Will AT&T have the iPhone forever?
According to the latest reports from the Wall Street Journal, AT&T’s multi-year iPhone exclusivity deal is set to expire at the end of 2010 and CEO Randall Stephenson is negotiating with Apple to extend AT&T’s arrangement for another year. AT&T isn’t commenting on the story, but the report is generating headlines galore, speculating on whether AT&T can keep it’s favored-nation status with the world’s hottest smartphone maker. Those stories, though, overlook the obvious.
There seems to be this assumption that Apple wants out of the deal, so it will be free to sell its iconic device through any retail channel over any operator’s network in the US. The reality is, though, that AT&T has the only nationwide network in the US that can support the iPhone in its current state. Verizon and Sprint are CDMA operators. While T-Mobile is a fellow GSM player building out high-speed packet access (HSPA) networks, its 3G is at the wrong frequency. Who does that leave? Cincinnati Bell?
Sure, Apple could design an iPhone with a CDMA radio, and it could design an iPhone supporting T-Mobile’s Advanced Wireless Service (AWS) 3G band, but why would it want to? Apple’s approach so far has been to create a single device that it can sell all over the world. That’s meant supporting the most common 3G frequency bands (1.9 MHz in the Americas and 2.1 GHz in Europe and Asia) and the most common radio technology used globally (by far GSM and UMTS). If it were to build CDMA or AWS phones it would essentially be tailoring iPhone for individual–or at least just a handful of–operators, destroying what must be a significant advantage in volume production and eating away at the phones presumably hefty margins. Apple could also just add new frequencies or technologies to the existing iPhones, but again, they would raise the cost of materials and drain more power from the device.
Even if it were economically feasible to create the every-carrier iPhone, why would Apple bother? Apple has demonstrated customers it doesn’t have to go to customers–they’ll come to Apple. Millions of subscribers have dumped their wireless provider in favor of AT&T, just to get their hands on the iPhone. Finally, AT&T’s exclusivity agreement has plenty of advantages for Apple: namely control and incremental revenue. Apple isn’t just selling a device, its getting a chunk of data subscription and applications revenue from AT&T, though the exact financial details haven’t been disclosed. Those are terms AT&T is plenty willing to accept as long as its an exclusive provider, but if Apple starts distributing its devices through any and every operator, its negotiating position suddenly isn’t so solid.
Extension or no extension, I think Apple is happy right where it is.
April 17th, 2009 at 9:36 am
In my opinion, your assumption that by not having to make a second air interface (CDMA), they generate greater incremental revenue via the exclusive arrangements with ATT due to sharing of broadband and certain apps revenue is flawed.
First, while there are certainly issues with a second air interface, the path is clear and straightforward (witness all other handset providers).
Second (CDMA) air interface opens the largest US carrier VZ (as well as Sprint) - as well as some other Asian areas.
Third, this is important for many users who for reason of coverage (ATT network is poor relative to Verizon in much of the country), and/or corporations choose to support one carrier - more often than not VZ on on the coasts, that people cannot switch to T. I also hear multiple complaints on T from those who have switched, saying they can’t wait to have the opportunity to go back to VZ.
So, the question to answer is where are the largest incremental increases to be had?
I think it’s obvious that it’s in opening up the air standard to add millions more users, who will be happy to switch to iPhone, but not switch providers.
October 14th, 2009 at 1:46 am
lol even Sprint’s 3g network is 3x bigger then AT&T’s and they have faster speeds. $7 bucks Total equipment protection insurance. Voice and Nav services are free. Prices are vastly cheaper. They have the fastest 3g networks currently. It is also the first company to be widely upgrading to 4g.
If you think AT&T is even close to Sprint service wise you must be kidding yourself. AT&T is a horrible horrible loan company.
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