AT&T’s exclusive deal with Apple as the U.S. carrier for the iPhone expires next year, and there are signs that the arrangement between the two companies will then end. Such a move would bode very well indeed for the entire Apple ecosystem, from iPhone users to application developers. Apple itself, of course, stands to benefit the most.
As Morgan Stanley analyst Kathryn Huberty noted in a recent research report, the iPhone’s market share grew 136 percent in France when it was offered on multiple carriers. iPhone sales in the U.S. would double if Apple ended its exclusive contract with AT&T, she predicted. “We expect Apple to broaden iPhone carrier distribution over the next two years and believe this opportunity is under-appreciated by the investment community,” she wrote.
Apple is clearly aware of the multiple-carrier opportunity, and can’t ignore it, despite the substantial kickbacks that it earns from AT&T’s premium-priced iPhone service plans. There are now multiple carriers for the iPhone in the UK, and all three major carriers in Canada are now supporting it. Through such arrangements, users get the benefit of competitive service plans and prices, and Apple has the chance to win new customers and ease the woes of disgruntled ones.
Still, there would be benefits far beyond simply moving more handsets and gaining market share. Ending the AT&T exclusivity would position Apple to best take advantage of something it already has: enthusiastic iPhone app developers, who would welcome more openness in Apple’s carrier strategy. The company is starting to make more money from its highly successful App Store, where more than 2 billion apps have been downloaded. And as history has proven, developers and their applications have been directly responsible for the success of many types of technology platforms. Would Microsoft ever have gained dominance on the PC desktop without developers enthusiastically producing applications for its platform? No way.
So What About AT&T?
What will all this mean for AT&T, though? After all, as Om noted in his post, “Why AT&T Is Addicted to the iPhone”:
- AT&T added 875,000 new postpaid subscribers in the first quarter of 2009 and saw 1.6 million iPhone activations. A whopping 73 percent of total net new subscribers came to AT&T by way of Apple’s iPhone.
- From a revenue perspective, during the first quarter of 2009, the average iPhone user gave AT&T about $94.74 a month vs. an average postpaid AT&T customer, who spends about $59.21 a month.
Make no mistake: AT&T would like to continue to be the exclusive U.S. carrier for the iPhone, but its enjoyable arrangement is time-constrained. As evidence of even more pressure on Apple to expand out to other carriers, look no further than the new deal between Verizon Wireless and Google to promote Android and how it increases the number of U.S. carriers that work with Android to three (GigaOM Pro, sub. required), including T-Mobile and Sprint.
As Android continues to gain market share, major carriers and handset makers back it and developers continue to produce solid applications for the Android Market, Apple is undoubtedly watching closely — especially with analysts from Gartner predicting that Android will be the No. 2 smartphone OS by 2012. Both AT&T and Apple also have to be aware of the fact that the FCC continues to investigate exclusivity deals between carriers and handset makers, and has pledged to take action if they’re found to cause harm to consumers.
AT&T’s CEO Randall Stephenson has already conceded, at the Fortune Brainstorm conference over the summer, that his company’s exclusive deal with Apple will end “eventually.” There are good reasons to think it will end sooner rather than later, and a much healthier iPhone ecosystem will be the result.