Verizon to Apple: Can You Hear Me Now? Apple to Verizon: Not on That CDMA Network…

It was like the Golden State Warriors opting to pass on Larry Bird in the ’78 draft. Verizon Wireless was offered the chance to be the exclusive carrier of Apple’s iPhone in 2005, but refused it, put off by Cupertino’s “rich financial terms” and other demands. Apple (APPL) had reportedly asked for a rich percentage of the monthly services fees as well as complete control of iPhone distribution. “They would have been stepping in between us and our customers to the point where we would have almost had to take a back seat…on hardware and service support,” Jim Gerace, a Verizon Wireless vice president, explained to USA Today in 2007. “We said no. We have nothing bad to say about the Apple iPhone. We just couldn’t reach a deal that was mutually beneficial.”

Four years and 13.7 million iPhones later, Verizon (VZ) is reportedly reconsidering that assessment.

USA Today says the company has been talking to Apple about becoming an iPhone carrier when AT&T’s exclusivity deal ends next year. Sounds reasonable. Verizon would certainly love to offer the iPhone, which has done great things for AT&T (T), and Apple would surely love the chance to peddle the device to Verizon’s 80 million customers. Problem is, a deal like the one described by USA Today would require Apple to develop a new iPhone based on the CDMA and/or LTE (Long Term Evolution) standards. The first is the standard Verizon currently supports, the second is the one it will begin supporting widely by 2010–a standard that theoretically offers data rates of 100 Mbps downstream an 50 Mbps upstream.

Now, Apple is obviously already planning for LTE, which will be adopted by AT&T as well–though perhaps more slowly than by Verizon. So it makes sense that Apple might look at Verizon as an alternative to AT&T. But–if I understand things correctly–even when Verizon rolls out LTE for data, its network will still rely on CDMA for voice. So were the iPhone to be offered by Verizon, Apple would have to develop a new version of the device that would support both the next-generation standard (LTE) and the legacy standard (CDMA). That’s something Apple has been openly loath to do. Consider this exchange between Piper Jaffray analyst Gene Munster and Apple COO Tim Cook during the company’s earnings call last week:

Gene Munster: Hi good afternoon. Congratulations. I’ve got a question on the iPod. Our survey board suggest the exclusive relationship with the AT&T is the number one reason why people don’t purchase an iPhone and given the revenue shares no longer exist, can you walk us through some of your thinking in terms of why maintain an exclusive with AT&T. Just a follow-up question regarding any update on Steve Jobs? Thanks.

Tim Cook: On AT&T, Gene, we view AT&T as a very good partner. We believe that they’re the best wireless provider in the US and we are very happy to be doing business with them. They have done a very good job with iPhone, they’ve put the full force and weight of their company behind it, it’s a major strategic thrust for them and so we’re very happy with the relationship that we have and do not have a plan to change it.

GM: Is there a structural reason why you need to maintain with AT&T from a technology perspective?

Tim Cook: Well from a technology point of view as you know, Verizon is on CDMA and we’ve shown from the beginning of the iPhone to focus on one phone for the whole of the world and when you do that, you really go down the GSM root, because CDMA is–doesn’t really have a life to it after a point in time.

Cook’s reply to Munster’s question certainly doesn’t preclude an Apple/Verizon iPhone deal but it doesn’t exactly suggest one’s in the offing either. Which means that what’s likely going on here is simple gamesmanship. AT&T’s iPhone exclusivity deal is about to expire and the company is desperate to extend it. Apple is looking for better terms. And entertaining a deal with Verizon would certainly be a good way to get them and perhaps force AT&T to upgrade its network more quickly in the process.