Last Updated Aug 16, 2010 3:58 PM EDT
Apple and AT&T have been joined at the hip since the iPhone's introduction in 2007. U.S. customers who wanted the device had one choice of carrier. Last fall, I argued that Apple needed to drop its exclusive with AT&T for a number of reasons:
- Verizon is AT&T's serious competition in the U.S.
- Verizon was heavily courting companies like Motorola (MOT) that were building phones using Google's Android as the operating system.
- AT&T has developed a reputation -- rightly or wrongly -- for bad or limited connectivity for the iPhone.
- Apple can sell only so many iPhones in the US solely through AT&T. Eventually it reaches a market saturation point with the carrier.
There has been a major drawback to eliminating the exclusive AT&T relationship: money in hand. As of the end of 2009, new AT&T iPhone activations represent over a third all of Apple's iPhone sales in the same quarter. So long as the money kept rolling in, Apple could live with the arrangement.
However, then came the Android market numbers from Google. It only took the operating system five quarters to sell as many handsets collectively as Apple did after nearly three years. Chalk it up to all the customers who stuck with their non-AT&T carriers and yet still wanted a smartphone. Call it the power of having multiple manufacturers instead of the limitations of a single vendor. Whatever the case, Android handsets are on pace to outsell iPhones within a year -- and possibly even move than RIM (RIMM) Blackberrys.
Android isn't the only choice for Verizon. Microsoft Windows Phone 7 has received some glowing early reviews. If the actual devices are anywhere near as strong, Verizon could quickly take advantage of the mainstream nature of smartphones and move an increasing number of subscribers to the devices. Verizon would help fracture the US market and make Apple domination increasingly dicey.
That presents a big problem for Apple. CEO Steve Jobs wants to do more than sell handsets. He wants to own an entire infrastructure, including being a sole-source of apps, just as he managed with the iPod and iTunes. Get that entrenched in people's lives, and competitors have an unbelievably difficult time pushing you out of the way. The company has a safe position from which to further expand. But if Verizon sells ever more non-Apple smartphones, that goal becomes impossible in the U.S. and, in turn, elsewhere.
Apple's only choice is to get Verizon to sell the iPhone. That won't stop Apple's competitors, but it might at least slow them down for a bit.