Will Apple Leave AT&T for Verizon?

In terms of retail customer appeal, there is no doubt that the Apple iPhone is the top device on the market.  Over the last few years, the iPhone has seen success in the smartphone market similar to what the Motorola Razor saw several years back in the feature phone market.  Success typically provides leverage, and in Apple’s case, it has done just that.
 
As the iPhone exclusivity contract comes to an end this summer, Apple is working on contract negotiations with both AT&T and Verizon.  Although negotiations are taking place with both companies, the iPhone will continue to be sold on AT&T, however, AT&T will cease to be the sole provider of the iPhone in the US if Apple doesn't renew their contract with AT&T.  The most interesting part about the negotiations in general is that in many areas, it is impossible to do “Apple-to-Apple” comparison (yes, pun intended).  Each carrier has certain criteria that they will need to make the deal work, and Apple has pros and cons for both Verizon Wireless and AT&T.  Here are the key things that I believe will come into play as the negotiations continue:

• Network capacity – AT&T has had some bad press recently over the network failures and congestion problems due to the “unexpected” data usage caused by the iPhone.  Verizon’s network has more capacity at the moment, as well as more coverage for 3G data rates.  It’s also worth noting that Verizon so far seems to be ahead of AT&T on future 4G rollout plans as well.  Whichever company Apple signs with, rest assured, 4G rollout will be a part of the agreement.

• Technology – AT&T has a GSM network that currently supports the iPhone, while Verizon has a CDMA network.  One key difference in the technology is that GSM networks (as seen one of the new AT&T commercials with Luke Wilson) allow data and voice to work simultaneously; CDMA networks do not.  Furthermore, creating and distributing iPhones for a CDMA network would require redesign and reduce Apple’s economies of scale that they receive from producing so many GSM iPhones globally.  Although both companies are looking at deploying 4G/LTE technologies going forward, AT&T still has the advantage with its GSM based 3G network to fall back on.

• Financial Terms – Either way you look at it, Apple is going to make out quite well from an inevitable bidding war between AT&T and Verizon.  In the long run, Apple will make sure that they get the most out of any contract that they sign.

• iTunes Store – Apple sells applications for the iPhone via its iTunes online store.  Verizon likes to control applications and products through its online store as well.  Needless to say, this has already been worked out with AT&T, so aside from AT&T wanting a larger percentage of potential application sales (which falls under financial terms), AT&T doesn’t really have a problem in this area.  Ultimately, Verizon will have to make a decision on whether or not they want to give in this area because Apple will stick strong here since control over the application download process adds to the user-friendliness that has helped to make Apple’s products so successful to date.

When all is said and done, I believe that Apple may try to do the unthinkable – sign with both carriers!  The traditional iPhone continues to sell exclusively on AT&T’s network, with many stipulations in the new contract regarding AT&T building out and improving their network to support current and future data demands.  A new, slightly different iPhone-like product will be sold exclusively on Verizon Wireless’ network, with applications to be sold only through the iTunes online store.  This will also give Apple a new CDMA based device that can be sold in other international markets as well.  At the end of the day, Apple will likely be winning again in 2010.