Apple may soon be free from AT&T

While everyone else was calling the iPhone the greatest device of all time and putting Steve Jobs on that pedestal he enjoys so much yesterday, AT&T quietly told its investors that the revenue sharing deal it had with Apple for the past year has ended.

At first glance, that development may not matter to most. After all, that agreement really only affected Apple and AT&T and consumers were still forced to pay the same price regardless of the revenue sharing.

But if you take another look, you might find that there may be more to this story than meets the eye.

Now that Apple and AT&T have squeaked out of the deal, what's holding the two companies together? Certainly some would say that it's that oft-mentioned exclusivity agreement the companies signed, but I don't know of one person who actually read the thing and no one really knows if Apple can get out or not.

But if I had to take a guess, step one in getting out of its contract with AT&T revolved around the revenue sharing deal. And before you know it, Steve Jobs' latest blockbuster may be on other carriers.

It may be hard to believe right now, but rest assured that the chances of AT&T and Apple no longer working with each other are greater than you might think.

Now that AT&T isn't sharing revenue with Apple, the agreement between the companies is all too similar to that between any other device manufacturer and a carrier. In essence, the carrier subsidizes the price of the phone and the device manufacturer offers the phone to the carrier. Nothing more, nothing less.

But in that same agreement, most of those device manufacturers sell the phones to other carriers too. And why not? In a market where competition is everywhere and the chances of rising to the top are so low, why wouldn't the manufacturer sell the phone to as many carriers as possible to (hopefully) profit off their investment?

Of course, Apple won't have too much trouble profiting off its investment, but why wouldn't the company explore other opportunities and try to offer the iPhone to as many customers as possible?

Last year, Apple's deal with AT&T made some sense after we heard about the revenue sharing deal. But now, I just don't see why the company would even consider maintaining its exclusivity deal.

When the revenue sharing was in place, Apple stood to make much more on an iPhone that was on AT&T's service than an unlocked device. But now, the tables have turned. Instead of caring which carrier the iPhone is on, Apple couldn't care less. As far as Steve Jobs is concerned, an iPhone sale means a one-time profit regardless of the service its connected to.

Hard as I might try, I just can't see why AT&T would want out of the revenue sharing deal unless it has some sort of bricking plan up its sleeve. Think about it: the company has said that it will subsidize the cost of the 3G iPhone to encourage more customers to its side, but what if that customer buys the iPhone, unlocks it and puts it on T-Mobile's service? AT&T not only loses the monthly revenue, but its subsidy, as well. All the while, Apple walks away with a solid profit and a smile.

So if AT&T really didn't want out of the revenue sharing deal (and the more I consider it, the more I don't think it did), but it happened anyway, what does that say about Apple? Doesn't it hint that the revenue sharing deal was the only thing holding the company back from going to other carriers? Doesn't it tell us that its plan is not to be in bed with one company, but to offer its device to any and all customers? Doesn't it tell us that it's sick and tired of a limited customer base?

AT&T is trying to put its own spin on the demise of the revenue sharing deal, but it knows all too well that it was the only thing keeping Apple on its side. Now that it's gone and Apple will enjoy the same benefit from selling the iPhone regardless of the service its connected to, the companies' tie is as flimsy as it has ever been.

And it's for that reason that Apple, smelling greener pastures and more customers, will find a way to sneak its way out of the exclusivity agreement and bring the iPhone to every major US carrier.

When? I don't know. But rest assured that it could happen sooner than you think.

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[NinjaKai]

"but what if that customer buys the iPhone, unlocks it and puts it on T-Mobile's service? AT&T not only loses the monthly revenue, but its subsidy, as well. All the while, Apple walks away with a solid profit and a smile."

True, but Apple / AT&T is only allowing activation of iPhone2 in store, not through itunes. I don't have my contract sitting in front of me, but I believe even the iPhone1 contract had a penalty for early cancellation. AT&T would be a fool to not include something for iPhone2 that at least equaled the subsidy.

The chances of somehow receiving an unlocked iPhone2 seem very low; the apple site isn't going to stock them, you need to purchase one a brick and mortar store. Thus, switching carriers through jailbreaking an iPhone2 seems an outside possibility.

[thimk2000]

Well, it want work on T-mobile, but the point remains: Verizon or Sprint... I thought the same thing when the details emerged. Since AT&T is still trumpeting exclusivity, I'm guessing it dies in a year, maybe 6 months... Hopefully, six months.

[curletal]

What about "technologies" like visual voice mail. Companies like Sprint and T-Mobile do not currently have an infrastructure in place to utilize this feature on the iPhone. I think Apple would need to allow these other carriers access to some parts of the code or technologies or whatever [sorry, don't know how it works] to take full use of the iPhone. This is not something that Apple can do while they are in a contract with AT&T. They will lose valuable time if they have to wait for the agreement to end, then develop similar platforms on the other carriers as they did on AT&T. That's a selling point for customers to stick with AT&T at least a little longer.
Personally, I can't wait for another carrier to have the iPhone, especially now that enterprise support is so much more easily attained through the device. Just my 2 cents.

[stanorlaski]

Ahh, hello! Verizon/Sprint are CDMA

[GoMac83]

Apple should sign exclusively with Verizon. Couple the best operating system with the best wireless network and watch the fireworks!

[bulldawgie69]

It looks like Tmo is going to have their 3G network on a different frequency than AT&T (1.7ghz vs 1.9ghz and 850mhz). So why would apple decide to manufacture a separate phone with less economies of scale just for Tmo? doesn't sound like apple's style. the same goes for a phone for Verizon and Sprint. Why would they make a phone that can only be sold in the US and would have significantly lower economies of scale? Especially when Verizon probably told them to go @%$#$ themselves the first time they tried to make a deal because they were asking for revenue sharing? Don't forget what a vindictive guy Steve J can be. They are making one phone that works all over the world. If they can get 2 or more carriers in the US great, but they won't design a different phone for it. that goes against their simplicity mantra, and it would cost them more to support as well.

[whoreallycares1]

It is not easy to just simply move a device from UMTS/EDGE/GSM technology over to CDMA/EV-DO. Plus then you would have at least 3 sku's of devices for North America (1 AT&T, 1 T-Mobile, 1 CDMA) who also have varying needs for roaming internationally.

Note, this device will not work on any other 3G network in North America, only AT&T because it support only Band II networks and not the Band IV network T-Mobile is rolling out. It will support GSM and EDGE, so if you want some of the features such as GPS on an unlocked device, that would likely still work, but not in assisted mode (A-GPS). You would lose all of the high speed network aspects and gain some GPS functionality.

Unlocking these just became less attractive for US customers...oh well.

[[e-mail]]

Apple announced yesterday that they have four years left with their agreement with AT&T. They also indicated that they would continue to receive revenue from AT&T for the folks that purchased an original iPhone. They will lose that revenue if one of those folks decide to upgrade to a new iPhone 3G, but will instead receive the upfront bonus payment from AT&T.

Apple also changed the activation process for the iPhone; it must be activated at the store when you first purchase your phone.

John

[jerquiaga]

Who cares if the iPhone is unlocked. The only other network it will work on is T-Mobile, and Apple's isn't going to move it over there because T-Mobile can't do visual voicemail, which would ruing the experience. The experience is really the big differentiator anyway for Apple. I can't see them redesigning the entire phone to take advantage of CDMA technology. By it being a GSM phone, they can sell it all over the world, which is mostly GSM. Maybe the iPhone will do one good thing and kill off CDMA in the US.

[ftbotsb]

"iPhone sale means a one-time profit regardless of the service its connected to." NOT!
You are ignoring the rest of the revenue stream. App Store, iTunes? They're all free?
And we don't know what the deal will be for companies that want to have "push" messaging updates. Nor do we know details about the contracts international carriers made.

[JoergSchwarz]

It would indeed be a logical consequence of the new business model if Apple would sell to other GSM based providers, such as T-Mobile. The new business model is in a sense similar to iTunes: Apple sells the appliance (iPod) and gets recurring revenue from content (iTunes).
Now, with the iPhone, it'll be the same: they sell the appliance (iPhone) and generate recurring revenue with content - in this case applications. The games are going to be locked to the device, and people will download tons of gadgets, filling Apple's coffers with 30% of the application revenue. Moreover, they will sign up millions of users for the mobilME service. MobileMe is interesting because it creates a relationship with Apple, not the carrier. If a user would use AT&T's services, it becomes difficult to switch. But if a users uses for Laptops, Desktops and iPhones MobileMe, the carrier becomes merely a bandwidth provider. After the two years of loch up are over, users could hop from carrier to carrier, based on best network and bandwidth cost.
Too bad that the best network in the US is CDMA based. CDMA would require different antennas, and given that iPhone already has 8, I can't imagine they can fit those in. Unless, of course, Verizon would pay some money. How knows?

[haroonie]

tmobile runs 3g on a different band than att. 3g will not work properly from tmo's network because their band is not supported on the new iphone. att =1900/2100mhz, tmo=1700/2100mhz, iphone 3g = EDGE (850, 900, 1800, 1900 MHz). doesn't matter if 3g works in europe's t-mobile 3g network, it is not the same as here.

[JoergSchwarz]

It would indeed be a logical consequence of the new business model if Apple would sell to other GSM based providers, such as T-Mobile. The new business model is in a sense similar to iTunes: Apple sells the appliance (iPod) and gets recurring revenue from content (iTunes).
Now, with the iPhone, it'll be the same: they sell the appliance (iPhone) and generate recurring revenue with content - in this case applications. The games are going to be locked to the device, and people will download tons of gadgets, filling Apple's coffers with 30% of the application revenue. Moreover, they will sign up millions of users for the mobilME service. MobileMe is interesting because it creates a relationship with Apple, not the carrier. If a user would use AT&T's services, it becomes difficult to switch. But if a users uses for Laptops, Desktops and iPhones MobileMe, the carrier becomes merely a bandwidth provider. After the two years of loch up are over, users could hop from carrier to carrier, based on best network and bandwidth cost.
Too bad that the best network in the US is CDMA based. CDMA would require different antennas, and given that iPhone already has 8, I can't imagine they can fit those in. Unless, of course, Verizon would pay some money. How knows?

[asantana]

I hope they do Verizon! If they do a CDMA, they open themselves to 80 million subscribers on Verizon and 52 million Sprint subscribers. That's 130 million subscribes in the USA, certainly something they can not ignore!

[JCPayne]

Apple *could* have been out of that deal from day one... As long as they make another phone model and they call it something other than the "IPhone" they could sell that other model to alternative customers....

To Mobile could be the "T-Phone" Verizon the "V-Phone" Sprint the "S-Phone" etc.

[brobins87]

actually the instinct that sprint is releasing soon has visual voicemail

[redbarncoffee]

Wow. You just wrote an entire column about something you freely admit you didn't research. Assuming, for a minute, the exclusivity agreement you don't find important enough to read before speculating about, does in fact stipulate an exclusive agreement for five years. Assume it also took into account revenue sharing would terminate by a certain date. If true (and all signs besides your idle speculation suggest it is), your entire thesis is defeated.

There's supposedly a difference between reputable reporting and blogging. The more I visit this site, the more convinced I am that CNet has forgotten this.

[sweetiek23]

Having been an Apple customer since the dawn of time (or so it feels) just a couple things. Apple will do it their way. End of story. Why do you think every Apple product only has one mouse button? Honestly I believe they could give a crap about what 80 million subscribers are doing on Verizon or the 52 million on Sprint as someone said above. They will make a fortunate off their mobileme-don't assume that is free. I don't think Steve Jobs has revealed all his tricks with the iPhone yet-I'm just going to sit back and enjoy the ride and well if they jump over to Verizon or go out on their own I'll eventually have an iPhone!

[oliversolo]

I don't know how this article could be written and not mention the GSM conflict. Some of these writers are so unqualified. If he has some thoughts on the subject they should be addressed in the article.

[emblemex]

AT&T has a very slow network in West Michigan. Little good a 3G phone will do us! I hope Apple gets out of AT&T exclusive. Both Sprint & Verizon have broadband here. Speed on Apple!