Verizon rejected Apple iPhone deal
NEW YORK — Verizon Wireless, the No. 2 U.S. cellphone carrier, passed on the chance to be the exclusive distributor of the iPhone almost two years ago, balking at Apple's rich financial terms and other demands. — Among other things …
Context & Ripple Effects
Apple's iPhone economics were already drawing attention: iSuppli estimated that Apple and Cingular Wireless would each earn nearly 50% gross margin per handset. Verizon's refusal shows that those economics depended on a carrier accepting unusually favorable terms for Apple.
The failed negotiation matters because Verizon Wireless passed on exclusivity rather than accept Apple's proposed commercial and operational demands, leaving Apple’s carrier model tested by a major U.S. operator.
First-order effects
- Verizon Wireless forgoes exclusive iPhone distribution, avoiding the financial terms and other demands it found unacceptable.
- Apple must pursue iPhone distribution through a carrier relationship willing to accept its proposed terms; Cingular's projected handset margin indicates the value at stake for a participating carrier.
Second-order effects
- Verizon's decision raises the negotiating bar for other U.S. carriers considering an Apple handset deal, because accepting iPhone distribution means weighing device margins against Apple's demands.
- Cingular's prospective iPhone economics become more strategically significant if Apple can preserve its preferred carrier terms with a smaller set of distribution partners.
Third-order effects
- If handset makers can secure carrier agreements while retaining a larger share of device economics and tighter terms, carrier distribution may shift from operator-led handset selection toward negotiated access to high-demand devices.
The trend: The iPhone is an early test of whether a handset maker can use consumer demand to claim more control and economics from wireless carriers.