Apple's AT&T deal breaks, Verizon may offer iPhone HD service

Has Verizon broken AT&T's five-year iPhone stranglehold?

A rumor this morning claims AT&T's widely-reported five-year exclusive agreement to offer the iPhone may be finished, with competing US network, Verizon, allegedly hiring ads firm, Landor & Associates, to build an advertising campaign for the next model iPhone.

The rumor, emanating from CrunchGear, cites no specific sources but seems to emerge from within the ads industry.  Landor Associates has been associated with Verizon since 2007, and is now "hard at work preparing for the iPhone HD launch," the report states.

This news seemingly suggests a Verizon launch of the iPhone at the end of the summer, but flies against another well-reported claim this morning, that Apple and AT&T originally held an exclusive arrangement that wasn't set to expire until 2012.

The five year deal?

Engadget told us that Apple and AT&T signed a five-year exclusivity deal when the iPhone was launched in 2007.

USA Today reported on the deal then, it seems, but no one noticed that report, the existence of which was only identified when looking at court papers relating to a class action against Apple and AT&T.

USA Today's original report explained, "AT&T has exclusive U.S. distribution rights for five years -- an eternity in the go-go cellphone world."

That last point is a big one.

Smartphone explosion

An NPD Group report this week claimed Apple's iPhone has been shunted into third place by smartphones running Google's Android OS.

BlackBerry has 36 percent of the market, with devices running the Android OS 28 percent and iPhone 21 percent, the NPD figures claimed. It seems Verizon has been pushing iPhone alternatives as it competes against AT&T, which offers the iPhone.

"As in the past, carrier distribution and promotion have played a crucial role in determining smartphone market share," Ross Rubin, executive director of industry analysis for NPD, said in a release noting the effect of Verizon's iPhone-less labors.

"In order to compete with the iPhone, Verizon Wireless has expanded its buy-one-get-one offer beyond RIM devices to now include all of their smartphones."

Internationally things seem different. Apple sold 8.75 million iPhones in the first quarter of 2010, up 131.6 percent, year-on-year, according to recent Worldwide Quarterly Mobile Phone Tracker data from IDC, released Friday.

"Apple more than doubled its shipments from a year ago, with more iPhones arriving outside its home territory of North America," IDC's report read.

Strategic shift

Should CrunchGear's new claims be true, then the deecision to migrate from an exclusive opertor strategy likely reflects two key strategic needs.

Apple's need to defend its iPhone marketshare may have provoked an early termination to the AT&T deal. iPhone sales spike each time the company has moved from an exclusive arrangement to a non-exclusive deal in a country.

"Over the past year we have moved a number of markets from exclusive to non-exclusive. In each case as we have done that we have seen our unit growth accelerate and our market share improve," said Apple chief operating officer, Tim Cook, during the company's last (Q2 2010) financial call.

UK mobile carrier Orange sold 30,000 iPhones on the first day that carrier put the device on sale, breaking O2's exclusive hold on the device. The US market is far larger - how many unit sales could Apple look forward to on adopting a wider to market strategy?

The trouble with network coverage

Coverage may also have been a problem. Apple and AT&T have in the past described themselves as working together to improve iPhone coverage. However, a Changewave survey recently revealed 4.5 percent of callers are still experiencing dropped calls on AT&T.

Could a move to diversify its carrier base also be a response to the steady erosion AT&T's poorly-received call and data call quality has been making on Apple's iPhone brand in the US.

All this is speculation for now. Apple won't respond to these claims. We'll likely learn much more on June 7, when Apple is expected to talk more about the iPhone at its already sold-out Worldwide Developers Conference in San Francisco.

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