Apple Will Dump Exclusive Deal With AT&T

Apple's fundamental goal is to sell the maximum number of iPhones. AT&T's fundamental goal is to maximize its own revenue. This conflict of interest will ultimately result in Apple dumping the exclusive arrangement with AT&T in 2010.

If there's one thing I've learned in 16 years of WWDC, it's that Apple is all about incremental change. Whether it's the drive from Classic to Carbon to Cocoa, the change from ADC to DVI to DisplayPort, the change from CodeWarrior to Xcode, or the change from PowerPC to Intel, Apple is all about change for the better.


iPhone 3G S

Today is a big day for Apple. Tim Cook is sitting in his office calculating how many iPhone 3G Ss Apple will sell -- so that he knows how many to order in the next round. Peter Oppenheimer is also in his office today with a Numbers spreadsheet figuring out how the iPhone 3G S sales will affect Apple financials for next month's earnings report.

But I'm guessing that Steve Jobs is in his office, at home or on campus, angrily calculating how many iPhone 3G Ss Apple didn't sell today. That's because, with the subsidized price and contract length, many enthusiastic Apple customers won't be able to sustain the financial burden, created by AT&T, to upgrade to a new phone and pass the old iPhone 3G to a family member. I don't have a good way to calculate the number, but I'm going to take an educated guess that Apple, if it had a deal with Verizon, could sell an extra million iPhone 3G Ss over the next few months.

That's a half billion dollars in gross revenue. Mr. Jobs must be fuming.

But no matter what the true number is, if it's more than a hundred, I know that Steve Jobs is pissed. And when Mr. Jobs gets pissed, he takes action. Surely, he's thinking to himself, if only the exclusive AT&T contract had been for two years instead of three, Apple wouldn't be in this bind created by AT&T's focus on revenue instead of Apple's market penetration. Today, Verizon customers would also be lined up around the block.

Apple is on a roll. There is iPhone mania. There are 50,000 apps out there for the iPhone, and Apple has a seemingly insurmountable lead. However, the only way to cement that lead is with large and growing sales.

The CDMA chip is mature and inexpensive. I continue to believe that it would be trivial for Apple to produce a version of the iPhone using CDMA for use in the U.S. Sure, customers would know that they can't use it overseas, but most Americans don't need to worry about that. They have bigger worries, especially regarding the number of bars they have on their cell phones and how much they pay each month.

The fiasco with MMS and tethering must also be steaming Mr. Jobs.

I guarantee that Apple will dump its exclusive deal with AT&T next year. Apple will add Verizon, and that will cover most U.S. wireless customers. Eventually, CDMA will be dumped for LTE/4G, but not before Apple sells a lot more iPhones with Verizon in late 2010.  If Apple doesn't dump the exclusive deal with AT&T, I promise, on the pivotal day, I'll come to work without my pants on.*

*I work out of a home office, so I probably won't get arrested.