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AT&T Seen Keeping the iPhone Through 2011: Analyst

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AT&T (s T) will likely keep its exclusive hold on the iPhone (s aapl) for the next 12-18 months, rather than ending its exclusivity in mid-2010, writes Jonathan Chaplin of Credit Suisse in a note issued today. And because he thinks AT&T will have so much more time as the sole provider of Apple mobile phone goodness, he figures Ma Bell will have the chance to make the last year and half’s network problems a thing of the past in the minds of consumers as it pulls out all the stops in boosting network capacity.

An improved AT&T experience means consumers are less likely to run to another network at the end of the exclusivity period, leaving AT&T fat and happy and other carriers seeing marginal gains. From the report:

We believe there is a 75% probability that AT&T keeps exclusivity in 2010. We arrive at this probability through a two step process: First, we try to determine whether the Apple / AT&T agreement expires in 2010. The consensus view is that it does; however, we couldn’t find compelling evidence that this is the case. We conclude that there is only a 50% probability that it ends in 2010. Next, we try to determine whether AT&T bids for another year of exclusivity if exclusivity does end in 2010. We conclude that they would and that they can afford to compensate Apple such that Apple would be economically indifferent. Our approach yields a 25% probability for this outcome. Taken together, we see a 75% probability that AT&T keeps exclusivity for another year.

However, at the end of the exclusivity period he believes AT&T Apple will make a CDMA device for Verizon and Sprint (s s), which means anyone can can pick up an iPhone if that’s their heart’s desire. Personally, I’m happy enough with the Nexus One from Google (s goog)  and HTC, and I wonder after four years of waiting how many others will rush out to buy the hallowed iPhone. Chaplin also downgraded Verizon (s vz) in light of his thesis and upgraded Research in Motion (s rimm), the maker of the BlackBerry.

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15 Responses to “AT&T Seen Keeping the iPhone Through 2011: Analyst”

  1. This person is a financial analyst and doesn’t know the first thing about statistics. I’ll concede that his two numbers about arbitrary, but lets even say those are ok. This is conditional probability! You can’t simply add 50% and 25%. Using that same rational I’m going to look at the case and say there is a 50% chance ATT’s exclusivity expires, and a 75% (100-25%) they can’t rebid to keep the Iphone. According to them you just add percentages, so 50%+75% = 125% meaning ATT most certainly will not keep exclusivity.
    The correct way to to do it is to say 50% chance ATT keeps the exclusivity, 50% it does not. Of the 50% chance it does not, there is a 25% chance it rebids. 50% + 50% * 25% = 62.5%, not 75%.
    Ugh, propagation of bad math gives me headaches.

    • Agreed. His numbers are admittedly arbitrary–at best!

      Now is the perfect time for Apple to move to VZW. People perceive VZW’s network to be superior and ATT’s to be unacceptable. There are probably millions of VZW users who want an iPhone, but only on their network, and many millions more current iPhoners who would immediately jump ship to a VZW iteration. The Android platform continues to impress, improve, and satisfy VZW users, to the length that a future switch to a new OS becomes increasingly unlikely vs time. All this while ATT actually starts to deliver on promises of improved service/coverage means fewer new phone sales for Apple via VZW uptake and ATT-to-VZW ports.

      I’m only one, but fit the mold of an OS X user on VZW who always coveted the iPhone, but am becoming happier by the day with my Droid…

    • virtuocity

      I absolutely agree. The probablity calculations are quite prmitive, vague and uninsightful. There is not a trace of consideration of the overall context, in which this exclusivity exists – government regulations (last year’s govt inquiry on this type of business relationships), the complex balance of Apple’s interests between simply getting sales via AT&T and selling an innovative device and applications for it, which manytimes faces restrictions or opposition from the provider.

  2. Nice article, Stacey. I shudder to think how much Apple has lost with its sole source agreement with ATT. Does anyone know how much the contract is worth to Apple? Just think…If IPhone was able to sold by other Wireless Carriers! The exclusive arrangement has also allowed other vendors (Moto, SSung, HTC) to play me too. Good for the consumer but iPhone still leads, IMHO. Thoughts? Regardless, there are ways to use iTouch with iCall and a miFI router to make and receive calls. New 3G firmware from Apple unlocks this. Is Bluetooth A2DC also going to work with iPad and iTouch?

  3. What’s in it for Apple? Money. Lots of it. Does anyone think ATT is going to keep paying Apple that $300-$400 for every phone activated after Verizon or Sprint gets it?

  4. Dilip C. Andrade

    My guess is that if there is exclusivity through the end of 2011, there won’t be a CDMA version. They’ll release an LTE handset instead. A GSM handset can be sold anywhere in the world, a CDMA handset really only gets sold in the US (even the Canadian market has moved on)

  5. whats in it for apple to continue with the exclusive deal?

    also should we not be seeing the ipad prepaid through the app store model as a sign that apple eventually plans to become their own MVNO? i see an eventuality when all apple devices have a built in apple SIM card that allows purchase of data and/or voice services on networks around the globe.