Apple Expected to Extend Exclusive Wireless Deal with AT&T
Published on: 1st Jan 1970: 1:33am
Based on an analysis of wireless technology deployment, iSuppli says that it believes that Apple will extend its exclusive iPhone service deal with AT&T - but this may not be the boon for AT&T that it appears to be.
"Speculation is rife that Apple will end its exclusive U.S. iPhone service deal with AT&T when the current contract expires in June 2010 and begin to offer phones that work with the Verizon network," said Francis Sideco, principal analyst, wireless communications, for iSuppli. "However, iSuppli doesn't believe this will be the case. The main reason Apple is likely to stick with AT&T beyond 2010 is the relatively wide usage and growth expected for the HSPA air standard used by the carrier for 3G data. Cumulative global subscribers of HSPA wireless services, consisting of High-Speed Downlink Packet Access (HSDPA) and High-Speed Uplink Packet Access (HSUPA), are set to rise to 1.4 billion in 2012, up from 269.1 million in 2009. In contrast, cumulative subscribers for the EVDO standard used by Verizon will amount to 304.6 million in 2013, up from 145.2 million in 2009.
"The FCC investigation notwithstanding, Apple has no reason to move away from its highly successful exclusive deal with AT&T, which has already generated strong growth in iPhone sales and is expected to fuel a continued expansion in the coming years," Sideco said.
iPhone: A blessing or curse for AT&T?
But for AT&T, the iPhone offering has been a mixed blessing. While the iPhone service deal has been hailed as a major coup for AT&T and the phone has been a significant factor in the strong subscriber additions reported by the carrier, the extremely high use of data services by iPhone users has severely taxed the carrier's network capacity.
The extension of the current exclusive arrangement is likely to be seen by most as another win for the company. However, AT&T's image has been bruised by critical wireless bandwidth shortages and resulting service problems that have spurred outrage among iPhone users.
"Facing dropped calls, service interruptions and slow download speeds, iPhone users in certain markets are blaming AT&T," said Jagdish Rebello, director and principal analyst for iSuppli. "iPhone users are overloading AT&T's network with data traffic generated by the download and usage of apps. However, the real problem is that AT&T has not found a way to monetize data traffic generated by the iPhone. With its voice service revenue on the wane, and the company unable to cash in on the increase in data traffic outside of the base data access fee, AT&T is finding it difficult to make the required investments in upgrading its network to support greater bandwidth."
For AT&T, the problem has far greater implications than just unhappy customers.
"With much of the iPhone experience intricately tied to Apple's iTunes, the customer ownership line between AT&T and Apple is blurring - a phenomenon that is not limited to this relationship," Rebello said.
The battle for the wireless subscriber
AT&T's struggles reflect a wider battle that is taking place in the global wireless business - a battle for control of the consumer in the new era of wireless data.
"A dramatic shift is taking place in the global cellular industry - one poised to alter the balance of power in the mobile value chain," Rebello said. "This is attributable to the explosive growth during the past two years of mobile data service offerings, service provider data revenues and unit shipments of smart phones and mobile broadband devices."
Mobile data is key to the continued health of wireless carriers and the mobile value chain for the future. With mobile data gaining traction among consumers, wireless service providers like AT&T increasingly are competing with OEMs, content developers and content aggregators for ownership of the customer and for a share of data revenue growth.
"Players including Apple, Google, Yahoo, Nokia, RIM and Microsoft are all trying to muscle in on the wireless carriers, angling for a share of the lucrative - and growing-pie representing mobile premium content, services, and applications," Rebello said. "To sustain growth momentum in data revenues while working with these players, wireless carriers will have to develop and implement carefully thought-out business models that also allow them to own the customer experience. Such moves are critical to ensuring the success of the operators and the sustained health of the mobile value chain."
For the wireless industry to succeed, business models must align the needs of the mobile carriers with the growth objectives of OEMs, content owners, and application developers, Rebello added. Carriers must seek to promote their networks, content, features, and services directly to consumers, rather than try to lure customers solely by touting the devices that are available in their portfolio. Their mantra going forward must be to emphasize services, capabilities and features of their networks.
Other wireless service deals for Apple?
While Apple is likely to stick with AT&T for the iPhone for now, the company may be seeking a deal with Verizon to provide services for alternative platforms.
"There is no available information that would indicate that Apple is prohibited from pursuing a relationship with Verizon for non-iPhone products, such as another Apple phone model, tablet, Mobile Internet Device (MID), netbook or an enhanced version of the company's iTouch," observes Sideco.