An iPhone for Verizon or Sprint - Dream On

Originally Published in May 2010

One of the early predictions of a Verizon iPhone comes from ZDNet back on November 27^th 2007.  Back then ZDNet was predicting the iPhone would be on Verizon within a year. Since then there have been countless other stories like this where predictions / rumors / inside sources have talked about a Verizon iPhone “definitely” coming in the next week / month / year.  And all obviously have been proven to be false. When Steve Jobs does his WWDC keynote on June 7^th, one of the big questions people hope will be answered is what carriers in the US will be getting the next generation iPhone. As anyone who is even remotely interested in the iPhone knows you currently can only get the iPhone in the US on AT&T and depending on where you live that can be a good thing or a very very bad thing (NYC, SFO).  Many are hoping for a Verizon iPhone or a Sprint iPhone, and there are many of rumors out there about said devices.

 

First lets start with the facts.  Apple and AT&T in 2007 signed a 5-year exclusive agreement for the US deployment of the iPhone.  Apple admitted such in a court case even referencing a USA today article from early 2007 revealing said agreement.  So we know 100% without any doubt there was a 5-year exclusive agreement signed that was scheduled to last until 2012.  What we don’t know and what neither Apple nor AT&T are saying today is what is the status of that agreement and has it been altered in any way.  I have predicted on my podcast many times that Verizon would not get an iPhone until they had their LTE (4G) network built out.  Which also is scheduled for mass deployment in 2012.  So from both a contractual and a technical perspective a Verizon iPhone does not look likely until 2012. 

 

Here are some more facts that may have some influence with regards to potential Verizon and Sprint iPhones.  In the US there are over 140 Million subscribers on Verizon and Sprint combined, compared to just 87 Million on AT&T.  A recent survey of Verizon subscribers found 17% likely to get an iPhone if it was available from Verizon.  Assuming similar numbers for Sprint, you are looking at Apple selling 23.9 Million iPhones on those two carriers.  Assuming an average sales price of $599 per iPhone (what Apple gets per sale) you are looking at over $14 Billion in revenue for Apple.  That is clearly motivation for Apple to reconsider their original agreement and it more (much much more) than makes up for any costs to build and test a CDMA phone especially when it is calculated Apple gets better than a 50% gross margin on the iPhone.  It does not take $7 Billion, or even $1 Billion for that matter, to develop and test a CDMA version of an existing GSM phone.  Plus a CDMA iPhone would also give you a device you could run on China Mobile – the world’s largest cellular carrier with over 500 Million subscribers. 

 

Others have pointed out that since the iPad was exclusive to AT&T in the US – this is proof that the original AT&T / Apple agreement is still in place and still going strong. When you look at the very generous data plan and the terms of that data plan for the 3G iPad, it has others going so far as to say if anything AT&T may have actually successfully negotiated with Apple to extend the original 5 year exclusive agreement by a year or two. 

 

So then why all the rumors recently with regards to a Verizon or Sprint iPhone? One key reason appears to be that for the first time in the US, there were more Android powered smart phones “sold” than iPhone OS smart phones.  This per sales for Q1 2010.  In all fairness it should be pointed out there were many buy one get one free promotions for Android smart phones in the US in Q1 2010. Also if you throw in the iPod Touch sales – there were actually more devices sold in the US in Q1 that run on the iPhone OS vs the Android OS.  Still that Android smart phone sales are getting close to sales of iPhone OS devices in the US is something many speculate is not lost on Apple.  Also what is not forgotten is that Apple in its most recent quarterly conference calls has said in those markets that were exclusive to one carrier, that then were opened up to other carriers Apple saw incremental growth in sales of the iPhone.

 

Without knowing the exact details of the Apple / AT&T iPhone agreement it is hard for us to know the exact value to Apple to keep this exclusive agreement going. So all most people can do is speculate on what is known and those facts make it look like it is in Apple best interest to end their exclusive deal with AT&T and add Verizon and Sprint into the mix. Popular opinion right now is that Apple will announce the end of exclusivity on June 7^th and add Verizon and Sprint to iPhone party.  However that “popular opinion” is based on imperfect information, for example we do not know how much kick back per month per iPhone subscriber Apple is getting from AT&T.  Sadly for those holding out hope for a Verizon or Sprint iPhone I am guessing that kick back is significant enough to make it in Apples best interest to stay exclusive with AT&T for the next two years.  Here is hoping on June 7^th I am wrong.