mocoNews - Extending AT&T's iPhone Exclusivity Is Bad For Consumers, Apple?And Maybe AT&T

Tricia Duryee
Wednesday, April 15, 2009; 5:00 PM

AT&T's CEO Randall Stephenson is in discussions with Apple (NSDQ: AAPL) to extend its hold on the iPhone until 2011, reports the WSJ, which quotes people familiar with the matter. Without an extension, AT&T's contract is reportedly set to expire next year.

If the extension is granted, AT&T's grip on the iPhone would span a total of four years?the equivalent of an eternity in the wireless world. At that duration, it is easy to argue that it's bad for the consumer, Apple, and maybe even AT&T. For consumers, it limits their choice of carriers. Already, people already go to great lengths to unlock the devices. For Apple, it could spell trouble because an easy way to sell more devices is by selling to consumers who are reluctant to switch to AT&T (NYSE: T).

But perhaps an even better question is: what more could AT&T offer Apple to fairly compensate it for that potential loss in revenues from other carriers? If you remember, the exclusivity was justified in the beginning because AT&T was taking a risk on Apple's first mobile phone (even though that seems hard to believe now). At the time, AT&T was rumored to have the exclusive for a jaw-dropping five years. But when the iPhone 3G launched, supposedly the term was shortened, and as part of it AT&T agreed to start subsidizing the iPhone in return being able to keep 100 percent of the data revenues. As the WSJ points out, this has cost AT&T dearly?or about $1.3 billion or more to discount the phone. How much more would it cost to sweeten the pot even more? Not to mention, what if AT&T puts forward the money and effort only to be disappointed? In a year from now, who knows what device will be the talk of the industry?

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