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Verizon Wireless declined a deal 
that would have made it the exclusive distributor of Apple's (Nasdaq: AAPL) iPhone, according to a report in Monday's USA Today.
"We said no," said Jim Gerace, a vice president at Verizon Wireless. "We have nothing bad to say about the Apple iPhone. We just couldn't reach a deal that was mutually beneficial." Apple demanded a percentage of monthly service fees along with control over the customer relationship and distribution specifics, Gerace explained.
As a result, AT&T's (NYSE: T) Cingular won the spot of exclusive distributor for the wildly hyped devices, due to be released this summer. Verizon is the No. 2 cell phone carrier in the United States, and Cingular is No. 1.
Control Issues
Apple spokesperson Natalie Kerris would only confirm that the company had chosen Cingular for a multi-year exclusive partnership. "Apple chose Cingular because it is the best and most popular cell phone carrier in the United States," she told MacNewsWorld.
Besides the financial obstacles, one deal-breaker in the possible agreement with Verizon was the fact that Apple wanted to control distribution of its iPhones -- a move that could have left Verizon distributors including Wal-Mart (NYSE: WMT) and Best Buy (NYSE: BBY) out in the cold, according to Gerace.
Another contributing factor was Apple's insistence on control over customer care and support. "They would have been stepping in between us and our customers to the point where we would have almost had to take a back seat ... on hardware and service support," he said.
Cingular Care
Apple's Kerris declined to disclose details of the arrangement with Cingular, but Cingular spokesperson Mark Siegel stressed that iPhone users would be Cingular customers, first and foremost.
"This is not a [mobile virtual network operator] arrangement, where the underlying wireless carrier is not disclosed. [iPhone] customers will be Cingular customers. They will be billed by us, and if they have any issues, they will call us directly," he told MacNewsWorld.
Regarding distribution, Siegel would only say that iPhones would be distributed through Cingular and Apple stores.
An Open Question
"I think it's widely known that Apple is not only proprietary, but wants to control the experience," commented Neil Strother, research director for mobile devices, content and services with NPD Group. "Apple and Verizon both wanted control, which is not a bad thing, but one of them had to give."
"I don't think it's that big a deal for Verizon," added Julie Ask, research director at JupiterResearch. "In the longer term, if the iPhone is a hit, it will make sense for it to be on more than one network in the United States, especially as it comes down to a price point that more people can afford."
Indeed, the success of the US$500 to $600 iPhone will likely determine how any distribution arrangements play out down the road.
"Verizon has enough strength in the market to be able to say to Apple, 'we'll pass for now,' and not be hurt too badly," agreed Strother. "If the iPhone clobbers everyone, Verizon will look stupid. But I don't think it will. The battle has yet to be decided because there will be alternatives."
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