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Report: The End Is Nigh for AT&T's iPhone Exclusivity

By Richard Adhikari MacNewsWorld ECT News Network
Jan 25, 2010 11:42 AM PT

Jan. 27 will no doubt be a big day for Apple. The company is widely expected to unveil a new tablet computer Wednesday, but that may not be all it will have to talk about. Apple will also announce the end of AT&T's exclusive hold on the device in the U.S., according to a source cited in a Hot Hardware report.

Report: The End Is Nigh for AT&T's iPhone Exclusivity

Cupertino may also split carrier rights for its much-anticipated tablet between AT&T and Verizon.

That might sound like bad news for AT&T, but the company may be eager to let another wireless company share the burden of carrying the data-hungry device. While the iPhone has helped the carrier sign up gobs of new subscribers over the years, it has also cost it considerably in terms of reputation due to the strain its users put on AT&T's network.

Industry Scuttlebutt

What other network may step in and begin selling iPhones? Verizon has often been viewed as a likely candidate, and one of the many rumors surrounding the expected Apple tablet is that both Verizon and AT&T will share wireless data service rights on that device.

Meanwhile, AT&T executives are expressing muted glee that another carrier will be carrying the iPhone together with the problems it brings, according to the Hot Hardware report.

Some AT&T executives reportedly feel that the iPhone is hurting the carrier's image because it's a data hog and, hence, impacts wireless service. AT&T will introduce several other new smartphones on other platforms to make up for losing the right to exclusively carry the iPhone in the U.S., according to the report.

Smile Though Your Heart Is Breaking

The chances are good that the rumor mill is right about Apple and Verizon, Jim McGregor, chief strategy analyst at In-Stat, told MacNewsWorld. "The FTC and the Obama administration are pushing in that direction," he explained. "In addition, Google's entry into the market in a manner more similar to a European business model is pushing the market away from exclusive deals."

AT&T's trying to put a good spin on the chance of losing the exclusive right to carry the iPhone in the U.S., Carl Howe, director of anywhere research at the Yankee Group, told MacNewsWorld. "I think AT&T's trying to give the impression that it's happy to share the pain with Verizon," he explained.

However, the carrier will take a hard hit in the pocketbook. For one thing, the iPhone was a major contributor to AT&T's wireless revenues, according to its third quarter 2009 financial report.

"One thing AT&T says in its Q3 financial results is that the net present value of an iPhone subscriber is twice as high as that of the average post-paid subscriber," Alex Spektor, an analyst at Strategy Analytics, told MacNewsWorld. "That means AT&T gets twice as much cash or cash equivalent out of an iPhone customer as it does from any other subscriber on its post-paid network. That's a pretty good value proposition, and losing the iPhone would only mean AT&T would lose the potential for a healthy cash stream."

A post-paid subscriber is one who has a contract with a wireless carrier.

Getting other smartphones on other platforms won't help. At the Consumer Electronics Show in Las Vegas this month, AT&T announced it would add seven new smartphones to its lineup this year. Five are Android smartphones, and the remaining two from Palm, running the latter's webOS platform.

"New smartphones aren't going to make things for AT&T because their users will also call down a lot of data, like iPhone owners," Yankee Group's Howe pointed out.

The Back Story

It's no secret that many iPhone users are upset over AT&T's wireless service. They have complained vociferously on the Internet, and things came to a head in December when Ralph de la Vega, who heads up AT&T's wireless operations, told an investor conference in New York that the carrier was considering incentives to get consumers to reduce their data consumption.

He hinted that AT&T might consider fees tied to usage and noted that only three percent of the carrier's customers, mainly iPhone users, are responsible for 40 percent of total data usage.

In addition, some Apple investors have for some time been calling on Apple to add a second wireless carrier in the U.S., pointing out that it increased its income considerably when it did so elsewhere.

The Possible Impact on AT&T

While AT&T will be impacted if Apple does indeed sign up Verizon as its second U.S. carrier for the iPhone, don't expect an overnight change, Yankee Group's Howe said. "Current users may migrate very slowly because they have two-year contracts which are staggered and because the initial uptake for the iPhone was very slow," he pointed out.

Further, Verizon is a little more expensive than other networks, and that might dissuade potential customers, Howe said. "Verizon tends to charge a little bit more for its network, and we'll have to see whether consumers take it up," he explained.

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