Watch CBSN Live

Verizon iPhone Coming in January?

The latest news in the iPhone wars is that Verizon Wireless may have finally inked a deal to offer Apple's wildly successful iPhone4 starting in January.
iPhone 4

The Bloomberg news report, coming just days after the new iPhone became available in stores, was attributed to "people familiar with the plans." However, spokespeople from all companies involved -- Apple, AT&T and Verizon -- refused to comment on the rumor.

Some cynics speculated that it might simply be a move aimed at slowing the record sales of the iPhone4, which has already been snapped up by some 1.7 million consumers worldwide.

Verizon, long rumored as a future potential dance partner for Apple, would have a vested interest in limiting the wave of U.S. iPhone sales, which all come tethered to a two-year service contract with AT&T. Those contracts can't be cancelled without facing a whopping $325 cancellation fee, which could cool the ardor of even the most ardent Verizon fans, who might otherwise contemplate a switch. On an otherwise miserable day on Wall Street, Verizon stock briefly shot up before closing down 9 cents to $28.62.

The cancellation fee helps AT&T recover the cost of offering iPhone4s at a discount to retail prices. But for those who are upgrading before their existing AT&T contracts are up, the fee can far exceed the unsubsidized cost of the phone.

New AT&T customers (and those whose contracts have expired) can pick up the new iPhone4 for $199 for the 16-gigabyte version and $299 for the 32-gigabyte phone. Existing customers whose contracts have not yet expired can upgrade to the iPhone4 for $399 or $499, depending on the iPhone4 memory. But all these prices assume you sign a new two-year deal with AT&T.

The reported price of an iPhone4 -- sans two-year contract -- is $599 and $699, for the respective 16GB and 32GB models. But that's a speculative price because the phones simply aren't being sold without a contract and can't currently be used without an AT&T connection.

The bottom line: If you upgraded at a price of $399 and then immediately opted to cancel, you'd end up shelling out $724 for a $599 phone.

AT&T's cancellation fee does diminish over time, but slowly. The fee is reduced by $10 for each full month of the agreement that's completed. In other words, if you attempted to get out of your AT&T deal in January (assuming Verizon was offering iPhones by then), you'd pay a cancellation fee of $265, plus whatever you paid for the phone in the beginning.

Mark Lowenstein, managing director of Mobile Ecosystems in Boston, previously told me that he thought whoever broke AT&T's hold on Apple exclusivity would likely give customers an economic incentive to switch. But that was before iPhone4 sales broke all previous records. With this volume, giving AT&T customers enough of an incentive to overlook that cancellation fee could costs hundreds of millions.

Apple announced Monday that the iPhone4 was its most successful product launch in history, selling 1.7 million units in a matter of three days.

More on MoneyWatch
iPhone4: The Risks and Rewards of an AT&T Upgrade
Best Investments in a Shaky Market
6 Things You Should Never Reveal on Facebook