Regarding AT&T, Verizon, and iPhone exclusivity

No one outside a very few at Apple and AT&T know exactly how long iPhone will remain exclusive in the US. While the original deal was for 5 years, deals are subject to all manner of renegotiation, renewal, termination, amendment, and service level agreements. It could run out earlier than expected or it could continue on longer. While we can't see the dark matter that is Apple and AT&T exclusivity, we can see some of the gravitational ripples around it.

Holding out for BlackBerry, Android, and Palm heroes

Since launch in 2007 through 2009, iPhone was AT&T's single hero phone. iPhone 2G, iPhone 3G, iPhone 3GS were not only the biggest they were the one and only flagship release of the year. They were also the only real, full screen, touch-centric devices on AT&T's network. You went to AT&T for iPhone and some even stuck with abysmal AT&T service in their area just to get iPhone.

In 2010 iPhone 4 was still a huge deal. The hugest deal perhaps. But for the first time it wasn't the only deal. AT&T got Palm Pre Plus. They didn't do much with it, of course, nor with the first Android phone they got -- the unfortunate Backflip. In July they added a real Android, the Samsung Galaxy S branded as the Captivate. Both the Palm Pre Plus and the especially the Captivate offer very iPhone-like experiences. They're both real, full screen, touch-centric devices on AT&T.

Then August brought the BlackBerry Torch. Back in May we wondered what this device meant for AT&T and iPhone. While media reception to RIM's first slider has been lukewarm to say the least, the device itself was built specifically for and with AT&T, and was introduced by AT&T head honcho Ralph de la Vega who reportedly ordered millions of them.

Again, real, full-screen, touch-centric device on AT&T's network, and this time with a huge network push behind it.

From zero comparable devices/OS to three in a year? The pace is being picked up.

Look at the locks

In recent SEC filings AT&T has gone further than ever to try and assuage investor fears about what losing iPhone exclusivity would mean to the carrier. Much of this involves new iPhone 4 customers who are just beginning a 2 year contract stint, but also states that 80% of iPhone users are locked into hard-to-transport corporate and family plans. And there's that new ETF.

AT&T also remains the only US carrier fully compatible with current and past GSM/HSPA iPhones. T-Mobile is compatible for EDGE data but their 3G bands are another story and Verizon and Sprint use CDMA/EVDO radios that would require a completely different radio.

That AT&T is taking the time to point all this out, and doing it now, at the same time they're releasing other hero phones in noteworthy. That they're pointing it out to investors -- the people who know just how much of AT&T's profits and ARPU (average revenue per user) have been tied to iPhone over the last few years -- is noteworthy.

Lies, damn lies, and iPhone on Verizon

It used to be that everyone was talking about the next iPhone having a hardware keyboard. No one cares about that anymore. 4 years later and they're still talking about the next iPhone coming to Verizon. That they care about. And the punishment for that caring is year after year, rumor after rumor, that an iPhone on Verizon is just around the corner. Always, just around the corner.

Better service is one of the most closely held hopes. Whether AT&T has a poor network or any single network would suffer under the sheer volume of iPhone usage -- or both -- the reality and perception is that, for many users, Verizon is their network of choice.

We heard back at CES in January, and many other outlets have heard since, that the technology for a Verizon iPhone was in place but Verizon and Apple couldn't come to an agreement. Two such controlling companies, go figure?

Since then it's been revealed that Apple has flirted with Verizon several times over the years but never pulled the trigger.

Follow the money

The bottom line is, there will come a point where everyone who wants to or is willing to use AT&T for an iPhone will have one. Apple will reach saturation on a single network. 4 years in, old contracts are done, new towers are in place, the price is cheap-ish and brand awareness is through the stratosphere. It's becoming an upgrade, not a new user business for both AT&T and Apple in the US.

AT&T obviously knows this, hence the Palm Pre Plus, Android Captivate, and BlackBerry Torch. Users who actually like AT&T but for some reason don't like the iPhone might just come on over for one of those. (And, of course, when iPhone does go non-exclusive, AT&T will have other platform bases established from which they can attempt to build).

For Apple, selling tens of millions of additional iPhones in the US means getting on Verizon. (Or, okay, Sprint and T-Mobile since why leave any money on the table?). Verizon tried and failed to appease would-be iPhone converts with the BlackBerry Storm, and tried and succeeded with the Android Droid line, but while that stemmed the bleeding it didn't suck in the massive iPhone market. An iPhone on Verizon would.

Apple probably won't let Verizon paint a huge logo on iPhone, stick on garbageware, or BOGO it come January, but Verizon has Droid now for all that.

It's just, and all, about the money both will make from the deal at this point -- if they can reach it.

But what about the LTE, man?

While AT&T and Verizon don't have compatible 2G or 3G networks, they're both moving to 4G networks based on LTE (Long Term Evolution). This makes many believe Apple will wait for LTE before releasing a Verizon iPhone.

Maybe.

It has less to do with LTE and more to do with timing. When Apple and Verizon have a deal in place, iPhone will ship on Verizon. If that's after LTE is ubiquitous, it will be an LTE iPhone on Verizon. If not, it will be CDMA. The first AT&T iPhone didn't even support 3G.

Sure a CDMA iPhone will be a re-design, but so would an LTE iPhone and the only thing that matters -- again -- is what return on that investment Apple figures they'll make.

Tick. Tick. Tick.

Time is running out on AT&T iPhone exclusivity. AT&T knows it; they're lining up alternative hero phones and preparing their investors for the day their profit reports aren't lined with Apple gold. Apple knows it; they've been talking to Qualcomm about CDMA chips and seeing what multiple carriers have done for them in almost every other market outside the US. We all know it, hence the annoying amount of rumors that keep hitting the interwebs.

It's just a matter of time and Apple and Verizon making the deal.

Rene Ritchie

Editor-in-Chief of iMore, co-host of Iterate, Debug, Review, The TV Show, Vector, ZEN & TECH, and MacBreak Weekly podcasts. Cook, grappler, photon wrangler. Follow him on Twitter and Google+.

More Posts

 

0
loading...
0
loading...
0
loading...
0
loading...

← Previously

iOS 4 features: Background app killing

Next up →

Star Wars: Battle for Hoth - app review

There are 28 comments. Add yours.

JustinHorn says:

I'm in the LTE group. Yes, the first iPhone didn't support 3G, but there was still only one iPhone to support. Yes, they would need a new chip design for an LTE iPhone, but as long as it supports the rest of the world they will only need to make/support one new iPhone per year.

Plazmic Flame says:

This was a really great article, great job!! I truly believe that we will only see an iPhone on Verizon when they have their LTE network up and running. I think that ever since the beginning of the iPhone and the falling out Apple and Verizon had, Apple has decided not to make a CDMA iPhone.
Waiting for LTE next year would be the best move for Apple because at that time, most carriers should have their LTE up and running and then Apple would only have to make one phone design instead of falling into a situation like Blackberry where we see way too many designs of the same phone.
I believe Apple is simplistic in their execution and at this point, they want to keep things simple. So the smart thing would be that the next iPhone would be the iPhone 4G and it will be LTE compatible (and hopefully have T-Mobile 3G/AWS/1700 compatibility).

Dan says:

i still say , ill believe it when i see it

Tired if rumors says:

I just left verizon over a week ago I've been with them for 8 years and I got my very first iPhone. I could care less if they get this phone or not but I have have been very impressed with AT&T service thus far. I know it's all about money but att has the network for this kind of phone. Voice and data aren't something you can do on verizon and he speeds on att are crazy compared to what I've been using with verizon. So it they are gonna get it I wish they would just say already so we could talk about something else
Sent from my iPhone 4!!!!!!

iphone4idiots says:

Agree 100%. Despite what mashable, tech crunch, etc say, I took other view. I'll believe it when I see it. I learned as stock analysts that "those close to situation" tend to be wrong. I would think a low level person could confirm of millions of CDMA chips were being made for Apple. It's hard to hide that size.

S. Casey says:

Good article. I vote that they're waiting, like you say they may be Rene, on LTE service up & running.

Tebow says:

Does iPhone4 have 4G capabilities?

Travis says:

I had verizon for almost 8 years, and made the switch to AT&T for the 3G. Living in the coastal area of the Carolinas I can say my AT&T speeds and dropped call rates are much less than my families droids. I have a 4 now and I honestly don't believe I will ever switch phone brands again.

Uscgsmecocks says:

No tebow it isn't a 4g phone......just like your quarterback, you are a big dummy

firesign3000 says:

If Verizon had gotten the iPhone instead of AT&T, I wouldn't have bought an iPhone. If Verizon ever got an iPhone I wouldn't switch. Verizon will never, ever, get one cent from me. I don't get "abysmal" service from AT&T, and though all American cell carriers have varying levels of suck, Verizon is the worst of the worst to deal with. "Inside information" on tech blogs is wrong more often than right. I don't know why people take it as gospel truth. Even the "legit" news services reprint the stuff as if it's fact.

iName says:

When iPhone exclusivity is over, AT&T is screwed and it's their own fault. I would love to meet the idiot who thought it would be a smart idea to base their entire business model one ONE device. Do you think verizon is gonna ditch Droid if they get the iPhone? Hell
The effects may not be immediate but they'll hurt them in the long run when people choose not to renew their contracts and people no longer find it necessary to switch carriers.
Also the Captivate can't even hold a torch to Verizon's Android line-up, no one is gonna stick to AT&T for that. And the Torch? Don't even get me started....

Jeff says:

$50 says the next iPhone is called the iPhone 4G

Justin says:

ok so this may be a really stupid question and i'm ready for the insults that come my way lol but...when this exclusivity deal is up with AT&T, does that mean no more iphone on their network? like when the new iphone comes out in 2011 or 2012 AT&T won't get it? or just when the new ones come out they'll go to BOTH AT&T and Verizon. Cause like it was said before me, i don't have poor AT&T service where i'm from. Where i'm from, Verizon sucks here!! All i see people do with their version phones is hold them in the air and look for signal.

durangojim#AC says:

Very well written and thoughtful article Renee. Can't really say I disagree with anything you wrote, except about the Droid being filled with garbageware, but hey a 99% is still an A right?

Crayolaboi says:

All the talk of droid devices. Having owned one in the past and seeing current devices I still can't see why some people prefer them over ios devices.

bvonscott says:

@firesign3000: Well said.
@Rene: (Better service is one of the most closely held hopes. Whether AT&T has a poor network or any single network would suffer under the sheer volume of iPhone usage — or both — the reality and perception is that, for many users, Verizon is their network of choice)
Better service? Network of choice? Since when has it been proven the vzw has better service and is the network of choice? From my first hand experience of people with vzw service and talking to people on vzw phones, their service is crap compared to ATT. They complain much more than I ever have. I think this is like you say a huge "perception" problem. Like how people for the longest time "percieved" Toyota to make bulletproof flawless cars, and... well, now we know they dont.. they're just as perfect or rather imperfect as everyone else. Same with VZW and ATT. I honestly believe that Verizon does not have better service than ATT, but they have a better "perception of having better service". Technically speaking, ATT is more advanced in technology than VZW, has more towers, uses a more common radio frequency set, has higher bandwidth, and has better developed corporate store fronts. But, they have worse "perception" or "reputation" that are completely unfounded. Otherwise, they would be completely dominating the market based on their advances. In the real world... everyone I know with ATT service is happy, a few people I know with another carriers service dogs on ATT. Even though they have never been on an ATT plan. Makes you wonder.. doesn't it?

sting7k says:

Everyone saying it's about LTE being working I don't see why that would matter. Look how long it took 3G to become widely available and still is around major metro areas. What good is an LTE Verizon iPhone that only works in 10-20 cities for likely half of your contract period?

Jon - Ambient Rings says:

@Warlord, I fully agree with you. From a Canadian perspective, it seems pretty absurd to me, that consumers would put such an unfounded value on the quality of Verizon's network. It isn't hard to have a solid network when it really hasn't been tested by millions of data-hungry iPhone users (who, by all measure, use a disproportionate amount of network bandwidth, and who are, in nearly every way, incentivized to do so by Apple and by app developers). Likewise, Verizon has had the benefit of observing what has happened with AT&T, who from what I understand never predicted that the iPhone would grow to such a significant market share (in terms of data usage). Presumably, they have adjusted, adapted, and upgraded accordingly.
It seems to me that Verizon dodged a logistical bullet by not getting the iPhone. Instead, they have been able to slowly build up and adjust for high data usage traffic by the climbing adoption rates of Android devices; that being said, it is very likely Verizon will eventually have the same logistical issues as AT&T, especially as Android adoption starts to exponentially increase (like iPhone, Android is not carrier-conscious in terms of data usage, not like BlackBerry, anyway). For now, though, they can tout their network reliability and coverage, even though there are blaring flaws in the argument, including the fact that it is a CDMA network.
The problem, however, is that consumers, frustrated with natural network saturation inherent to any network carrying the entire country's iPhone users, have built up Verizon to mythical proportions. I dare say it's simply an example of "the grass is greener on the other side." Were roles reversed, it is quite likely that consumers would tout AT&T's superior 3G network (simultaneous voice and data capabilities), and more cooperative focus. Unfortunately for AT&T, the damage to its reputation, while nearly wholly unfounded has been done. It makes me wonder, though, why consumers assume Verizon would be so accommodating to the unique demands and challenges associated with carrying the iPhone. After all, Verizon supposedly refused to meet Apple's terms - terms which are altogether GOOD for the end user, which says a lot about how Verizon would/does operate.
I also think that US consumers have been benefiting from a lack of carrier competition to some extent; the fact that AT&T is trying (desperately, perhaps) to maintain its carrier exclusivity for iPhone means it has been incentivized to provide customers with better service in terms of data rates, upgrade eligibility incentives and rebates, and alike. Do you think that Verizon or AT&T would have the same incentives to meet Apple's demands for data usage and alike, if the iPhone were released multi-carrier from day one?
Interestingly, if anything, AT&T has paved the way for a more consumer focused consumer-network relationship generally. The fact that AT&T has been forced to forego typical network branding (no AT&T logos on the iPhone), proprietary software add-ons, and alike, is something that all consumers will benefit from (and ironically, are things Verizon appears to be wholly against).
Food for thought, anyway.

Mobile Virgin says:

I personally believe that if any company besides tmobile were to get the iPhone it would Sprint. These two companies (sprint and tmobile) were the ones that really suffered the most since AT&T got the iPhone and I know that sprint has the technology in place and I more flexible than vzw so I say that sprint will get it before vzw. If I had my way it would stay with AT&T period this would cue everyone else to step up their game.

(Copy of) Dev says:

@Justin
No - a Verizon iPhone would not be the end of the AT&T one. The most compelling reason for AT&T to release a CDMA phone is to reach more customers -- like 90 million Verizon and 120 million China Telecom users -- who want an iPhone and cannot buy it. Apple will offer a CDMA iphone if a) they think they can sell enough phones to justify the extra expense of a different radio model, and b) those new CDMA phone sales will offset the dump trucks full of money current carriers (read: AT&T) pay to keep them exclusive.
Whether Apple offers a CDMA iPhone now, or they offer a LTE with hybrid GSM/CDMA fallback, or something in between, it is all about reaching more customers, not less. Going CMDA exclusive in the US would defeat that purpose, and I can't imagine even Verizon has the kind of cash on hand necessary to bribe Apple into such a move, even if they were so inclined. So no, any Verizon iPhone would be in addition to, not instead of, current AT&T offerings.

schmooie says:

Loved the article, Rene! Very compelling!

bvonscott says:

@Jon. Hit the nail on the head.
"The problem, however, is that consumers, frustrated with natural network saturation inherent to any network carrying the entire country’s iPhone users, have built up Verizon to mythical proportions. I dare say it’s simply an example of “the grass is greener on the other side.”
And your points about Verizon's lack of tech and view on consumer relations is also valid. They need a good ole dose of "toyota smear" to bring them back down to reality in the eyes of Verizon lovers.

kev says:

There's one misconception that seems prevalent amongst iPhoners and that's that VZW could not handle the data load of the iPhone when in fact last year VZW and lowly Sprint handled way more data than ATT. Since the first Droid the number of people interested in an iPhone on VZW is dwindling. I'm afraid if Apple waits much longer Android devices will have a much more polished UI and a user experience to rival iOS.

iknowthings says:

I know a little about what's going on with the Verizon Iphone. First of all it does exist along with an Ipad. There are both CDMA and LTE/CDMA versions that have been testing for a while. We will never see the CDMA-only versions as Apple refused to sign a contract for it. They have however agreed in principle to a LTE/CDMA Iphone and Ipad. As of today nothing has been finalized and Apple and Verizon are still negotiating. Seems like it will be difficult.

Manuel Vitela says:

@Jeff $50 says after the iPhone 4G comes the iPhone 4GS

Patrick says:

I swear all the Smartphone Expert's blogs have the stupidest photoshop jobs. I'm starting to think you've got one graphics artists who has this weird obsession with making phones into people, always sticking gloves, heads, hats, hooks, light sabers, etc onto phones to make them look like Mr Phonea Head toys.