Credit Suisse: 75% chance AT&T keeps iPhone exclusivity in 2010

Posted:
in iPhone edited January 2014
The iPhone will inevitably be available on multiple carriers in the U.S., one analyst believes, though 2010 is not likely to be the year Apple ends its agreement with AT&T.



Based on that assessment, Jonathan Chaplin, research analyst with Credit Suisse, downgraded Verizon stock to a "neutral" rating. The iPhone remaining exclusive to AT&T, he said, will have a negative impact on Verizon.



"Our analysis suggests that Apple will eventually sell the device at all carriers; however, there is a much greater probability that AT&T keeps exclusivity for another 12-18 months than investors realize," Chaplin wrote. "We think this has profound impacts for Apple, the carriers and the other handset OEMs."



Chaplin sees the iPhone becoming available on all carriers, including a CDMA-capable version of the handset, in mid-2011. That timing would give AT&T another 12 to 18 months to "fix their network," he said, which would give Verizon less of an advantage when the iPhone eventually does make its way to the nation's largest wireless carrier.



The report asserts that there is a 75 percent likelihood that AT&T will retain its exclusivity this calendar year. That number is obtained through a probability analysis done by Credit Suisse.



"We conclude there is only a 50% probability that it (exclusivity) ends in 2010," Chaplin wrote. "Next, we try to determine whether AT&T bids for another year of exclusivity if exclusivity does end in 2010. We conclude they would and they can afford to compensate Apple such that Apple would be economically indifferent.



"Our approach yields a 25% probability for this outcome. Taken together, we see a 75% probability that AT&T keeps exclusivity for another year."



In his massive, 60-page analysis, Chaplin sees four possible outcomes regarding AT&T and the iPhone in 2010:



Both parties agree to another year of exclusivity for AT&T, at an estimated cost of $1.6 billion. This scenario, he said, makes sense for AT&T, but it's unclear whether Apple would agree.



AT&T loses iPhone exclusivity, but Apple does not make a CDMA-capable handset. This would have a "modest" impact on AT&T, Chaplin said, but would result in meaningful upside for T-Mobile, the other major GSM-based carrier in the U.S.



Exclusivity ends and Apple manufactures a CDMA iPhone. While this scenario would have a significant impact on AT&T, it would be beneficial to all other wireless carriers: Verizon, Sprint, and T-Mobile. It also presents the most positive outcome for Apple with an estimated 10.53 million additional iPhone sales over the next two years.





Exclusivity ends in mid-2011. This scenario assumes that AT&T and Apple have already entered into an agreement that will ensure no other wireless carriers in the U.S. will have access to the iPhone in 2010. If this were to happen, Chaplin believes AT&T would improve its network and fewer subscribers would be likely to leave.





Last year, AT&T was rumored to be negotiating with Apple to extend its exclusive contract past its assumed 2010 end date. While Apple and AT&T were said to be in talks to extend the contract through 2011, it is unknown whether a deal was reached.



Last summer, AT&T even admitted it wouldn't have exclusive rights to the iPhone forever, further fueling speculation that AT&T and Apple would end their agreement.



But much of that talk cooled last week when Apple executives, during the company's quarterly earnings conference call, defended AT&T and downplayed talk of multi-carrier inevitability in the U.S. Apple Chief Operating Officer Tim Cook said Apple has selected countries where a multi-carrier system would inevitably happen, but it may not be the right decision for the iPhone in every market.



Apple then later that week announced an AT&T-only 3G data plan for the iPad in the U.S. The no-contract plans run $14.99 for 250MB of data per month, while the unlimited data option is $29.99. That the iPad did not come in a CDMA, Verizon-compatible model caught many by surprise, and only served to solidify the existing relationship between Apple and AT&T.
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Comments

  • Reply 1 of 52
    al_bundyal_bundy Posts: 1,525member
    i'm getting speed test results in Manhattan that are twice as fast as verizon's hypothetical ideal situation maximum evdo speeds
  • Reply 2 of 52
    igeniusigenius Posts: 1,240member
    I'm curious whether they are privy to the contract(s) between Apple and ATT.



    If not, I don't understand how there is any firm basis for any guesses. Anybody care to speculate as to the basis for the estimate? And could that basis be reliable absent a detailed knowlege of the contracts that the two operate under?
  • Reply 3 of 52
    Well, either they are consulting their magic eight ball or a Ouija board.
  • Reply 4 of 52
    Quote:
    Originally Posted by iGenius View Post


    I'm curious whether they are privy to the contract(s) between Apple and ATT.



    If not, I don't understand how there is any firm basis for any guesses. Anybody care to speculate as to the basis for the estimate? And could that basis be reliable absent a detailed knowlege of the contracts that the two operate under?



    I doubt they are privy to the AT&T/Apple contract.



    They list the major scenarios and took a guess. That's why they're only 75% certain, not 100%. They're just saying, "of all these potential avenues, this one looks the most likely." Nothing more.
  • Reply 5 of 52
    Somebody should tell this analyst that his 60-page report is worth less than a roll of toilet paper.



    Probability analysis ?? It's known as "Garbage in, garbage out." LOL.



    Steve will never deal with Verizon. When he first came to them for a deal, they turned him down. Now, it's "I'll destroy you, Verizon."
  • Reply 6 of 52
    wigginwiggin Posts: 2,265member
    While I understand the arguments against a CDMA/Verizon iPhone, there is one big one for it even if it means extra expense and overhead for Apple. The longer Apple waits to deploy a CDMA iPhone, the longer Android has to establish a foothold with Verizon. Think about the iPod/iTunes "lock-in" everyone complained about when music had DRM. You couldn't switch to a non-Apple music player because none of the music you purchased would work on it.



    The longer Android goes unopposed on Verizon's network, the more Android phones/apps people will buy. Then if/when the iPhone becomes available on Verizon, people with an investment in Android software will be less likely to switch.



    Similarly, if I have an Android phone on Verizon and I'm contemplating getting an iPad, I can't use the same applications for both devices. Any application (or type of application) I wanted to use on both devices I'd have to purchase twice. So it could even impact sales of iPads to non-ATT customers.



    The sooner Apple can establish an iPhone OS ecosystem on Verizon, it will be easier to nip Android in the bud before it gets too much traction.
  • Reply 7 of 52
    Quote:
    Originally Posted by AppleGreen View Post


    Somebody should tell this analyst that his 60-page report is worth less than a roll of toilet paper.



    Probability analysis ?? It's known as "Garbage in, garbage out." LOL.



    Steve will never deal with Verizon. When he first came to them for a deal, they turned him down. Now, it's "I'll destroy you, Verizon."



    Apple doesn't have the power to destroy Verizon. Even if ATT became the #1 carrier in the US which isn't going to happen thats hardly destruction.



    Over several decades Apple has never been powerful enough to put any major company out of business.
  • Reply 8 of 52
    Quote:
    Originally Posted by AppleGreen View Post


    Somebody should tell this analyst that his 60-page report is worth less than a roll of toilet paper.



    Probability analysis ?? It's known as "Garbage in, garbage out." LOL.



    Steve will never deal with Verizon. When he first came to them for a deal, they turned him down. Now, it's "I'll destroy you, Verizon."



    -------------



    Yes, they will never deal with Verizon. And they will never deal with Intel. There will never be an Intel chip in a Mac.



    And they will never deal with Microsoft.



    Get it?



    Dude, there are *A LOT* of people who will not use Verizon. They will get an iPhone the second it is on Verizon.



    I felt like cancelling my iPhone service when my daughter had a bad car accident off a major US freeway (I-90) and her Freaking iPhone would not get service. But guess what? Her boyfriend's Verizon service was working!!! Boy, are they lucky they had access to the Verizon network!!!
  • Reply 9 of 52
    I'll move to Verizon when they get the ablility to use both data and voice at the same time without having to rely on Wi-Fi and they offer noticeably lower prices than AT&T. I am not interested in saving 5 bucks.
  • Reply 10 of 52
    So, in the 3 of the 4 worlds that they monitor AT&T retains the rights to the iPhone for all of 2010 - that's awesome - any idea which sliding door we're behind??
  • Reply 11 of 52
    Quote:
    Originally Posted by Wiggin View Post


    While I understand the arguments against a CDMA/Verizon iPhone, there is one big on for it even if it means extra expense and overhead for Apple. The longer Apple waits to deploy a CDMA iPhone, the longer Android has to establish a foothold with Verizon. Think about the iPod/iTunes "lock-in" everyone complained about when music had DRM. You couldn't switch to a non-Apple music player because none of the music you purchased would work on it.



    The longer Android goes unopposed on Verizon's network, the more Android phones/apps people will buy. Then if/when the iPhone becomes available on Verizon, people with an investment in Android software will be less likely to switch.



    Similarly, if I have an Android phone on Verizon and I'm contemplating getting an iPad, I can't use the same applications for both devices. Any application (or type of application) I wanted to use on both devices I'd have to purchase twice. So it could even impact sales of iPads to non-ATT customers.



    The sooner Apple can establish an iPhone OS ecosystem on Verizon, it will be easier to nip Android in the bud before it gets too much traction.



    Have the analysts ever gotten anything right? Whatever they say tends to just become fodder to get everyone riled up again.



    I never thought about Apple going after Android on the Verizon network. I think that's an excellent point. Since there's really not a lot of love lost between Apple and Google these days, it would make sense for Apple to consider branching out to Verizon, or at least T-Mobile.



    We don't know anything about Apple's plans for iPhone in the U.S., whether they will expand carriers or not. The only thing we know for absolute certainty is that Apple is about profit, not market share. That explains why they're happy with a sliver of the computer pie. They might not sell the volume that Dell or some other manufacturers might, but they make so much money per unit that they don't have to worry about the small margins those other companies have to survive on.



    It can only be assumed that AT&T is giving Apple some really big bags of money to ensure exclusivity. If Apple can keep its profit margin on the iPhone big and healthy, there's really no compelling reason for it to go to another carrier.



    On AT&T's side, they have to see whether it's really worth it to have the iPhone exclusively. Do they really want to make the massive investments to bring their data network up to Verizon's level? There's no point for them to spend additional billions of dollars to upgrade the network since it devalues the worth of an iPhone customer who doesn't pay any more for data now.



    Personally, I hope that exclusivity ends this summer, but I'm not not so sure if it will come to pass in 2010 or even 2011.
  • Reply 12 of 52
    "We conclude there is only a 50% probability that it (exclusivity) ends in 2010," Chaplin wrote. "Next, we try to determine whether AT&T bids for another year of exclusivity if exclusivity does end in 2010. We conclude they would and they can afford to compensate Apple such that Apple would be economically indifferent.



    "Our approach yields a 25% probability for this outcome. Taken together, we see a 75% probability that AT&T keeps exclusivity for another year."




    So a 50% chance they keep exclusivity and 50% they don't. If you take the 50% that they don't and give a 25% chance they re-bid, then that is only a 12.5% chance of happening (50% of 25%) to make the total chance 62.5% (50% +12.5%) not 75%.



    Of course all these percentages are guesses anyway...
  • Reply 13 of 52
    Quote:
    Originally Posted by iGenius View Post


    I'm curious whether they are privy to the contract(s) between Apple and ATT.



    If not, I don't understand how there is any firm basis for any guesses. Anybody care to speculate as to the basis for the estimate? And could that basis be reliable absent a detailed knowlege of the contracts that the two operate under?



    If they had access to the contract there would be no need to produce a 60 page report trying to estimate the odds of when it expires. No need to speculate about the basis of their estimates, it's stated in the article. If you want more details you can get the 60 page report, I'm sure it's quite engaging material.
  • Reply 14 of 52
    dreyfus2dreyfus2 Posts: 1,072member
    No idea why they focus so much on the "exclusivity" buzzword. Apple does not need to put anything in writing here, even without extending the exclusivity, AT&T is still the only network that makes sense for the iPhone. How many people would buy the phone without subsidy (at $600-$700) and then use it at EDGE speeds on T-Mobile?



    AT&T, despite all the network complaints, still gains more subscribers than any other telco. If the upcoming 2010 iPhone update is really an "A+" update, this, the iPad and the international gains combined might be enough for Apple. It might well get them through the time before LTE becomes relevant. If they had any interest in Verizon, they would have announced a CDMA model of the iPad.
  • Reply 15 of 52
    Gotta wonder if there was a little, "Hey we would like this pricing on iPad 3G data and you would like to continue exclusivity."
  • Reply 16 of 52
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by dreyfus2 View Post


    How many people would buy the phone without subsidy (at $600-$700) and then use it at EDGE speeds on T-Mobile?



    if they add the 1700MHz radio T-Mobile is in without having to go outside GSM. However, I have to wonder even that will happen when the unlocked, contract free iPad doesn't even support T-Mobile's 3G network.
  • Reply 17 of 52
    Apple likes doing business with AT&T because they can push them around. Whatever Jobs wants, AT&T drops to their knees and gives it to him. Why? Because if he pulls and goes with other carriers, AT&T will loose millions. Apple made them and can break them anytime they want.



    I hope Steve Jobs dropped a dozen calls when he was in New York with his top hat the other day. If he could see what we go through in this area, he would know the iPhone could never be used in the Enterprise market here.
  • Reply 18 of 52
    I thought for sure it was more like 76% to 77%.
  • Reply 19 of 52
    igeniusigenius Posts: 1,240member
    Quote:
    Originally Posted by extremeskater View Post


    Over several decades Apple has never been powerful enough to put any major company out of business.



    What about in the early days of the PC? Do you discount Apple's role in the demise of the early competing systems like Commodore et. al?
  • Reply 20 of 52
    igeniusigenius Posts: 1,240member
    Quote:
    Originally Posted by ghostface147 View Post


    I'll move to Verizon when they get the ablility to use both data and voice at the same time



    Why would that make you move to Verizon?
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