In a May 5 research note from Citigroup Global Markets, analysts stated that the likelihood of Apple creating an iPhone for Verizon Wireless ultimately comes down to economics.
"After considering a number of factors, we believe Apple could offer its iPhone platform on additional carriers by 2011 to sustain solid unit volumes in the U.S. market, and we believe Verizon is a leading contender to offer its first iPhone between late-2010 and 2011," the analysts wrote in their report.
eWEEK has assembled a list of the Top 10 reasons why Apple should bring its iPhone to Verizon’s network and why AT&T’s exclusive relationship with Apple could come to an end within the next two years.
"Apple will remain focused on full-featured devices with a uniform user experience," according to analysts. In looking for a new carrier partner, they suggest Apple is likely to stick to its key negotiating conditions, such as "no co-branded handsets; no custom start screen; no revenue share on content downloads; and all-you-can-eat data plans."
"U.S. postpaid industry growth is slowing dramatically," according to analysts. The analysts currently put this number at 1 to 3 percent. If Apple were to remain exclusive with AT&T, its growth opportunities would be limited to the AT&T base and replacement devices.
"A sales opportunity for the iPhone to new users is limited until after AT&T’s exclusivity expires." AT&T’s iPhone penetration is about 12 percent of its postpaid users and is likely to reach nearly 18 percent by 2010, write the Citi analysts. The ceiling for device penetration is approximately 20-25 percent.
4.iPhone Replacement Sales
"The U.S. postpaid market is too large to ignore." Selling the iPhone through other carriers could lead to an incremental growth of 30 million new users, with replacement sales over time, according to Citi analysts. While Apple would have to accept a lower subsidy from carriers, these would be "more than offset" by new opportunities for growth.
"Moving to a 4G wireless technology such as LTE is not a pre-requisite to seeing the iPhone on other carriers’ networks." Because LTE will initially be a data-only technology, the analysts write, Apple will have to address Verizon’s CDMA technology for voice. A new chip set from Qualcomm should also help Apple.
6. Cost Cutting
"AT&T’s interest in extending the exclusivity may be limited by the growing opportunity cost Apple would want to pass through to AT&T to ignore the larger postpaid marketplace." Even if Apple were to extend its exclusivity agreement with AT&T for the short term, the arrangement would mean increased costs to AT&T.
"Verizon alone can contribute an incremental 10-20 million units over five years to support a non-exclusive relationship." Based on AT&T’s success rates, the analysts expect Verizon to ring up 15 million users. Analysts also still see no reason why Verizon shouldn’t also entertain talks with Microsoft about a Windows Mobile device.
8. Apple App Store
"More users broaden the strength of the applications store." One more reason to bring the iPhone to more carriers: more users to download apps from the Apple App Store.
9.BlackBerry and Pre
"A CDMA iPhone may be defensive." Perhaps looking to avoid direct competition with the AT&T iPhone, the Palm Pre and RIM BlackBerry Storm smartly went the CDMA route. A CDMA iPhone, however, would significantly heighten the competition.
10.Good Business Sense
"Ultimately, non-exclusivity makes financial sense for Apple." The Citi analysts estimate that by expanding to the Verizon Wireless network, Apple could sell nearly twice the number of iPhones in the United States, which would add approximately 6 percent to its free cash flow for fiscal year 2011.