Will an Apple five-year exclusive AT&T deal cripple the iPhone?

It appears that Apple may have signed a five-year exclusive deal with AT&T for carrying the iPhone. If that's true, then Android phones, which already have surpassed iPhones, could leave the iPhone in the dust.

Endgadget is reporting that Apple and AT&T signed a five-year exclusivity deal when the iPhone was launched back in 2007. The site claims that USA Today reported on such a deal back in 2007, but that no other media outlet has been able to confirm it.

Now Endgadget claims to have confirmed the deal, by looking through papers filed in a suit against Apple in 2007. The class-action lawsuit, Endgadget says:

claims that Apple and AT&T illegally exerted a monopoly over iPhone service by telling customers the iPhone's required service contract was two years long when the Apple / AT&T exclusivity deal was actually for five years -- thus requiring buyers to re-up with AT&T for three years (and not, say, T-Mobile) if they wanted to keep using the iPhone.

Endgadget went nosing around papers filed in the suit, and found evidence that the agreement was, in fact for five years. The site pulls out these quotes from Apple's lawyers in the case:

"The duration of the exclusive Apple-[AT&T] agreement was not 'secret' either. The [plaintiff] quotes a May 21, 2007 USA Today article -- published over a month before the iPhone's release -- stating, "AT&T has exclusive U.S. distribution rights for five years-an eternity in the go-go cellphone world."

 ...

 "[T]here was widespread disclosure of [AT&T's] five-year exclusivity and no suggestion by Apple or anyone else that iPhones would become unlocked after two years... Moreover, it is sheer speculation -- and illogical -- that failing to disclose the five-year exclusivity term would produce monopoly power..."

The site goes on to note, though, that it's possible the terms of the original agreement have been changed since 2007, particularly during negotations relating to the iPad and AT&T.

If those terms hold, though, the iPhone could continue to lose ground to Android-based phones. As I've written in my blog, Android-based phones raced ahead of iPhone during the first quarter of the year, with 28 percent of market share, to 21 percent for the iPhone.

If Apple can't get out of the AT&T contract, there's bigger trouble ahead. Analysts warn that the iPhone may be just about at the saturation point for AT&T users. In other words, anyone who uses AT&T who is interested in the iPhone may already have bought one, and so there's no larger market for the iPhone. Computerworld quotes Ezra Gottheil, an analyst with Technology Business Research, as saying:

"Of those in the U.S. who are interested in an iPhone and willing to put up with AT&T, pretty much all have already bought one."

Gottheil added that would mean that the iPhone would be relegated to the replacment market unless another carrier makes a deal to carry the iPhone. Here's what Computerworld notes in the article:

"When a different platform gains market share, that's the time when you want to look up and notice that you've reached the limits of your [exclusive] approach," said Gottheil. NPD's numbers [showing the Android has surpassed the iPhone] are a strong signal that Apple should expand its carrier partnerships to other U.S. providers, he added.

So if Apple is stuck with AT&T for several more years, that could spell trouble.

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