With AT&T's exclusive agreement to carry Apple's iPhone reportedly due to expire next year, the operator is said to be in negotiations to extend the current deal through 2011.
However, there is also buzz suggesting Apple is in talks with Verizon Wireless to introduce aCDMA-based version of the iconic smartphone.
A new research note published by Bernstein Research analysts Craig Moffett and Toni Sacconaghi contends that by partnering with Verizon, Apple could boost iPhone shipments by at least 100%.
But there's a significant catch: Such a deal would likely result in a revenue cut ranging from $100 to $200 per phone.
According to Moffett and Sacconaghi, AT&T relies on the iPhone as both a customer acquisition tool and a customer retention tool – they argue a non-exclusive deal would slash the phone's value to AT&T and likely result in a reduction in the subsidy per phone from an estimated $450 to between $250 and $350.
On the other hand, Verizon Wireless now boasts a larger subscriber base than AT&T (86.6 million compared to 78.2 million, as of the first quarter of 2009), enabling Apple to exponentially increase its addressable market.
Moffett and Sacconaghi also note that while more than 10% of AT&T's postpaid customers are already iPhone owners, the Verizon subscriber population remains untapped.
Nor does Bernstein Research believe the CDMA standard poses a major technological barrier, arguing the issue will become virtually moot as Verizon migrates to LTE.
While Moffett and Sacconaghi believe Apple will eventually abandon iPhone exclusives to maximize its sales, they say the near-term forecast hinges on the subsidies it can negotiate from its carrier partners.
They add that there are still options AT&T and Apple can explore to increase market share without terminating their exclusive deal, including the introduction of a lower-end iPhone – AT&T also could drive adoption via hardware discounts or service pricing reductions.
Apple could also launch a product that sidesteps the terms of the existing exclusive agreement, such as a tablet device
A recent consumer study released by market research firm ChangeWave contends that iPhone exclusivity is the key to AT&T's surging subscriber growth.
Citing a March 2009 survey of 4,292 US consumers, ChangeWave notes that when asked how likely they were to change service providers in the next six months, 13% of consumers said they were very or somewhat likely to switch--among them, 9% of current AT&T subscribers said they're likely to switch, compared to 11% of Verizon customers.
For more on the Bernstein Research forecast:
- read this Barron's article