AT&T seeks additional year of iPhone lock-in

Apple's mutual dependency

AT&T is reportedly trying to cajole Apple into adding another year onto their iPhone-exclusivity deal, extending it until 2011.

The Wall Street Journal has reported that AT&T chief executive Randall Stephenson has been in discussions with Apple about the possible extension.

AT&T investors and employees will no doubt be crossing their fingers that he succeeds. Landline phones are dying. Wireless is the future. Duh.

As Stephenson succinctly explained: "We have 77 million wireless customers and 30 million consumer phone lines. Which customer base would you rather work from?"

And what partner has brought them millions of new customers and rivers of new revenue since June 29, 2007? Right. Apple.

Having the iPhone locked into their service is critical to AT&T wireless plans. And although it might be possible for Apple to offer the iPhone - or iPhones - through other carriers, if Cupertino can persude AT&T to sweeten its current deal it may see no reason to seek other suitors. After all, raw revenue is not the only component of financial success - margins are also important.

Some analysts contend that Apple offering the iPhone through multiple carriers might precipitate a price war. If so, price drops would be at the service level and would not affect the amount the carriers would pay to Apple for the privilege of selling the phone. Anyone who has followed Apple's iron grip on Mac prices over the years - a five-dollar discount is the maximum allowed to resellers - understands that.

In addition, AT&T is technologically well-positioned to maintain its exclusivity. As AppleInsider explained:

No matter how successful AT&T may be in lengthening its time spent with the iPhone, the firm is likely to maintain an inherent technological basis for holding the device close until two years later. As the only major US carrier with 3G using the HSPA standard on the 850MHz band, the iPhone as-is only supports its service for full data. Adapting the phone to T-Mobile USA would most likely require adding the 1,700MHz band, while switching to Sprint or Verizon would, for now, need a complete overhaul that swaps in CDMA calling and 3G access using EVDO; either of these is expected to gradually phase out.

Not that Apple couldn't make those changes to its überpopular smartphone. But if their business relationship with AT&T remains mutually profitable, they have no reason to do so - until, of course, the next technology transition requires it.

And that transition may be coming sooner rather than later.

Most obvious is the coming upgrade to 4G service. AT&T is in the LTE camp, but so is its competitor - and the largest mobile carrier in the US - Verizon. Recent reports, however, seem to indicate that Verizon is ahead of AT&T in the run-up to that transition.

Apple silicon partner, Intel, is heavily invested in LTE's 4G competitor, WiMAX. However, although Sprint plans to provide WiMAX coverage to over 22 million people in the US by the end of next year, LTE seems better positioned to eventually play VHS to WiMAX's Betamax.

But that's in the US - and despite what many Americans may feel, they represent only five per cent of the world's six billion people. Apple has global ambitions, and it may very well choose to sell phones in developing markets that aren't tied to any service provider whatsoever. But seeing as how the world is rapidly becoming, as Thomas Friedman puts it, flat, those unlocked phones would quickly make their way into locked-phone regions.

There are a great many ifs, maybes, and perchances involved in the next few years' mobile transitions. It's no surprise that AT&T wants to lock down one certainty: its highly profitable relationship with Apple. ®