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.'"

not necessarily verizon

[fermion]

It was always my belief that verizon did not want the iPhone because it was not a good fit. Verizon always seemed to me, at least traditionally, to cater to a group of people who did not paying more for cell phone service, and their policies do tend to limit customers, at least in my experiece. It seems that this would be the Apple group, but it really isn't, because Apple does try to reach out to all potential customers, something Verizon has only started recently.

Before the iPhone, and after all the mergers of the mobile companies in the US, ATT and Verizon had about each shares, maybe a bit more than 25%, and t-mobile was just barely in double digits, and the new companies, like boost and cricket were barely on the radar. It is my opinion that these later companies are where the growth is going to be, not Verizon.

The only reason people are talking about Verizon is because people know with Verizon want an iPhone. I don't know why. Everyone says it is just another phone, and they can go get a G1 from t-mobile, or a superior blackberry from Verizon, or a cheap phone from the other dealers, but some people seemed really annoyed they can't get a iphone from verizon.

There is a reason for this. In the US every carrier wants a custom phone, and they want a custom phone with sub custom features. You know how you can update the phone now? It would be more difficult and more confusing if Verizon got it pesky fingers on it.

The other reason is that there would be little benifit to apple. There would be no differentiation, but there would be added expense of producing a phone with either extra circuitry or two phones, again confusing the public.

Here is what te next iPhone should do. A $99 phone sold through boost and cricket. Here is why. Right now it is reported tat 90% of teens with an MP3 player has an iPod. As they grow up, they will continue to buy iPods, and will likely upgrade from the models they use know. They start with a shuffle, continue with a mini, then buy an iPhone. It works for cigarettes, why not music players. It would make sense to apple to make a phone so that the first phone will be an iPhone mini.

What do many parents want? Control over the phone. We have parental controls in Mac OS X, why not the iphone? What do kids want, unlimited text. Both want no contract. Some families have the resources to pay $200 for a phone and already have a family plan, but other do not. Will Verizon allow apple to leverage this base? No. It will only help with the business user than wants a blackberry, so why bother.

Re:Don't worry, AT&T

[Divebus]

HAH! That's why I detest Verizon and wouldn't mind trying AT&T. Verizon expects you to buy your own pictures back from them. I've [still] got one of those LG phones where Verizon forgot to turn off OBEX/OPP and I declined their generous offer for a free firmware upgrade.

Re:Don't worry, AT&T

[93 Escort Wagon]

If Verizon tried to pull something like that, i'm pretty sure Apple would just renew their agreement with AT&T.

Verizon WILL try to pull exactly that - they've demonstrated pretty much identical behavior to this many times. I left Verizon for T-Mobile because of it - when Verizon finally released its first Bluetooth phone, it disabled basic sync between a person's phone and his/her computer. I really wonder how many non-techie Verizon are blissfully unaware of some great features their Bluetooth phones would be capable of if only Verizon didn't disable them?

Now what I'd really like to see is the iPhone on T-Mobile's network...

Re:Apple

[timeOday]

Another effect is that Apple's competitors in the smartphone market will throw more money at dethroning them (either by improving their products or dumping money into advertising). But of course, success always breeds competition (well, at least ideally). In the end this should benefit us all by resulting in better smartphone services without 100% profit margins, but perhaps not since the psychology of fads is that only 1 thing can be "it."

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

[StCredZero]

A Verizon iPhone would be in the best interest of Apple, even if they had to give up some profits. Why?

1) AT&T's network Sucks. I have heard many complaints that the iPhone is wonderful -- at everything but being a plain cellphone.

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

3) Mindshare is king. If there were a Verizon iPhone, there would be more Apple iPhone mindshare. I hated to leave Verizon's better network and service for AT&T's suckyness, but I did it anyways. Lower that barrier, and many more people like me would have an iPhone. In the long run mindshare = more profits!

Re:AT&T Crappy Service

[anjilslaire]

Indeed. I was on AT&T a year or so ago, when they announced they were prorating the early term fees. I had about 2 months left, my phone was acting up, and th wife wanted verizon because all of her family uses it, so no minutes would be used.

So figuring I'd eat the prorated fees, I called to cancel. The phone support said the pro-rating was for new customers only. Now remember, new users get 30 days to cancel, so why give them prorated fees, and not existing users. After an hour on th phone with 3 different people, I finally said "Fine. Charge me, I want to cancel my service on principal now. I'll pay your fees and never use your service again. Also, be aware that I'll be filing a complaint with the BBB", and ended the call on a stiff but polite note.

I went to BBB.org and found a fantastic online form that allowed me to explain everything, with account numbers, etc. 3 days later I received a call from Executive Support at AT&T, apologizing for the issue that should have been solved (prorated) at T1. They negated my ETFs and actually pro-rated my final month of service bill too. Long story short: The Better Business Bureau actually works.

Re:CDMA / GSM

[Anonymous Coward]

Apple went to Verizon first. They laughed them out of the room when Apple told them the terms.

Verizon does know one thing people are fickle. The terms Apple was asking for was too big of a risk at the time. They were just finishing ridding out the razr wave. Which was GSM first... Many of the phones that Verizon has are not exactly cutting edge phones. But they are tried and true phones. Meaning the return rates/attach rates/costs are understood up front. The only thing semi cutting edge about Verizon is their network. They want to get people on the 2 year plan. That means giving away a cheap phone, of which the iPhone is not. It would even be less so with the terms Apple came to them with. Verizonwireless is insanely profitable for a reason. Verizon is VERY methodical about the customer lock in. That is where they have been making money for years...

It would NOT be that big of a deal for Apple to stick a CDMA chip radio in there (I know of at least 3 chipsets that would work). You seem to think they cant have 2 versions of the iPhone? Many cell phone companies do exactly that.

AT&T on the other hand AT the time iPhone came out was not exactly the 'best' network. Coverage was spotty. Customer service was even more spotty. EDGE ruled their network and EVDO was blowing it away. They did know one thing Apple COULD make 2 versions of the phone. They learned that from Motorola with the razr. That is why there was an exclusivity clause. Not because Apple didnt have the technical knowledge to make a CDMA phone, or that CDMA was worse. It was all about money.

GSM may be world wide but it is also in some of the cheapest areas (because the phones chipsets are cheap to make). Such as India and many 3rd world countries. The iPhone is a 700 dollar phone. The sales there are probably rather low and rare. That leaves countries where CDMA and GSM are both in existence.

Just remember because your favorite company/phone uses GSM/CDMA means that it is the 'best'. GSM is turning into LTE thru HSPDA and so is CDMA thru WCDMA/EVDO. LTE is much closer tech wise to CDMA than others will lead you to believe. Notice who didnt really squeak about LTE, Qualcomm. They tried to push their own but when the market said LTE the said 'oh shucks darn, ok'. They are not out there bad mouthing it. They got behind it in a HUGE way...

Re:Yeah God Forbid They Actually Have to COMPETE

[rxan]

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.

I would say that Apple, not Verizon, is the major reason that Verizon still won't get the iPhone for awhile.

Apple has a history of only wanting to support one option for its customers, for unknown reasons. Most likely because they can reduce testing and development strain while still having a high quality product. I think Apple would only want to make one version of the iPhone because it's just easier.

Not to say that Apple couldn't do it. They just won't. Just like we've seen them leave out simple features that customers want (cut & paste), just because it's easier for them. RIM has made differently networked BlackBerry models for carriers many times before, mostly with flawless results. So it is perfectly possible.

Re:Don't worry, AT&T

[mcvos]

Speaking of Geocaching, the iPhone's "GPS" sucks so much you have to have another GPS device anyway. Yes, I'm speaking from experience.

I can confirm this. iPhone's GPS certainly doesn't work indoors, but my impression is that even the leaves of trees are enough to stop the GPS signal. It's also way too slow to use the iPhone as a TomTom replacement.

Re:Don't worry, AT&T

[Sparky9292]

I left Verizon for T-Mobile because of it - when Verizon finally released its first Bluetooth phone, it disabled basic sync between a person's phone and his/her computer. I really wonder how many non-techie Verizon are blissfully unaware of some great features their Bluetooth phones would be capable of if only Verizon didn't disable them?

Sprint does the same thing with all of their phones. You can take pictures and play MP3's, but you have (or they want you) to use their expensive web service to download music. If you want to actually print a picture that you took with your camera, you have to send the photo to Sprint's site (for a fee) and then go to the web and print it there. Like an earlier poster said, Verizon, Time Warner, Cox, Sprint do not want to be dumb data pipes. They want to control the content as well.

Re:Apple

[ScrewMaster]

I personally realized that I am getting old when I had to JFGI Vanessa Blouin.

Yeah. Me too. Kinda glad I did though.