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Innovation

Should Apple keep its exclusive iPhone deal with AT&T?

AT&T chief Randall Stephenson not-so-surprisingly wants to extend an exclusive deal with Apple until 2011, but the larger question is whether Steve Jobs & Co. should stick with Ma Bell.
Written by Larry Dignan, Contributor on

AT&T chief Randall Stephenson not-so-surprisingly wants to extend an exclusive deal with Apple until 2011, but the larger question is whether Steve Jobs & Co. should stick with Ma Bell.

The Wall Street Journal reports:

AT&T's exclusive deal to carry the iPhone in the U.S. expires next year, according to people familiar with the matter, and Mr. Stephenson is now in discussions with Apple Inc. to get an extension until 2011.

For AT&T doing another deal with Apple is a no brainer. AT&T has brought in new customers with the iPhone and Apple fans have low churn rates too. In addition, AT&T has built out its 3G network to support the iPhone.

But what about the other side of the equation? Sure, Apple has sold 4.3 million iPhones in the second half of 2008 and benefited from AT&T's marketing heft. However, Apple could have sold more iPhones if Verizon Wireless offered them too. Shelf space matters and the iPhone could benefit from another carrier or two. Caris & Co. analyst Robert Cihra said that he expects the iPhone---and derivatives such as a rumored tablet---to account for all of Apple's profit and revenue growth in the years ahead. 

Also seeRIM's secret weapon: Carriers' profitability and lower bandwidth consumption

If Cihra is right, Apple would be silly not to expand distribution. Remember, the device is only one part of the wireless decision. Coverage and the network is the other big part. For instance, I'm a Verizon Wireless customer and wasn't going to switch networks. That means I wasn't going to get an iPhone. 

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My calculus would have been dramatically different if the iPhone were offered by Verizon. 

That's what Apple has to evaluate. It has to look at the figures, calculate the opportunity costs associated with AT&T exclusivity and then weigh those items against the arm and a leg Ma Bell will pay to keep the iPhone.

Apple will follow the money for sure, but extending an exclusive pact with AT&T may not be such a no brainer.

 

Update: Piper Jaffray analyst Gene Munster has some research on iPhone sales for the March quarter. He reckons that iPhone units will be flat to down 15 percent sequentially. Munster predicts 3.7 million iPhones sold in the March quarter compared to estimates of 3.3 million on Wall Street. 

You have to wonder how iPhone sales would fare if there were an additional carrier involved. 

Here is a look at Munster's iPhone estimates for the quarter. 

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