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An iPhone for Verizon and Sprint: Dream On

By Rob Walch MacNewsWorld ECT News Network
May 28, 2010 5:00 AM PT

One of the early predictions of a Verizon iPhone came from ZDNet in 2007. Back then, ZDNet's Russell Shaw predicted the iPhone would be on Verizon within a year. Since then, there have been countless other stories offering predictions or circulating rumors that inside sources had disclosed a Verizon iPhone would "definitely" be coming in the next week/month/year. All obviously have been proven to be false.

An iPhone for Verizon and Sprint: Dream On

When Steve Jobs delivers his WWDC keynote on June 7, one of the big questions people hope he will answer is what carriers in the U.S. will be getting the next-generation iPhone. As anyone who is even remotely interested in the iPhone knows, you currently can get it only on AT&T in the U.S., and depending on where you live, that can be a good thing or a very very bad thing (NYC, SF). Many are hoping for a Verizon iPhone or a Sprint iPhone, and there are many rumors out there about said devices.

First, let's start with the facts. Apple and AT&T in 2007 signed a five-year exclusive agreement for the U.S. deployment of the iPhone. Apple admitted as much in a court case, even referencing a USA Today article from early 2007 revealing said agreement. So, we know 100 percent without any doubt there was a five-year exclusive agreement signed that was scheduled to last until 2012.

What we don't know, and what neither Apple nor AT&T is saying today, is the status of that agreement and whether it has been altered in any way. I have predicted on my podcast many times that Verizon would not get an iPhone until it had its LTE (4G) network built out -- which also is scheduled for mass deployment in 2012. So, from both a contractual and a technical perspective, a Verizon iPhone does not look likely until 2012.

CDMA Isn't Prohibitive

Here are some more facts that may influence the potential for Verizon and Sprint iPhones. In the U.S., there are more than 140 million subscribers on Verizon and Sprint combined, compared to just 87 million on AT&T. A recent survey of Verizon subscribers found 17 percent likely to get an iPhone if it became available from Verizon. Assuming similar numbers for Sprint, you are looking at Apple selling 23.9 million iPhones through those two carriers.

Assuming an average sales price of $599 per iPhone (what Apple gets per sale), you are looking at more than $14 billion in revenue for Apple. That is clearly motivation for Apple to reconsider its original agreement, and it more -- much much more -- than makes up for any costs to build and test a CDMA phone, especially when it is calculated that Apple gets better than a 50 percent gross margin on the iPhone.

It does not take $7 billion -- or even $1 billion for that matter -- to develop and test a CDMA version of an existing GSM phone. Plus, a CDMA iPhone would also give you a device that could run on China Mobile -- the world's largest cellular carrier with more than 500 million subscribers.

Some have contended that because the iPad was exclusive to AT&T in the U.S., the original AT&T/Apple agreement must still be in place and going strong. In light of the very generous data plan and the terms of that data plan for the 3G iPad, others have gone so far as to say that if anything, AT&T may have actually successfully negotiated with Apple to extend the original five-year exclusive agreement by a year or two.

Feeding the Rumors

Then why all the recent rumors with regard to a Verizon or Sprint iPhone? One key reason appears to be that for the first time in the U.S., more Android-powered smartphones were "sold" than iPhone OS smartphones. This is based on sales for Q1 2010. In all fairness, it should be pointed out there were many buy one, get one free promotions for Android smartphones in the U.S. in Q1 2010.

Also, if you throw in the iPod touch sales, then there were actually more devices sold in the U.S. in Q1 that run on the iPhone OS than on the Android OS. Still, the fact that Android smartphone sales are getting close to sales of iPhone OS devices in the U.S. is something likely not lost on Apple.

Also, what is not forgotten is that Apple has said in its most recent quarterly conference call that in markets exclusive to one carrier that were opened up to other carriers, the company saw incremental growth in iPhone sales.

Without knowing the exact details of the Apple/AT&T iPhone agreement, it is hard for us to know the exact value to Apple to keep this exclusive deal going. All most people can do is speculate on what is known, and those facts make it look as though it is in Apple's best interests to end its exclusive arrangement with AT&T, and add Verizon and Sprint to the mix.

Rather Be Wrong

Popular opinion right now is that Apple will announce the end of exclusivity on June 7 and add Verizon and Sprint to the iPhone party. However, that "popular opinion" is based on imperfect information. For example, we do not know how much kickback per month per iPhone subscriber Apple is getting from AT&T.

Sadly for those holding out hope for a Verizon or Sprint iPhone, I am guessing that kickback is significant enough to make it in Apple's best interests to stay exclusive with AT&T for the next two years. Here's hoping that on June 7, I am proven wrong.

Rob Walch is host of the Today in iPhone, iPad and iPod Touch podcast.

Which Big Tech CEO that testified at the Congressional Antitrust Hearing on July 29 is the most trustworthy?
Jeff Bezos of Amazon
Mark Zuckerberg of Facebook
Sundar Pichai of Google
Tim Cook of Apple
All of them are equally trustworthy to some extent.
None of them are trustworthy whatsoever.