Apple could boost sales of iPhones 100 percent by ending its exclusivity arrangement with AT&T and signing up Verizon Communications as an additional distributor. But Bernstein Research analysts Craig Moffett and Toni Sacconaghi think the move also would cut handset revenue between $100 and $200 on each unit sold.
The issue is hot now because AT&T's exclusivity deal is set to expire in 2010 and AT&T wants to extend the exclusive deal until 2011.
A non-exclusive deal would reduce the value of the phone to AT&T and likely result in a reduction in the subsidy per phone from an estimated $450 to around $250 to $350.
More than 10 percent of AT&T’s post-paid subs already are using an iPhone, and Verizon is the largest U.S. mobile provider. Verizon Wireless now 86.6 million customers, compared to AT&T's 78.2 million.
Though Apple ultimately will abandon the exclusive relationship with AT&T, in the near term it might do what it must to maximize revenue, and that means negotiating for the highest-possible per-unit payments from the carriers, possibly even at the expense of faster unit growth.
Could AT&T keep the exclusive and drive penetration further? Yes, Moffett and Sacconaghi say.
Apple could add a lower-end phone or provide healthier hardware discounts, reduce service plan prices or launch a new device such as a tablet-based unit.
But Apple might wait to see the market response to Sprint's introduction of the Pre, intended to mimic the iPhone's user experience. If it takes off, Verizon will offer the Pre as well, within six months of its Sprint introduction.
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