A lot of people seem to hate AT&T and a lot of Verizon users seem to think it’s possible that Apple will switch carriers or at least, add a second carrier in the US but I would find it hard to believe any change is coming to the US.

First, I have no great love for AT&T. With the iPhone 1G, I barely had a reception in my house or even in the street. I had to drive a couple blocks. Now I live in the ‘burbs but in the SF-San Jose metro area so it’s not like I’m in some hinderland … you would think AT&T would beef up reception in the SF-Silicon Valley area … but nooooo. I do admit with the iPhone 3G, things are at least 50% better. I now have at least 3 bars most of the time – not great and the phone also sounds louder. I still have call dropouts so again, AT&T needs to beef up their network but just because they are crappy does not mean Apple is going to switch or add another carrier.

Why?

Exclusivity is Leverage

It’s in Apple’s interest to have leverage. Exclusivity gives Apple leverage. ONLY Apple gets a revenue stream on every user’s monthly phone bill. ONLY Apple. Well, technically, RIM does also also but RIM actually provides the “backroom” servers and other transmission services which costs money and support. And of course, AT&T is paying a reported $400 per phone as subsidy. So each iPhone sale is worth @$1k to Apple from AT&T over the life of the iPhone.* It also works for AT&T as 40% of iPhone customers are NEW to AT&T (not only a gain for them but a loss for another mobile company) – NO OTHER mobile phone can bring as many users and iPhone users are the cream of the crop mobile customer who are paying on average close to $100 a month for voice & data versus “regular” cell phones which average around $55 a month and of course, iPhone users are the least likely to switch. You combine all of that and it’s like the golden goose for both Apple & AT&T.

If the iPhone were officially and legally available on another provider – AT&T is not going to pay $1k ove the life of the iPhone to Apple – Apple will certain sell get it subsidized sales but NO WAY would AT&T pay them over the life of the iPhone because no eclusivity means no net gain of customers who want an an iPhone has to stay at AT&T … in fact, presuming it’s Verizon, they would spend more money getting you to siwtch more often (come to Verizon, we’ll pay your cancellation fee! Or Come Back to AT&T, we’ll pay your cancellation fee!). Apple actually loses money in this arrangement.

Of course, you could crunch the numbers … if adding Verizon, Apple could sell X numbers in iPhone hardware sales to match the hardware & monthly revenue they get from AT&T … but Apple also loses leverage in other ways.

There is no longer the threat we’ll yank the exclusivity – right now, while AT&T and Apple are working well together, Apple has the upper hand. Apple doesn’t have to kowtow to any demands about the iTunes Store or even the activation process. Apple makes known what’s important to them and negotiates from strength. Of course, there’s give and take but Apple pretty much gets it way.

Why trade that away and its higher revenue return just to come out about the same revenue wise but lose most of your leverage?

The International Clue

Everywhere that Apple has expanded to, they have tried to repeat the AT&T contract. We give you EXCLUSIVE rights to sell the iPhone ONLY on your network. In return, you subsidized the phone and you pay us a % of the monthly contract. You also get nothing from the iTunes Store. In return, we offer the halo effect of the iPhone itself and in bringing in new high revenue customers who stay longer.

In some places, that’s been declared illegal and of course, Apple’s main points are obviously a sticking point problem in China.

But basically, it’s clear based on dozens of other countries, Apple wants to work with one carrier in one country if they are not legally required otherwise.

So strike number two against a second US carrier.

CDMA vs GSM

Yes, adding/converting an iPhone to CDMA is relatively simple (on a manufacturing level) but why bother. You only confuse people for no real gain. Just look at the iPod or Mac lineup. Simple, straightforward. It would be like selling an Intel line and an PowerPC line. You pick one or the other.

It also doesn’t help that outside of Verizon and Sprint, hardly anyone outside the US uses CDMA so while making a phone CDMA is not that hard, it’s extra work for no real point other than consumer confusion … and no win on economies of scale for 99% of the other countries.

So another strike against Verizon & Sprint in the US.

Exclusivity as Marketing

Having the iPhone only available at AT&T, Best Buy or the Apple stores is its in own chachet. It means it cannot be bought everywhere. It’s a minor issue but it’s an issue nevertheless – both in marketing simplicity and as a marketing message itself.

Verizon, Sprint & T-Mobile

Verizon told Steve Jobs and Apple no which is discussed in the next section but also keep in mind, in addition to the CDMA thing – Verizon likes to keep a tight grip on the phones they sell, disabling features and locking others or not activating features so maybe it’s just not in their corporate culture nature to work hand in hand with a powerful partner – so as much as they would like the high end revenue of an iPhone customer, it might be asking too much of them. By all rights, they should lock up a strong relationship with RIM but Verizon seems hesitant and iffy in “ceding” control of email and other features of a Blackerry …

Sprint is CDMA and skating on thin ice already – plus the whole Palm Pre exclusive so just not a good match.

T-Mobile was willing to do whatever it took to get the iPhone but compared to AT&T? No contest and not going to get the iPhone in the US.

Verizon Made Its Bed In Telling Steve Job To Go Away

The bottom line is Steve Jobs asked Verizon FIRST and they said no. The reasons are unimportant but they are DONE as a company getting the iPhone to sell. Steve does not forget. They also added this quote before the iPhone launch,

“Verizon Communications president and chief operating officer Denny Strigl said: “The iPhone product is something we are happy we aren’t the first to market with.”

So basically Verizon would have to eat crow and write Apple a check for a billion dollars as prepayment to start to get back in Steve Jobs and Apple’s good graces … and I’m sure Verizon is convinced that if Nokia, Samsung, Moto & LG throw up 100 phones, some will be close enough to the iPhone … plus the whole control issue.

It’s AT&T, Baby!

It’s business and not personal and Verizon could suck it up and offer Apple $1 billion pre-payment for either a switch or a non-exclusive deal but that’s unlikely to happen. For Apple. they know AT&T still wants them desperately and is willing to continue its current terms or even better the offer slightly (ie: pay, pay, pay for the priviledge of linking up with Apple & the iPhone). For Apple, they have really not much to gain from switching to or adding Verizon except they LOSE the threat of telling AT&T whatever and the CERTAIN REVENUE STREAM (again, unless Verizon writes a giant, giant check), there is pretty much no reason for Apple to switch … consumers claiming Verizon has a “better network,” that is like saying the the lawn in front of Verizon Inc is better than AT&T Inc … big whoop. Add in the factor that Verizon is CDMA, said no to Apple already and likes to decide what’s what on their phones – it all adds up to an extension and exclusive deal with AT&T.

Of course, Apple is going to play coy – why show your hand? But silence does not mean maybe.

It’s just wishful thinking for current Verizon customers. If you want all the functions of the iPhone, it’s AT&T in the US of A … now & forever (well, until at least 2011). Apple can play it by ear – things change quickly – but for now – why mess with 12, 15 million phones times $1k over 2 years?

Plus, it seems pretty likely there will be tethering for the iPhone plus an iPhone Extended HD device (mini tablet) which might be subsidized to begin with – another bargaining chip for Apple at AT&T.

So, get used to AT&T in the left corner of your iPhone for 2-3 more years (in the US).

* Of course, this @1k figure does not include revenue from the iTunes store.