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Speculation about Apple's (Nasdaq: AAPL) plans for ending the agreement that makes AT&T (NYSE: T) the exclusive carrier for the iPhone in the U.S. is heating up again. The guessing game went into full gear on Wednesday when a post on the Cult of Mac blog quoted a well-placed, albeit anonymous, source within T-Mobile as saying there was an 80 percent chance that Apple would strike an iPhone distribution deal with that carrier by Q3 of this year.
Making T-Mobile the second carrier to offer the iPhone would make sense from a technical perspective because T-Mobile's network operates on GSM technology, the same as AT&T, which means Apple would not have to make major modifications to the iPhone for T-Mobile. There are, however, a host reasons why an alliance between the companies doesn't make sense.
Not Buying It
"I don't buy it, at least at this moment," Harry Wang, director of mobile products research with Parks Associates, told MacNewsWorld. "T-Mobile has craved the iPhone from the beginning, but Apple has stayed away from them. It's possible that T-Mobile has become more aggressive in courting Apple, as the exclusive contract with AT&T is expected to expire soon, but I don't think anything will happen in the third quarter."
It's more likely that Apple will start awarding contracts to other vendors in 2011, and if that happens T-Mobile has a chance of landing the iPhone, though Verizon is probably a better bet to get the first non-exclusive deal, Wang added.
Verizon, the largest wireless carrier in the U.S., previously has been identified as the leading candidate to end AT&T's exclusive hold on the iPhone in the country, perhaps because Apple offered Verizon the chance to be the exclusive iPhone provider before its launch. When a deal couldn't be struck, Apple turned to AT&T, which has experienced robust growth since acquiring the iPhone.
A deal with Verizon would require major hardware modifications to make the iPhone compatible with Verizon's CMDA network technology, but Apple is believed to already be working on that fix, suggesting that Verizon may remain ahead of T-Mobile in the race to carry the device.
Follow the Market Leader
"The potential of a T-Mobile-Apple partnership is unlikely," Brian Marshall, senior analyst with Broadpoint AmTech, told MacNewsWorld. "It's in Apple's best interest to partner with the market leader, not the fourth-largest carrier in the country."
No matter what Apple ultimately decides, life will be different for AT&T once its exclusive right to sell the iPhone ends. It's no secret that AT&T has had trouble managing the large volumes of traffic that iPhone users have placed on its network, and it's natural to assume some AT&T customers will defect to a new carrier when one becomes available. Still, that might not necessarily be a bad thing for AT&T.
"It's not something that AT&T would necessarily be happy about," said Michael Gartenberg, a partner with Altimeter Group, "but if moving some of the iPhone traffic off its network allows it to create a better experience for its remaining customers, it could be a positive development."
AT&T already is planning for the end of its exclusive run with the iPhone, and should manage just fine, Parks' Wang said.
"At this point, AT&T has locked in a good portion of the most valuable iPhone customers," he observed. "They may run several aggressive promotions before the end of the year to lock in more customers, but they also have prepared a backup plan, which is to ramp up sales of Android phones."
