Verizon, Apple May Be Close To iPhone Deal - InformationWeek

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4/27/2009
01:56 PM
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Verizon, Apple May Be Close To iPhone Deal

AT&T would likely be aggressive in retaining the exclusive deal with Apple, however, because it has successfully poached numerous subscribers from rivals before.

Apple and Verizon Wireless are in "high-level" talks about breaking AT&T's exclusivity regarding the popular iPhone, according to a report by USA Today.

Citing people familiar with the situation, the report said the iPhone could potentially find its way onto Verizon's networks as early as next year. The move would give Apple access to about 80 million new Verizon customers, and it would enable Verizon to stem the tide of subscribers defecting to AT&T to nab Apple's touch-screen smartphone.

AT&T reportedly has a five-year agreement to be the sole U.S. provider of Apple's touch-screen smartphone; many industry insiders say that agreement is set to expire in 2010. The mobile operator wants to extend that deal because the iPhone has been a boon for AT&T, and it has successfully poached numerous customers from Verizon, Sprint Nextel, and T-Mobile. These iPhone customers also bring in higher average revenue per user because they have to sign a long-term contract with a mobile data package.

Forrester Research analyst Charles Golvin said AT&T would likely be aggressive in retaining the exclusive deal with Apple.

"It looked like half of AT&T's net new subscribers last quarter were iPhone customers, and that's really significant," said Golvin. "It speaks to the power of the device, and I think they'd be willing to invest in it. Of course, there's always a point where the numbers no longer work."

There are some technological issues to overcome if a deal takes place, though, as Verizon's network uses CDMA technology and Apple has only created phones capable of using GSM technology. While changing to CDMA may not be that challenging on its own, a CDMA device essentially only has a market in the United States because the majority of carriers around the globe use GSM.

It's possible the talks are about creating an iPhone that utilizes the next generation of mobile broadband. Verizon plans to roll out its 4G network based on Long Term Evolution technology next year, and the 4G technology will be the standard for the majority of carriers around the world.

There could be some philosophical differences between the two companies as well, as both like to have a lot of control over the experience of their products. Apple reportedly peddled the original iPhone to Verizon years ago, but the carrier bristled at not being able to put its stamp on the device with Verizon branding and Verizon-specific software. In contrast, AT&T has almost no interaction with iPhone customers beyond the billing.

"The companies will definitely have differences, but I would have said the same about Apple and AT&T," Golvin said. "Like any deal, it's going to come down to money."

Apple has a lot more leverage than it did three years ago when it only had the ill-fated Motorola Rokr on its mobile resume. The iPhone has sold about 20 million units worldwide since its release, and its App Store has brought mobile applications to the forefront.


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