.S. with 43% market share; however, the trend has been for a faster adoption pace for Android-based models,” he wrote in a note to investors on Wednesday. “Given Android’s greater range of price points and form factors, we would expect this trend to continue.”

Gauna is not as bullish on AAPL stock as most of his colleagues on Wall Street. He has maintained a “market perform” rating for the company since March.

He said iOS 5 and iCloud are unique features that will drive iPhone sales, but he doesn’t feel the dual-core A5 processor found in the iPhone 4S and its 8-megapixel 1080p camera are very different from competing Android phones. He also cited his own “industry checks” as indicating that Android will gain its own natural language voice recognition capabilities in early 2012, allowing the platform to compete with Apple’s Siri.

One element of the iPhone 4S that Gauna is impressed with is the quick global rollout in the works by Apple. The handset will launch in the U.S., Australia, Canada, France, Germany, Japan and the U.K. on Friday, Oct. 14, and will expand to 22 more countries by the end of October.

He believes quick availability of the iPhone 4S will allow Apple to reach sales of 21 million units in the company’s first quarter of fiscal 2012.

By Josh Ong

Published: 12:18 AM EST (09:18 PM PST)

Following Apple’s unveiling of the iPhone 4S on Tuesday, Wall Street’s response was relatively subdued, though analysts remain optimistic that Apple sales growth will continue to rise.

Apple took the wraps off the iPhone 4S at its “Let’s Talk iPhone” event. The fifth-generation handset is a “world phone” that carries the same external form factor as the iPhone 4, but boasts a faster processor, improved antenna design and new Siri voice recognition functionality.

Shares of Apple experienced volatility on Tuesday in light of Apple’s announcements. The stock slide from a close of $374.60 on Monday to as low as $355.18 during the day on Tuesday, before rallying back to close at $372.50, down just 0.56 percent.

The general response by the public appears to be largely underwhelmed. But, several Wall Street analysts noted the disappointment, while also reiterating their confidence in Apple’s continued growth.

Piper Jaffray

Piper Jaffray analyst Gene Munster sent a note to investors saying that Apple’s announcements at its “Let’s Talk iPhone” event were in line with expectations.

“The bottom line is that while investors may be disappointed by the lack of a redesigned iPhone, we believe the iPhone 4S will meet or exceed unit expectations, as it represents the first iPhone launch at two major US carriers (Verizon and Sprint) along with KDDI in Japan,” he wrote.

Munster believes the launch of the device will attract long lines, based on survey data from August. According to him, there is pent up demand for the iPhone 4S, as 64 percent of mobile phone users surveyed in August indicated plans to buy an iPhone the next time they purchase a new phone, with 36 percent of those surveyed saying they would wait for the “iPhone 5.” But, it should be noted that the survey had a small sample size of just 216 respondents.

Verizon and Sprint are expected to give Apple a sales boost, even without a redesign of the iPhone’s externals. Munster remains comfortable with his 25 million unit estimate, given the level of demand expected from the two carriers. According to him, Sprint should have the highest backlog of demand, though large numbers of Verizon customers who passed on the iPhone 4 and have been waiting for a next-generation Apple handset are also predicted to buy the iPhone 4S.

74 percent of Verizon subscribers who do not have an iPhone but plan to buy one as their next mobile phone were waiting specifically for the fifth-generation model, compared to 53 percent of AT&T subscribers, Munster noted.

RBC

Analyst Mike Abramsky said Tuesday that a drop in Apple’s stock price was “not unexpected” because the announcements only met expectations. He remarked that updates in the iPhone 4S and iOS 5 are “largely evolutionary,” though he did note that the Siri voice assistant was “cool.”

The analyst recommends investors buy shares of Apple on weakness, as he remains positive on Apple in the longer-term.

“Similar to the iPhone 3GS (which was evolutionary vs. the iPhone 3G), we believe investors should not underestimate the potential upgrade cycle of the iPhone 4S,” he said, adding that RBC survey data shows “unprecedented” demand for the iPhone 4S.

Abramksy sees iCloud and iOS 5 as important differentiators that will help lock users into the Apple ecosystem. Also, the addition of Sprint as an Apple carrier partner will expand the iPhone’s addressable market by 25 percent in the U.S.

He pointed out that the new $0 iPhone 3GS will psychologically provide a “compelling offer” to consumers, potential doubling Apple’s addressable market to 150 million smartphones per year.

On page 2 of 2: J.P. Morgan, UBS and Morgan Stanley.

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