AT&T Prepared for Loss of iPhone Exclusive
Another question to ponder on the eve of the iPhone's debut on Verizon: Now that its arch-rival has the device on which it once had an exclusive, a device that has done so much for its bottom line, how will AT&T respond? — Or, rather, how has it been responding?
Context & Ripple Effects
The end of the arrangement has been telegraphed for more than a year: Business Week reported in December 2009 that Verizon was preparing for the iPhone, and by January 2010 the trade press was asking whether AT&T would lose its exclusivity within days. Through 2010 analysts kept revising the threat model, with a late-December Business Week piece rethinking what the iPhone actually means to AT&T's bottom line.
What changes today is that the question stops being hypothetical: Apple's device debuts on Verizon, and the syndication footprint shows how widely the moment is being watched — the Wall Street Journal on Verizon's network readiness, Silicon Alley Insider on AT&T already attacking the rival launch, and AppleInsider noting Apple cutting the US iPhone 3GS price to $49 in step with AT&T.
First-order effects
- AT&T loses sole distribution of the device that drove its subscriber growth, forcing it into head-to-head marketing against Verizon for the same handset — the SAI pickup shows it already framing the Verizon version as inferior.
- Apple widens its addressable base to Verizon's subscriber roster while using the $49 iPhone 3GS price point to segment buyers across both carriers.
Second-order effects
- Verizon must absorb the network load of an iPhone influx it claims to be ready for, while AT&T's retention calculus shifts from locking in iPhone owners to defending them with pricing and upgrades.
- Rival handsets on both carriers face stiffer competition for shelf space and subsidy dollars as the two largest US carriers pour marketing into the same marquee device.
Third-order effects
- If multi-carrier distribution becomes the norm for flagship smartphones, carrier differentiation moves from who carries the phone to network quality, pricing, and ecosystem lock-in — eroding the leverage exclusivity once gave a single operator.
- Device makers gain bargaining power over carriers, since a hit phone no longer needs an exclusive deal to reach scale.
The trend: US smartphone distribution is shifting from single-carrier exclusives toward multi-carrier availability, moving competitive advantage from distribution rights to networks and pricing.