Why AT&T Wants To Keep the iPhone Away From Verizon

Hugh Pickens writes "Saul Hansell of the NY Times has an interesting post analyzing AT&T's earnings report and highlighting the enormous stakes involved in the renewal of its exclusive contract to distribute Apple's iPhone in the United States. Hansell does some rough calculations: 'If the average iPhone customer brings in $90 a month, or $1,080 a year in revenue, and the operating profit margin stays constant at 26 percent, that means an iPhone customer represents at least $561 in operating profit over a two-year contract,' says Hansell. 'Put another way, if the company gets 2.5 million new customers a year because of its iPhone exclusivity, the deal represents at least $700 million a year in operating profits — profits that it could lose if Verizon sold the iPhone, too.' With those sort of numbers, AT&T has every reason to make Apple an offer it can't refuse to keep its exclusive deal for another few years. Of course, the incentives for Verizon are presumably the mirror image, so expect Verizon to come to Cupertino, checkbook in hand, to see what sort of deal they can make. 'The benefit of somewhat more iPhone sales from wide distribution is likely to be swamped by a huge bid from AT&T to keep exclusivity, and an equally high bid from Verizon to win some (or maybe even all) of the business for itself.'"

Apple

[ucblockhead]

What this means is that after the bidding war that will ensue when Apple's contract with AT&T runs out, Apple will end up getting the bulk of the profits.

Apple unlikely to make iPhone available to others

[elektrizitat]

I would personally like to see the iPhone available on other carriers, but at least for now this doesn't look likely as Tim Cook has stated that he is happy staying with AT&T and GSM technology: http://www.appleinsider.com/articles/09/04/22/apple_happy_with_att_indicates_no_plans_for_cdma_iphone.html [appleinsider.com]

Re:Don't worry, AT&T

[aesiamun]

GPS is locked out on my 8830 from Verizon. I needed to buy a bluetooth GPS device to go geocaching.

Re:CDMA / GSM

[Anonymous Coward]

Apple said from the beginning it did not want to use CDMA because of its limited range to only North America. GSM is used around the world. Verizon Wireless execs have recently said (check out macrumors and appleinsider.com for the specifics) they don't expect to make an offer to carry iPhones until they roll out 4G LTE technology (aka the next GSM version), the same 4G technology ATT is using.

You won't see an non-ATT iPhone until LTE hits.

Re:Aren't iPhone sales down?

[Anonymous Coward]

No.

Sold 3.79 million last quarter; a 123% growth over the same quarter last year.

Re:Yeah God Forbid They Actually Have to COMPETE

[maharb]

That is not the experience I have seen. In fact lots of people I know refuse to go through the hassle of switching over to wifi when available because they are perfectly happy with the 3G speeds. Maybe certain areas are different but I have never experienced what you are describing.

Re:Yeah God Forbid They Actually Have to COMPETE

[peragrin]

last year called they want their criticism back.

when i first got the 3G network performance was bad. Over the last six month AT&T has brought it almost to the point where the iphone processor is the limiting factor. With rendering times almost equal between 3G and wi-fi.

What really gets me though is verizon can never have the iphone. Ever. It would have to be made exclusively for verizon customers. As Verizon uses phone technology that is incompatible with the majority of the world. GSM may not be the best solution, however it does have the largest user base. When will people understand this?

Re:Yeah God Forbid They Actually Have to COMPETE

[Otterley]

The article claims that both AT&T and Verizon will be moving to LTE in the future. If this ever comes to pass, and Apple releases an LTE-compatible iPhone, the technology roadblock should vanish.

Re:Verizon rejected....

[phantomfive]

Switching from a GSM phone to a CDMA phone is simple, on the software side it's a matter of changing a few low level AT commands, and on the hardware side it's a matter of swapping out the modem. If Apple chooses to do it, they will.

Furthermore, you've done bad research. Not only did Apple consider making a CDMA phone, Verizon completely rejected them [engadget.com]. In essence neither the latter half nor the former half of your post has merit.

AT&T Crappy Service

[Nom du Keyboard]

If AT&T can't hold their customers away from Verizon (and all the current customers are locked into 2 year contracts with nasty termination fees) it's because of their crappy service and high rates. If they fixed that then they would need to worry about the competition so much. In fact, competition is exactly their problem - they don't want any!

4G GSM

[Anonymous Coward]

What really gets me though is verizon can never have the iphone. Ever. It would have to be made exclusively for verizon customers. As Verizon uses phone technology that is incompatible with the majority of the world. GSM may not be the best solution, however it does have the largest user base. When will people understand this?

Verizon has already announced that they will use GSM's 4G technology (LTE) for their network.

http://consumerist.com/consumer/unlocked/verizon-to-go-gsm-328914.php
http://arstechnica.com/old/content/2008/12/verizon-says-early-lte-deployment-in-2009.ars

Re:Yeah God Forbid They Actually Have to COMPETE

[schnell]

If this ever comes to pass, and Apple releases an LTE-compatible iPhone, the technology roadblock should vanish.

Not necessarily. Cellular carriers don't flip a switch and make their network technologies change - it happens market by market, tower by tower. Until Verizon upgrades 100% of their nationwide network to LTE - which even optimistically takes several years and costs tens of billions of dollars - then large parts of their network will continue to be CDMA, which is incompatible with the GSM-based iPhone. So even if Verizon could get access to a future LTE-based iPhone, it wouldn't work on large parts of their network for quite some time.

Re:Verizon is in Apple's Best Interest! (Re: Apple

[jae471]

2) AT&T's customer service sucks. DNA from a big telco. Monopoly mindset. Nuff said!

Because Verizon (nee Bell Atlantic) is so much less of a big telco then the current AT&T (nee Southwest Bell)? Both are spinoffs of Ma Bell who gobbled up as many of their smaller siblings as the could.

That said, competition is a Good Thing.

Re:Verizon is in Apple's Best Interest! (Re: Apple

[fangorious]

The current AT&T is really SBC, which is the same as Verzion: one of the RBOCs created by breaking up the old AT&T. Neither one has any more or less history as a monopolistic big telco than the other because they're both cut from the same block.

Re:Yeah God Forbid They Actually Have to COMPETE

[schnell]

The equipment is expensive, but is it _that_ expensive?

Yeah, it is. With 4G you are dealing with dramatically larger capacity so your whole infrastructure needs an overhaul.

So of course you start with the equipment in each tower (which is pretty expensive). You also have to upgrade the backhaul circuits attached to each and every one of those thousands of towers from copper T1s or microwave to fiber/Metro Ethernet etc. to handle the much larger throughputs that LTE supports. On top of that, throw in all the heavy-duty routers, management and QoS gear for the core network and you're looking at some heavy-duty cash. AT&T and Verizon each spend many billions each year on network capital investment, and the costs of a wholesale technology upgrade go well beyond typical expansion/upgrade costs... Moving to 4G will save the carriers a lot of operational expense in teh long run (and that will be passed on to the users in terms of lower data costs), but the upfront implementation costs are ginormous.