Analyst: AT&T Screwed Without iPhone Exclusivity

Published on July 17, 2009
by John Paczkowski

jobs_canyouhearmenow-250x205There’s no question that AT&T’s iPhone-exclusivity deal has been a strategic coup for the carrier. Since its debut in 2007, the device has drawn millions of new customers to the company and done much to revitalize its brand. But the carrier’s deal with Apple (AAPL) won’t last forever, and as soon as it expires, the telecommunications giant will face slowing growth and worse, defections.

So says Pali Research, which in a research note this week argued that AT&T (T) should be very worried about the prospect of Verizon adding the iPhone to its handset lineup.

“As the iPhone exclusivity period rolls off between AT&T Wireless and Apple, a material number of AT&T customers will flock to Verizon’s superior network,” the firm states. “We estimate that nearly a third of AT&T’s post-paid customers are being retained by AT&T primarily because of the iPhone exclusivity.”

An unsettling thought for AT&T, whose five-year agreement to be the iPhone’s sole U.S. provider is reportedly set to expire in 2010. Especially since there are several compelling reasons for Apple to offer the iPhone to Verizon (VZ).

For one thing, the move would give Apple access to about 80 million new Verizon customers. For another, it would bring the iconic device to a carrier that might, you know, reasonably support all its features, a carrier whose LTE “4G” network isn’t four-to-five years off, a carrier whose name doesn’t elicit laughter and jeers at Apple’s Worldwide Developers Conference.

So why extend AT&T’s exclusive deal? If there’s a good reason, Pali doesn’t see it. The research house is betting on the iPhone coming to Verizon. And when it does…

“We expect AT&T Wireless net subscriber additions to fall to less than 1 million in 2010 from more than 4 million in 2008. With an LTE-based iPhone in 2011, we believe Verizon could take even more market share resulting in a contraction in AT&T’s subscriber base in that year.”

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