The Victorious Opposition

I haven’t been intimately involved in these types of contracts myself; for the 4G wireless broadband network initiative I was involved in, we were trying to do things radically differently from “traditional” telecomm. I can make some generalizations about what goes on, but what, if any, of these are actually in play with the Apple/AT&T deal, I cannot say.

The biggest thing that comes into the device game is the subsidy issue. The devices themselves are expensive (relatively). The price you pay for a device, from a carrier, is subsidized by the carrier, with the intent to make up the difference in the revenue generated from the service contract. This is why you see different prices on phones from carriers based on the length of the contract you sign.

As an example, see Nokia’s brand-new N97 smartphone, which is being sold directly, not through a carrier. $700. Seriously.

Or, take a look at this unlocked Blackberry 8900, for $460. Compared to the AT&T version - $150 after rebate with a 2-year commitment (and note the extra $150 for the “no commitment” price on that page). Or the same device at T-Mobile - $150 after rebate, with a 2-year commitment.

The carriers also work on an inventory-based supply-chain model, in which they agree to take a massive quantity of devices off the hands of the manufacturer and warehouse them, at a fixed price. This is very old-school, but it is still the way telecomm works (and was one of the models we were trying to break with our 4G launch).

Now, look back to when the iPhone launched. The iPhone was revolutionary. Smartphones had never been a big hit in the consumer segment, and the iPhone was lacking (and still lacks) features that are core to enterprise smartphones (e.g. iPhone didn’t have push mail initially - kind of the core of the Blackberry phenomenon). Apple had zero track record as a phone manufacturer, and the initial iPhone design was remarkably fragile compared to “traditional” phone design (particularly the touch screen). That implied the potential for a massive support headache (warranty work, etc). And the devices were prohibitively expensive, again because of the touch screen.

Remember I’m talking about when the iPhone was brand new, just a couple of years ago.

Imagine you’re the CEO of a major wireless carrier, knowing that you’re being asked to sell a novel device, that’s hellishly expensive compared to the rest of your inventory, from an unproven manufacturer, to an audience segment with no demonstrated affinity for the class of device (even if the manufacture has a strong brand). You know that you’re going to have to agree to buy a massive number of these and manage them in inventory, and subsidize the devices to your customer. You know that you might be taking on a massive support problem (warranty work, user training). You know that, if successful, the device is going to stress your network significantly, requiring you to upgrade a lot of network infrastructure.

You’re going to ask for a significant exclusivity to take that flyer, now aren’t you? You sure don’t want your customers to waltz off to another network, taking the subsidized device with them. Or even allow a locked device to be sold by a competitor. These things are standard in the industry, although the exclusivities tend to be shorter (6 months or less) for more standard devices.

As I understand the folklore, both Verizon and Sprint said “no” to Apple - they weren’t willing to take the flyer on this unproven, expensive, network-loading device. I don’t know if that’s true. AT&T extracted at least a 2-year exclusivity from Apple. I’m surprised it’s longer than 2 years, but not horribly.

With the benefit of hindsight, AT&T made out well in this deal, and Apple has done fine even with the exclusivity. None of these fears came true. But think back to when this thing really was brand new, and all the risks that AT&T was taking on. It doesn’t seem so unreasonable to go for a massive lockin. And if Verizon and Sprint had already turned down AT&T, you can understand why Apple agreed. Given that both Sprint and Verizon’s data networks were way, way better than AT&T’s at the time, and still are, I tend to believe that Apple did get turned down - they couldn’t possibly have had AT&T as their first choice for such a data-intensive device.

Again, this is mostly speculation, given a basic understanding of how the industry works. The key piece is to look at then, and not now, and understand the risks involved in an unsuccessful iPhone launch. Don’t just look at the success it has been.

it’s supported abroad (checked to see that before I leave for Europe)

Umm, where are you going? And what device are you taking? CDMA support in Europe is basically nonexistant (click the Europe - Russia link for the detailed drilldown). If you’re going anywhere in Western Europe other than Ireland or Portugal, there is no CDMA.

Can someone answer this for me?

Yeah, get a BlackBerry.

Blackberry sucks.

Well, enjoy your iPhone.  Oh wait…