Jon Fawcett, Fuse Chicken

Liquidmetal iPhone 5 concept

Liquidmetal’s latest 8-K filing with the SEC reveals that the company has agreed to extend its exclusive licensing deal with Apple for another two years. Under the terms of the companies’ new deal, Apple has been granted exclusive perpetual rights to any intellectual property created or acquired by Liquidmetal until Feb. 5, 2014. The price for the extension hasn’t yet been disclosed, but it’s likely similar to the $20 million fee Apple paid for the original.

Just what Apple is planning to do with the super-strong, scratch resistant, amorphous metal alloy isn’t entirely clear, though there’s been plenty of speculation about it being used in everything from iPad chassis to MacBook hinges. Recently, some have theorized that the next iteration of the iPhone will feature a Liquidmetal chassis or, at the very least, see its glass backplate replaced with a Liquidmetal counterpart.

According to the marketing terms that we obtained from a source, we learned that Gilt is asking wineries and other suppliers to agree to a 12-month exclusive if they choose to feature their products on the site. Gilt Taste is expected to start selling wine in August.

In speaking with Gilt’s competitors, we’ve learned the terms are far from average.

Here’s the exact wording:

Seller agrees that for the Term of this Agreement, and for twelve (12) months following the Term, it will not enter into any similar agreement with a Direct Competitor or create its own flash sale site for the marketing of wine. “Direct Competitor” means a company similarly situated to Agent that is in the business of conducting online marketing via a flash sale model, including, but not limited to, Rue La La, One Kings Lane, HauteLook, Lot18, inVino and ideeli. In addition to the termination rights contained in Section 11, Agent shall have the right to terminate this Agreement immediately if Seller breaches this Section 8. Upon such termination, Agent shall have no obligation to feature a previously agreed upon Marketing Event on the Gilt Groupe Website.

Based on the wording, Gilt is not specifying that a certain bottle of wine is excluded from appearing on other sites, but rather that the winery or distributor is prohibited from doing any business at all with any other flash sales sites.

Despite repeated attempts to get a statement from the Gilt Groupe, it failed to provide one.

UPDATE: A company spokesperson said the contract obtained by AllThingsD is an early draft, and that they are still in the process of rewriting it to include exclusivity clauses for specific products sold on Gilt Taste. No word on whether the length of the exclusivity would change.

Philip James, the founder of Lot18, a membership-based wine sales site that was listed as one of Gilt’s competitors in the contract, said its policy is to ask wineries not to sell the exact same bottle (or one specific SKU) with one of its competitors for 30 days to avoid customer confusion.

He argues that “365 days for all SKUs is an order of magnitude more stringent,” and that “from the winery point of view, these are small, family-run businesses, and making wine and selling it is a tough proposition.”

Another executive in the space called the exclusivity clause “very unusual.” He went on to say that Gilt does not need to require an exclusive because if the vendors are happy working with you, they’ll naturally keep coming back.

Gilt Taste is a high-end grocery service selling food and other ingredients that may ordinarily only be available to chefs, or to people living in Los Angeles or New York City. A sample of its offerings include marbled wagyu steak, dried morels, fiddlehead ferns and jumbo white asparagus.

Indeed, wine is a natural pairing for the site, and clearly, this marketing agreement proves that Gilt wants to maintain the same level of exclusivity enjoyed by the produce section or seafood case.

Lot18’s James said he recently became aware of Gilt’s terms after a winery sent him a copy of the contract.

Mostly, he said the winery shared it with him because Lot18 was named as a competitor. “It’s flattering to think that they think highly enough of us to mention us specifically. I know we aren’t the only one, but it’s flattering.”

Lot18 has raised a total of $13.5 million in venture capital, and is banking on mail-order wine being a big business. So far, selling wine online has had a high barrier to entry because the alcohol sale laws vary state by state, making out-of-state sales complicated. Still, he’s hopeful it will become a big business, especially as state rules relax.

Gilt Groupe, which recently raised $138 million, started off as a flash apparel company, but has increasingly entered into new verticals, like groceries, daily deals and full-priced men’s apparel.

[Image credit: Raymond Yee]

While many will observe that the company’s interest in Android appears to be timed closely with the loss of its iPhone exclusivity, the company said the strategy shift has been in the works for many months and has more to do with the fact that the company is moving to faster networks and needs devices that will really tap their power.

“They create highly functional, highly capable smartphones that run really well with our network,” Chief Marketing Officer David Christopher said. “That hits the sweet spot of our network.”

Whatever the case, AT&T has committed to having a dozen new Android products this year, including both phones and tablets.

The company introduced the first three phones at January’s Consumer Electronics Show, where it showed off Android smartphones from Samsung and HTC, as well as the intriguing Motorola Atrix, which is a powerful Android phone on its own, but can also plug into a laptop dock and power a full desktop Web browsing experience. It is also trying to break new pricing ground in selling the HTC Inspire for just $99 with a new contract.

However, there’s more to the strategy than just interesting devices at low prices. Christopher said AT&T is committed to working more closely with phone makers and Google.

“The Atrix is the best example of that,” he said. “We got involved very early in development of that product with Motorola and Google.”

However, the company isn’t looking to do all kinds of work to customize Android.

“We don’t think we have to control every element of the smartphone at all,” he said. “Our strategy has been more to partner smartly and add value where we think we have the strongest assets to bring to bear.”

Christopher pointed to location services, such as a feature that helps keep tabs on family members, as an example of where the company sees investment paying off. Carrier billing for apps and services is another area where the company has tried to lead, he said.

While many of the 12 Android devices planned for 2011 are phones, some will also be tablets, Christopher said, including the Motorola Xoom that was announced at CES. However, Christopher won’t say when that device–which is headed soon to Verizon–will make it to AT&T.

Christopher said the tablet arena is still wide open and that the company is looking far and wide in terms of which devices to offer. In addition to the iPad–which AT&T already carries–and the Android devices, other device makers such as Research in Motion and Hewlett-Packard are taking aim at the space.

“There’s going to be tablet innovation happening across the industry,” Christopher said. “Over time, I think the market will choose.”

In the meantime, Christopher said, the company will follow the same strategy it has taken with phones–offer lots of options.

“There are others as well,” he said, suggesting there are some other brands that could also find their way onto the company’s shelves. “We are casting a very wide net.”

AT&T also wants to find ways to get customers to have multiple devices running on its network. The company has taken a step toward that with the introduction of a new mobile hotspot plan that offers more data to customers who are sharing their phone’s data connection with other devices, either directly or over Wi-Fi.

But more can be done, Christopher said.

Among the options would be to have some sort of pool plan, where a customer could share data across multiple devices. Christopher said that is among many pricing possibillites that AT&T is considering: “That is one that potentially is interesting.”

That’s according to Susquehanna analyst Jeffrey Fidacaro (and AT&T, which confirmed that percentage to me), who doesn’t see the launch of the iPhone on Verizon as a catastrophic event for AT&T at all. He thinks the carrier stands to lose two million iPhone users at most to Verizon–hardly a mass exodus.

AT&T’s decision last year to accelerate upgrade eligibility for iPhone customers, making it easier for them to get the iPhone 4 when Apple released it, is proving a wise move indeed. What better deterrent to switching networks than the carrier’s $325 early termination fee?

In all likelihood, iPhone subscriber churn will be no worse at AT&T than it has been at other carriers that have lost iPhone exclusivity. As Matthew Key, CEO of Telefónica Europe, said during a February 2010 earnings call, “Ever since Vodafone has started selling the iPhone in January, we see absolutely no evidence of people leaving us, churning on the iPhone going back to Orange or Vodafone, so [we are] very comfortable with our iPhone volumes. We continue to out-trade the market and no sign of churn whatsoever.”

As Dan Frommer notes, that’s down one million from Q3 of last year, but it’s still AT&T’s second-best iPhone quarter ever. Overall, the carrier added a record 2.8 million more wireless customers.

This quarter, of course, is the quarter that AT&T’s U.S. exclusivity for the iPhone goes away, courtesy of Verizon.

AT&T also said it activated 442,000 wireless plans for tablets. That number includes both the iPad and Samsung’s new Galaxy Tabs running Google’s Android; reasonable to assume that the overwhelming majority of those activations are for Apple’s machines.

Not only will the Verizon iPhone likely draw new wireless subscribers away from Sprint (and T-Mobile, for that matter), it will boost its churn rate as well. Compounding that effect will be AT&T’s reaction to its loss of iPhone exclusivity and its efforts to hold on to subscribers it fears might defect to Verizon. As Bernstein Research analyst Craig Moffet noted today, AT&T’s not going to stand idly by as Verizon woos away its customers.

“Already in 2Q and 3Q 2010, AT&T partially pre-empted Verizon’s iPhone introduction by upgrading a massive number of its iPhone subscribers, so as to lock them into new 2-year contracts,” Moffet observed in a note to clients today. “This amounts to a massive re-subsidization of existing subscribers, sacrificing margins for subscriber retention. When the actual iPhone introduction at Verizon occurs, AT&T is likely to react further, with more aggressive phone subsidies, incremental advertising, the introduction of other compelling devices, and possibly with price cuts.”

And when it does, Sprint’s share of industry gross additions will inevitably decline.

There’s a wild card here, though: The special event that Sprint has planned for February. If what the company shows off there truly is the industry first it’s promising (and let’s be clear: It’s almost certainly not going to be another CDMA iPhone), perhaps it will indeed make the “impossible possible”–helping Sprint limit subscriber churn in the face of the Verizon iPhone.

Speaking at the UBS Global Media and Communications Conference yesterday, AT&T CFO Richard Lindner said the carrier has known all along that its exclusive relationship with Apple would change someday and has already factored that into its plans. “At some point, as with all exclusive arrangements, the [iPhone] exclusivity deal ends,” Linder said, adding that “it’s important to support devices on all the major operating systems, particularly those at the higher end that tend to be more data intensive.”

Lindner’s remarks echoed those of AT&T Emerging Devices head Glenn Lurie at D: Dive Into Mobile yesterday. “We are not worried about [the loss of iPhone exclusivity] at all,” he said. “We are in position to compete with anyone who has any device at any time. The key is having a lot of devices that people want. We’re very excited about the new Android devices. We’re excited about Windows Phone 7. We’re the only provider in the U.S. that has every OS.”

For now, anyway.

But Lurie’s strongest opinions were reserved for when it came time to talk about the company’s iPhone exclusivity, which is reportedly coming to an end in the new year. “Remember the Razr five years ago? We had an exclusive, and it was a $600 device. Everyone said that Cingular was dead and we were fine.

“We have 93 million customers and they all have different devices. We have come out publicly and said we aren’t concerned about it at all. The iPhone has been a great device for a long time, and we are in a position to compete with anyone who has any device at any time.”

“We are hearing that Verizon…may be willing to pay for exclusivity to itself and AT&T. For these reasons, Verizon could be more willing to give in to Apple’s terms,” Wu said in a note to clients this morning, adding that the iPhone’s continued success has undoubtedly given Apple the upper hand in its negotiations with the carrier. “Apple is back in the driver’s seat with a record 14.1 million iPhone shipments in the September quarter helping AT&T gain share against Verizon over the last two quarters as Android starts to lose some of its luster (at least at Verizon). In addition, our sources indicate that Verizon does not believe the pending launch of BlackBerry 6 on its network is likely to have a material impact.”

An interesting bit of speculation. If Apple were to win concessions from Verizon and AT&T to keep the iPhone exclusive to those carriers, it might be able to drastically expand the device’s distribution in the States and keep its margins in line at the same time. As Wu writes, “This is important as many, including ourselves, have been concerned that Verzion iPhone economics could be less favorable given the strength of Android and higher cost of components, particularly those associated with CDMA.”

That said, with Google’s Android OS gaining market share so quickly it might be a better move strategically to sacrifice a bit of margin to bring the iPhone to more carriers and temper its rival’s growth.

“We see 3 immediate effects of expansion of the distribution of the iPhone at Verizon,” Bernstein Research analyst Pierre Ferragu said in a note to clients today. “A) Migration of existing iPhone users from AT&T to Verizon; B) Some migration of Android users at Verizon to the new iPhone; C) More support to Android from AT&T, as a consequence of the loss of the iPhone exclusivity.”

Worst-case scenario, Ferragu figures Motorola, HTC and RIM will lose 10-30 percent of their business to Verizon. But that loss will likely be offset by new gains at AT&T–at least for Android vendors like HTC and Motorola, for whom Ferragu predicts a 0-30 percent increase in shipments at the carrier. Says Ferragu, “If Verizon starts selling the iPhone, we believe there will not be a visible impact for HTC and a limited one for RIM. If there is a medium term impact on Motorola, we believe that the shortfall will be easily made up in the full year.”

Good thing AT&T Wireless CEO Ralph de la Vega is so certain the end of the carrier’s iPhone exclusivity deal doesn’t portend a mass subscriber exodus, otherwise you might look at AT&T’s latest earnings and the degree to which they were driven by the device and (cough) worry.

Reporting third quarter financials largely in line with Wall Street’s forecasts, AT&T said today it activated 5.2 million iPhones in the quarter–62 percent more than the record 3.2 million it activated earlier this year. Odd then that the device is notably absent from the “Mobile Broadband Leadership” slide in AT&T’s investor presentation. A passive-aggressive jab back at that “rumored” Verizon deal, perhaps?

Anyway…

The company posted a profit of 55 cents per share, up 3.8 percent from the 53 cents per share it managed in the third quarter of 2009 and in line with what analysts had been expecting. Revenue rose to $31.58 billion from $30.73 billion in the same period a year earlier and slightly exceeded the average analyst expectation of $31.25 billion.

So a strong quarter, but one overshadowed by that long-rumored loss of iPhone exclusivity. As Bernstein analyst Craig Moffett observed in a note to investors this morning, the heavy subsidies AT&T offers for the iPhone cut deeply into its bottom line.

“In anticipation of losing exclusivity, AT&T has rapidly served up its own inoculation–a massive campaign to upgrade existing iPhone subscribers to new two year contracts that will lock them in as new options emerge,” he wrote. “The cost of this strategy, of course, is subsidies, and that cost was front and center in AT&T’s 3Q results. In total, Wireless margins were light, but Wireline cost cutting was better-than-expected, and overall earnings were therefore in line at $0.55.”

The iPhone exclusivity deals are fast becoming an anomaly, with Apple inking more multi-carrier distribution agreements in markets it first entered with a lone partner. The latest to undergo the transformation: Germany.

Come November, Deutsche Telekom’s three-year run as the iPhone’s exclusive German carrier will end, as rivals Vodafone and O2 add the device to their smartphone lineups.

Which means iPhone carrier exclusivity is a phenomenon now limited to countries like the United States and China, and even there it seems to be on its last legs.

Rumors have been circulating for months now of new partnerships with China Telecom and Verizon (VZ) that would make both countries multi-carrier, which is in Apple’s (AAPL) best interests financially as it tends to dramatically increase sell-through.

In fact, according to a survey by Credit Suisse analyst Jonathan Chaplin, only 23 percent of AT&T iPhone users say they’d like to jump ship to Verizon (VZ). Another 3 percent said they’d switch to Sprint (S) and 2 percent to T-Mobile (T). But only 3 percent of all those groups said they’d break their contract with AT&T to do it.

Meanwhile, 63 percent said they’d stick with AT&T.

Given that, Chaplin figures AT&T will lose about 1.4 million subscribers to Verizon if its iPhone exclusivity deal should end. Which is nowhere near what some other more-catastrophic estimates have put it at. By year end, the carrier is expected to have about 18 million iPhone users, and while the loss of nearly a million and a half of them predicted by Chaplin will be painful, it’s certainly not an apocalypse.

PREVIOUSLY:

• Analyst: Verizon iPhone Deal Still Not Sealed
• Analyst: No Verizon iPhone Until Second Half of 2011
• Verizon Could Sell 12 Million iPhones Annually
• A Verizon iPhone in January? I’ll Believe It When I See It.
• Analyst: Nine Million iPhones on Verizon in 2011
• A CDMA iPhone 4 for Verizon This Fall?

[Image credit: Credit Suisse]

“Two people familiar with the plans” tell Bloomberg that Verizon (VZ) will begin peddling the Apple (AAPL) phone in January, after the exclusivity deal with AT&T (T) expires. No details beyond that, though a research note this morning from Barclays (BCS) says we might expect an announcement at the Consumer Electronics Show.

“Our component and distribution checks indicate that Apple is likely to begin production of a CDMA iPhone, possibly with LTE support, in 4Q10 for launch at Verizon in January 2011, perhaps at the Consumer Electronics Show (CES),” analyst Ben Reitzes wrote. “We believe Apple’s U.S. unit volume is likely to grow from 11 million units in 2010 to at least 15 million in 2011 as a result, with 9 million at Verizon and 6 million at AT&T. We also believe Apple may launch the device in other CDMA markets, in particular China with China Telecom.”

Whatever. As I’ve said before, at this point I’d be happy to see the iPhone added to Verizon’s lineup, if only to put an end to these seemingly endless rumors.

“Apple is effectively building a recurring revenue stream, where iPhone users pay on average $200 year to stay current with the latest phone,” Munster wrote in a note to clients this morning. “While its true that iPhone 4 is a more significant feature upgrade compared to the 3GS, and we expect this upgrade rate to decline next year, Apple has in three years built brand loyalty in the phone market that compels users to upgrade to the latest version and wait in line for one to six hours to pick up their iPhone.”

And Apple (AAPL) is not the sole beneficiary of that loyalty. Its carrier partners, particularly those with iPhone-exclusivity deals, are benefiting as well, though the upside seems to decline with every new launch. Munster says 16 percent of the new U.S. iPhone buyers he surveyed this year were switching carriers to AT&T (T), down significantly from 28 percent last year. This suggests two things:

• Most people willing to leave another carrier specifically to get the iPhone have already done so.
• Apple needs another carrier partner in the U.S. to further maximize iPhone sales.

The latter point is, of course, obvious. As I’ve noted here before, adding a second U.S. carrier, like Verizon (VZ), would essentially double Apple’s addressable consumer base. As recently as last week, analysts were predicting such a move would spike iPhone sales by nine million in 2011. Given this and the new switcher metric Munster cited today, I think it’s pretty clear where we’re headed.

So, how many iPhones is the analyst calling for Apple to sell this weekend?

“While we think Apple will sell between 1.0m to 1.5m iPhones in the first three days (including preorders), the actual number is largely irrelevant,” Munster wrote. “Apple is tapping into the global consumer spending sweet spot, mobile, and as a result iPhone numbers are going higher in the coming years.”

Click on table to enlarge:

Says Ratcliffe: “Channel checks by our communications equipment and semiconductor research partners give us greater confidence that Verizon will get an iPhone in early 2011, and we are now incorporating that belief into our models for AT&T and Verizon.”

Interestingly, Ratcliffe doesn’t see the end of AT&T’s iPhone-exclusivity deal with Apple (AAPL) heralding a subscriber exodus at the carrier. While he acknowledges that perception issues with AT&T’s network quality will inevitably drive some customers to flee to Verizon, he believes that many will stay put.

All told, the analyst expects approximately 500,000 to one million “switchers,” a relatively small portion of the nine million iPhones he says Verizon will activate in 2011 (click on charts below to enlarge).

“We don’t believe that the addition of a Verizon iPhone will be a seismic event in the wireless competitive environment, although we do expect it to result in a modest spike in AT&T churn, as customers who love their iPhones but have become unhappy with AT&T’s network take advantage of the alternative,” Ratcliffe writes.

“Overall, however, we believe that smartphone customers are relatively sticky, particularly given that (a) 70% of AT&T postpaid customers are on family plans (which would necessitate a group switch), (b) switching cost for customers currently in contract would be $375-525 per handset, (c) approximately 40% of handsets are covered under corporate discount arrangements, many of which may not have VZ equivalents, (d) for many, if not most iPhone customers, the service quality being delivered on the AT&T network is in reality comparable to what they’d receive on Verizon’s network, and (e) switching will likely result in accepting a bandwidth-capped data offering, since (we believe) that Verizon is likely to launch tiered bandwidth pricing prior to the launch of an iPhone.”

So, while the expiration of AT&T’s iPhone-exclusivity deal certainly won’t be good news for the carrier, it’s not going to be a disaster. Ratcliffe figures the carrier will still activate six million iPhones in 2011, which is quite a bit fewer than the 10 million he says it will activate this year, but a sizable number nonetheless.

It’s going to be T-Mobile.

That’s the theory put forth by Kaufman Bros. analyst Shaw Wu, who argues that the carrier is a more likely candidate than Verizon (VZ) because its network wouldn’t require Apple (AAPL) to build a separate iPhone to support it.

“Currently, T-Mobile’s 3G service (UMTS/HSPA) supports 1700 MHz and 2100 MHz frequencies while AT&T supports 850 MHz and 1900 MHz frequencies,” Wu wrote in a note to clients today. “Interestingly, both the new iPhone 4 and iPhone 3GS support 3G at the 2100 MHz frequency and, from our understanding, the technical hurdle to support T-Mobile is minor compared to supporting CDMA technology at VZ and Sprint.”

That would certainly make the transition to multiple carriers in the U.S. easier for Apple, which would surely prefer not to have to customize the iPhone to gain increased distribution. But the payoff would be significantly reduced.

Today, Verizon is the largest U.S. wireless carrier, with 93 million subscribers. T-Mobile has just 34 million. A deal with the former would nearly double the iPhone’s addressable market; a deal with the latter would increase it by a little more than a third.

Unless Apple brought the iPhone to both T-Mobile and Sprint (S). Says Wu: “It is notable that signing up both T-Mobile and Sprint would almost be the equivalent of signing VZ.”

Of course, as Wu himself notes, Sprint’s network is CDMA and would require a customized iPhone, just like Verizon. So if Apple were to sign a deal with Sprint, it may as well sign one with Verizon.

The numbers will look about six million subscribers lighter than today, according to Davenport & Company analyst Drake Johnstone, who believes AT&T (T) will take a nasty hit if/when Verizon (VZ) receives Apple’s (AAPL) blessing to sell the iPhone.

“Over the past several years, AT&T indicated that 40 percent of its new iPhone customers came from other carriers,” Johnstone theorized in a note to clients this week. “We estimate that AT&T has 15 million iPhone customers (as of Q-1 10) and believe that AT&T could lose as many as 6 million, or 40 percent, of its iPhone customers when Verizon begins selling the iPhone in 2011.”

As a consequence, the analyst noted that “We are reducing AT&T’s 2011 wireless subscriber additions from 6 million to 2 million (most of these new additions may be lower value connected devices such as eReaders instead of higher value long-term wireless customers), since we believe that Verizon could obtain Apple’s approval to sell and provide wireless service for the iPhone as early as mid-2011.”

A 40 percent drop in iPhone subscribers. Six million AT&T customers gone with the advent of a Verizon iPhone. That’s an ugly scenario for AT&T, for which the device has been a major driver of wireless revenue growth.

But it’s not necessarily an inevitable one. As I noted here just yesterday, subscriber losses triggered by the end of AT&T’s iPhone-exclusivity deal will be tempered by two very important factors:

1. The early termination fee AT&T charges customers who break their contracts.
2. Family-talk and business-discount plans that make switching to a new carrier a difficult proposition. About 80 percent of AT&T’s customers are on such plans.

Beyond this, there’s the simple fact that subscriber churn rates at carriers that have lost iPhone exclusivity hasn’t been all that bad. As Matthew Key, CEO of Telefónica Europe said during a February earnings call, “ever since Vodafone has started selling the iPhone in January, we see absolutely no evidence of people leaving us, churning on the iPhone going back to Orange or Vodafone, so [we are] very comfortable with our iPhone volumes. We continue to out-trade the market and no sign of churn whatsoever.”