Apple’s allegiance to AT&T

  • Posted: 08 August 2010 03:34 PM

    Does anyone know what the actual date is that Apple is forced to stick with AT&T?  I found it ironic that all through Antennagate, so little attention has been paid to Apple’s insistence on sticking with a single carrier in the U.S.  To me it represents a major strategic blunder, and it has given Android the free pass that it needed to become legit.  I don’t have a lot of use for Motley Fool, but this story asks the right question.  The longer Apple waits, the worse this problem is going to get. 

    While ridiculous amounts of attention has been devoted to what turns out to be minor issue, Apple remains asleep at the switch on an issue that really matters.  I don’t get it.  This is also going to mean that Android tablets are going to have a much better App ecosystem than Google had any right to expect.  So Android tablets are going to become a bigger competitor to the iPad than they should - in large part to this single decision.

    Apple really needs to fix this problem fast in my opinion.  What does everyone else think?

         
  • Posted: 08 August 2010 03:48 PM #1

    2012 is what I’ve read, but I assume that means Dec 31, 2011. Of course all the rumor mills (including just today) are guessing that Verizon will get the iPhone by Jan 2011. Doesn’t seem likely since their switching to LTE and Apple isn’t likely top product an interem phone that would only be replaced in six months.

    [ Edited: 08 August 2010 03:51 PM by willrob ]      
  • Posted: 08 August 2010 04:22 PM #2

    The tablets are a concern. Two friends use theirs exclusively on wifi. My son, proud owner of an Android phone has an iPad for around the house, again wifi only. I think that being first to market will give Apple an early and lasting advantage and don’t forget that price point that the competition must meet. Just remember that this term of exclusivity was negotiated after Verizon turned down the iPhone. ATT was the only game in town and Steve Jobs seems to have done very well with the hand he was dealt, looking at worldwide sales and all.

    dtm

         
  • Posted: 08 August 2010 04:59 PM #3

    willrob - 08 August 2010 06:48 PM

    2012 is what I’ve read, but I assume that means Dec 31, 2011. Of course all the rumor mills (including just today) are guessing that Verizon will get the iPhone by Jan 2011. Doesn’t seem likely since their switching to LTE and Apple isn’t likely top product an interem phone that would only be replaced in six months.

    I don’t know exact release dates, but Qualcomm is producing a radio chip set that will support LTE, and allow fallback to Verizon’s current CDMA-based network.  An LTE-only phone would be a non starter for many customers given the time frames attached to the roll out plans. A Verizon iPhone that wants to do LTE must also have backward compatibility.  I sure hope Apple has something that is going to be released soon.

    I agree that Jobs cut the right deal at the time, but it is really hurting him now.  Five years, if that was the time frame is forever in the technology world.  Whether or not it was correct then does not change the fact that this AT&T arrangement is helping to put Android in the game, cutting iPhone market share at a critical time, and may very likely hurt iPad prospects longer term.  A single carrier strategy in the world’s largest market, at a time when the winners are still being sorted out in a monster product category is just plain bad no matter what the history is.

         
  • Posted: 08 August 2010 06:19 PM #4

    Let’s not forget Verizon passed on the iPhone. Now that was a strategic blunder!

    The original iPhone agreement made much more sense for an exclusive contract. The iPhone was sold without subsidy and Apple received back $20 per month is a service fee sharing arrangement for the volume and the exclusive arrangement.

    The issues, however, extend beyond exclusive and non-exclusive carrier arrangements and runs much deeper. AT&T is willing to subordinate its position with the customer allowing the relationship between Apple and the customer to be preeminent. Even now I’m not sure Verizon would be willing to cede its position to Apple.

    Look at it another way: AT&T is doing much better than Verizon at this time from a financial perspective and is willing to continue the fat subsidies to Apple. I don’t think Verizon would have as warm a relationship with Apple and there are other domestic carriers such as Sprint that might be a much better fit.

    Right now the iPhone remains in constrained supply so to say Apple is missing out on more revenue and more handset sales might not be the case.

         
  • Avatar

    Posted: 08 August 2010 08:36 PM #5

    DawnTreader - 08 August 2010 09:19 PM

    Let’s not forget Verizon passed on the iPhone. Now that was a strategic blunder!

    The original iPhone agreement made much more sense for an exclusive contract. The iPhone was sold without subsidy and Apple received back $20 per month is a service fee sharing arrangement for the volume and the exclusive arrangement.

    The issues, however, extend beyond exclusive and non-exclusive carrier arrangements and runs much deeper. AT&T is willing to subordinate its position with the customer allowing the relationship between Apple and the customer to be preeminent. Even now I’m not sure Verizon would be willing to cede its position to Apple.

    Look at it another way: AT&T is doing much better than Verizon at this time from a financial perspective and is willing to continue the fat subsidies to Apple. I don’t think Verizon would have as warm a relationship with Apple and there are other domestic carriers such as Sprint that might be a much better fit.

    Right now the iPhone remains in constrained supply so to say Apple is missing out on more revenue and more handset sales might not be the case.

    DT, my biggest problem with the initial agreement with AT&T was the sales people had no motivation to sell the iphone. I know a few people who work for AT&T and when it launched, they were very unhappy. Stayed that way until the plan change. Apple thought they had created a system that could cut out the salespeople. It is not very effective when the people you are forcing to sell your product will not receive any benefit. I remember when I bought my iphone from an AT&T store. The sales person was anxious to get me out the door and I could not open the box inside the store.

    Signature

    Adversity does not just build character, it reveals it.

         
  • Avatar

    Posted: 08 August 2010 09:18 PM #6

    All of this points back to the carrier focus of the phone business.  Both Apple and Google have tried to change the focus.  I think the ATT exclusive has pretty much run its course and has served both Apple and ATT extremely well.  Apple was given a chance to prove they could make a phone that consumers would love and ATT gave them the network access they needed.  Apple didn’t need ATT to sell the phone as much as they needed them to let Apple run with an idea.  IMO that was worth a ton and ATT was willing to risk their network to move mobile communications in the US to the next level.  Apple sold 6 Mish the first year.  We are expecting about 12M this quarter so while Apple has delivered in spades, I think ATT deserves credit for the risk taking and they have been stealing customers because of the decision so win/win.  The relationship has changed because the competition has matured and Apple is limited now by ATT’s market share.  My guess the Jan Verizon rumor makes sense based on ATT’s recent actions, and the tell will be Qualcomm CDMA chipset sales, so watch what they say about forecast at their next CC.  Wether the phone is LTE capable for data is mostly irrelevant IMO.  The ATT network with their planned upgrades in 2010/11 will move to 14.2 Mbps which greatly enhances overall thru-put especially if they put in all the fiber back-haul.  The infineon chipset in the iPhone 4 is limited to 7.2 Mbps so we can expect the iPhone 4 to see real world speeds of lets say 4-5 Mbps down once the upgrades are in place.  That is great stuff.  I doubt LTE out of the gate on Verizon will be much better then 5-8 Mbps so for 2011 the data speeds are better on LTE but fallback to EVDO rev 1 in most locations which is more like 1-2 Gbps real world.  Similar to ATT’s old 3.2 Mbs.  The big benefit is the folks unwilling or unable to move to ATT will now have an iPhone option. This will provide another 2-3M incremental to Apple, assuming the subsidy and such don’t suffer, that is going to add to growth and definitely make DT happy about 100B rev, because if Verizon does iPhone then iPad is a no brainer add on for Verizon and maybe Sprint and T-Mobile will join the fight. 

    The cell carrier still control the cell phone/smart phone landscape and Apple needs more partners.  I look forward to the rumors coming true but I will stick with ATT because they do a good job in Michigan and I have minimal complaints.

         
  • Avatar

    Posted: 08 August 2010 11:22 PM #7

    I believe the contract with AT&T is 5 years which puts us into 2012. If you look at the fact that most of the world is GSM, Verizon may have to wait. I am not sure Apple would want to create a different production line just for VZ.

    Signature

    Adversity does not just build character, it reveals it.

         
  • Posted: 08 August 2010 11:33 PM #8

    Obviously additional domestic carriers are in the offing. It’s inevitable and the value of the exclusive relationship has run its course for both Apple and AT&T. However, adding carriers takes more than a lunch meeting and a handshake and manufacturing constraints continue.

    The iPhone is one of Apple’s iOS devices. It now uses a custom processor and is an integral part of an expanding product eco-system.

    Even if, let’s say, Apple added Verizon as a carrier tomorrow, I don’t see a doubling of domestic demand.

    The direct comparisons of the iPhone and the Android plethora of products have limited validity. While the markets for the products overlap, the iPhone and the Android have different addressable markets. What the mass adoption of Androids does best is make new new iPhone customers a year and two years from today.

    Apple will expand the number of authorized carriers in the US. But I expect AT&T to be the predominant domestic iPhone carrier for some time.

         
  • Avatar

    Posted: 08 August 2010 11:38 PM #9

    AT&T: Loss Of iPhone Exclusivity Would Not Materially Hurt
    (whopper of the weekend?)

         
  • Posted: 08 August 2010 11:52 PM #10

    zulu - 09 August 2010 02:38 AM

    AT&T: Loss Of iPhone Exclusivity Would Not Materially Hurt
    (whopper of the weekend?)

    I don’t see the loss of iPhone exclusivity materially hurting AT&T’s results. The benefits of the exclusive arrangement for both companies have run their course.

         
  • Avatar

    Posted: 08 August 2010 11:56 PM #11

    zulu - 09 August 2010 02:38 AM

    AT&T: Loss Of iPhone Exclusivity Would Not Materially Hurt
    (whopper of the weekend?)


    That is the essence of AT&T. They have millions under contract and have the 4 for a while. They count on people keeping their phone and not switching. This would require them to buy another phone. The iphone 4 to me was the mother of all upgrades, I don’t look for this kind of update for a while. I also think that there are quite a few who don’t mind AT&T. Don’t know why, but they do.

    Signature

    Adversity does not just build character, it reveals it.

         
  • Avatar

    Posted: 09 August 2010 05:15 AM #12

    I would not conclude that the relationship with AT&T was “a blunder”.  Entering into this business with scale is a very difficult problem.  To do so with a subsidy of hundreds per phone guarantees an exclusive.  The only questions are therefore how long the exclusive and with whom.  Doing an launch and exclusive with a CDMA operator is problematic because it would require two separate products for global launch (a CDMA product for the US and a GSM product for everywhere else). Almost no global “hero” product begins as a CDMA product.  That would leave only T-Mobile and AT&T as options for the US, and AT&T was an obvious choice.

    The duration of the exclusive is down to negotiation. It’s possible that Apple made their exclusive too long, but the US market is peculiar with all operators being mutually-exclusive anyway. I always thought the original deal was for 5 years, but Apple may well have re-negotiated down to 3.5 years.

    By the way, Apple has launched on the “second largest” operator in almost every major country.  This is natural because the largest operator in a given market can afford to avoid risky innovation whereas the second can use innovation to gain share from the larger rival.

    Signature

    Read more at: Asymco Blog

         
  • Avatar

    Posted: 09 August 2010 05:39 PM #13

    asymco - 09 August 2010 08:15 AM

    I would not conclude that the relationship with AT&T was “a blunder”.  Entering into this business with scale is a very difficult problem.  To do so with a subsidy of hundreds per phone guarantees an exclusive.  The only questions are therefore how long the exclusive and with whom.  Doing an launch and exclusive with a CDMA operator is problematic because it would require two separate products for global launch (a CDMA product for the US and a GSM product for everywhere else). Almost no global “hero” product begins as a CDMA product.  That would leave only T-Mobile and AT&T as options for the US, and AT&T was an obvious choice.

    The duration of the exclusive is down to negotiation. It’s possible that Apple made their exclusive too long, but the US market is peculiar with all operators being mutually-exclusive anyway. I always thought the original deal was for 5 years, but Apple may well have re-negotiated down to 3.5 years.

    By the way, Apple has launched on the “second largest” operator in almost every major country.  This is natural because the largest operator in a given market can afford to avoid risky innovation whereas the second can use innovation to gain share from the larger rival.

    Asymco, the second largest is more motivated and willing to come to terms. VZ turned Apple down because they could/would not agree to terms. I see no reason to entertain renegotiating the contract by either side. The deal has been good for both parties. I agree with you that the deal with AT&T was not a blunder. It hurts me to say it though. Apple has had just as many blunders along the way. Here we sit talking about 40 mil phones next year and the share price at 260, overall things have turned out pretty good. I have been a share holder since the beginning of 2007.

    Signature

    Adversity does not just build character, it reveals it.

         
  • Posted: 09 August 2010 09:18 PM #14

    AT&T may overtake Verizon as largest US carrier in 2011
    updated 02:25 pm EDT, Mon August 9, 2010
    ATT could ride iPhone to top spot by next yea

    AT&T may take advantage of its last days of iPhone exclusivity to reclaim the top spot in US carriers by next year, IE Market Research said today in a new study. AT&T’s higher growth rate over its rival Verizon in the spring was a sign to analysts that it should claim the lead by spring 2011. By 2014, AT&T would still have a comfortable lead with 34.8 percent of the market versus Verizon’s 32.5 percent.

    Verizon would be the most profitable on its service in the next year, IEMR said, but AT&T would gain the edge in that area by 2014.

    The accuracy of the predictions isn’t certain. AT&T’s iPhone activations have often made up for considerably weaker growth in other areas and have been helped by an exclusive that forces those on other networks if they want an iPhone. Competing researchers have noted that AT&T is worried about non-exclusivity and could lose much of its edge as customers could either stay on Verizon or switch back from AT&T if a Verizon iPhone ships early next year.

    The study also discounts the effect of Android, which may overtake iPhones in absolute user base and are already suspected of having larger market share today. AT&T is adding Android phones in an attempt to diversify its line, but half of all Google-based phones in the US are on Verizon.

         
  • Posted: 10 August 2010 04:23 AM #15

    The original iPhone makes more sense for an exclusive contract. The iPhone is sold without subsidies. Apple has a copy of $ 20 per month an additional shared services agreement for the volume and the unique.

    Signature