If Apple dilutes their monopoly, how bad is AT&T’s pain?

There is too much talk about Apple granting iPhone franchises to carriers other than AT&T for there to be no fire below the smoke. How bad is it for AT&T if Apple dilutes its monopoly?

As it transpires, their pain could be very bad indeed. Forget that some people thought that AT&T was crazy to accept the deal Steve Jobs offered them for initial iPhone exclusivity. Even in hindsight, it did not seem like a good deal for the wireless carrier. Here are a few of the components of that deal:

• Apple would get a sizable portion of the revenue that AT&T collected.
• Only the Apple logo could appear on the phone.
• Apple would totally control what software the phone ran.

Those were, and are, unheard of arrangements between a handset manufacturer and a wireless carrier, who usually maintains very tight control over the handsets used on their network.

Experience now tells us that the iPhone is a runaway hit and AT&T looks very smart for having accepted what so many people thought was a bad deal. AT&Ts  financials for last quarter once again showed only a single bright spot and that was the iPhone. Without the iPhone in their lineup, AT&T would be looking like a very bad investment based on performance.

At AT&T, the iPhone is where 70 percent of their new wireless subscribers are coming from. Even more extraordinarily, fully 60 percent of those new iPhone subscribers had to leave another network to get the iPhone, according to a Business Week story. Says David Owens, a marketing executive at Sprint, “It’s the only one that has made people say, ‘I’m willing to change networks for that.’” None of the other smartphones on the market have nearly that level of attraction for consumers.

Apple needs to reach a wider audience if they are to continue their current growth level in the telephone handset marketplace. They are not going to be able to do that if they have only one cellular network partner. Although AT&T is trying hard to retain exclusivity when the current deal ends next year, it does not seem likely that will happen. Instead, it is beginning to look like Apple is going to roll out a number of different iPhone models and parcel some of them out to AT&T and others of them to Verizon (and perhaps others) in 2010. When that happens, the size of the current iPhone cash cow at AT&T will become vanishingly small, right along with revenues.

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