Verizon and the iPhone? AT&T's Been There, Done That

Rumors are swirling – again – about the introduction of a Verizon iPhone, and while neither Apple nor Verizon will confirm anything, AT&T’s loss of exclusivity would shake up the industry. But what a run AT&T has had with exclusive access to the industry's hottest device.

Apple has developed an extremely devoted following for its iPhone, and while it continues to pull in new users, most consumers who want an iPhone already have one. With refurbished phones being sold on the cheap, there are very few barriers to entry for a user who wants the iPhone experience. While the iPhone 4 represents the biggest feature enhancement from Apple in some time, competitive offerings like Android phones have made the iPhone offering less unique relative to other phones on the market. And, unlike other popular phones that have been on the market for a number of years, the iPhone is the only device that has remained exclusive to one domestic carrier since it was launched.

Being this exclusive carrier has been extremely beneficial to AT&T. Since the iPhone introduction in January of 2007, AT&T has added about 15 million net postpaid subscribers. Many of those are iPhone users, but many others were drawn into AT&T stores simply to view the iPhone and ended up buying other AT&T handsets. Media coverage around the device has been virtually nonstop, with each new iPhone introduction putting AT&T back into the media spotlight. In fact, the popularity of the device has literally filled AT&T’s network in key markets. While this overwhelming network congestion is a problem AT&T is struggling to remedy, it was caused by having too many subscribers, which is a problem most carriers would love to have.   

For obvious reasons, the loss of iPhone exclusivity would hurt AT&T's position market position. iPhone sales have contributed considerably to its subscriber growth over the past couple years and has come to represent the company's core wireless offering. While many of the customers lining up for the new iPhone 4 are existing AT&T iPhone customers who are upgrading, and thus do not represent net subscriber growth for AT&T, the ability of another carrier to offer the device could lead to losses of existing customers to the new carrier. However, AT&T has known that its exclusivity deal will expire, and while this will obviously cut into a core customer-growth driver, it also allows the company to pivot toward an emphasis on new offerings and products. 

For Verizon, offering the iPhone would result in a considerable boost in subscribers.  Customers’ tendency to have long term love/hate relationships with wireless carriers has contributed to some users from buying an iPhone because they don’t want to buy form AT&T. The highly publicized network issues AT&T has faced in a few key markets have kept some potential iPhone buyers from taking the leap, for fear of service degradation. While it would by no means mirror the mad rush of subscribers that the original iPhone brought to AT&T, a Verizon iPhone would undeniably pull in users at the expense of AT&T. 

If the rumors are true, competitive advantages will come down to network performance, which ultimately is where the industry is headed, anyway.  As carriers outline their 4G network build plans, the carrier that can provide the fastest network in the most markets at a reasonable price will hold a distinct advantage. A 4G iPhone is the inevitable next step for the hugely popular device, and the carrier best positioned to support that device (and other 4G devices) across the greatest number of markets will hold the catbird seat.

All of this assumes that the Verizon rumor is true, and all of us would be wise to remember the many previous rumors about Verizon getting the iPhone. 2011 would be, what, three years later than the first rumor predicted?  Maybe this one is true, and maybe it's not. But even if a new game is afoot, it cannot erase a victory already in-hand. AT&T's exclusive deal for the iPhone was one of the most successful strategic moves in our industry's history, allowing the company to ride a wave of breakthrough gadget adoption to capture high-end data customers and in many places, fill its network. Strategically speaking, the iPhone story isn't about AT&T losing exclusivity. It's that AT&T secured exclusivity, and first-mover advantage for so long, to begin with. The iPhone was a win for AT&T no matter what tomorrow brings.

Fedor Smith is president of ATLANTIC-ACM, a provider of strategy research, consulting and benchmarking services to telecommunications and information industry companies. An expert in niche- and channel-based marketing and operations management, Smith specializes in customer satisfaction and benchmarking projects for ATLANTIC-ACM, where he oversees proprietary projects as well as the firm's Carrier Report Card series, which serves as the telecommunications industry's principle source of benchmarking tools.