Don't Count on a Verizon IPhone in 2009

You don't need to be a diehard Apple fan to know that the iPhone is hot. Almost any tidbit of news relating to the phone has immediate and widespread distribution, and rumors are constantly being debated on Apple forums and blogs.

Rumors about the iPhone no longer requiring an AT&T contract for operation have been a staple of discussion almost since the device launched in 2007. They appeal to people who either are unhappy with AT&T's services, think the AT&T/Apple deal is anti-competitive or are locked into a long-term contract with another carrier. Tales of a Verizon iPhone coming in 2009 have been among the quickest to spread. Even old rumors that somehow cycle back into current RSS feeds spark another round of reporting, rumors and hoopla.

But the Verizon iPhone speculation is unlikely to come true in the short term. There's a very good reason for this -- the Apple/AT&T exclusivity deal. While the terms of the deal have not been disclosed, the most reliable reports give 2010 as the earliest possible date for the deal's expiration.

Both AT&T and Apple have a lot to gain from their exclusive arrangement. The benefits to AT&T seem the most obvious -- the iPhone is the No. 1 seller at AT&T, and about 40% of its 4.3 million customers who activated an iPhone in the second half of 2008 were new to AT&T, according to a quarterly filing by the company. Moreover, the churn rate among iPhone owners is low and the revenue per customer is relatively high.

While it may seem less obvious why Apple would lock itself into selling phones exclusively through AT&T, there are good reasons for doing so. Namely, subsidies. AT&T is selling the iPhone for US$199 with a 2-year contract, but to do so, it is paying hundreds of dollars in subsidies. Reports say that up to $425 per iPhone is going back to Apple from AT&T. Add on top of the subsidies the concessions Apple got from AT&T that allow it to sell applications and music with no revenue share, and the exclusive arrangement is a pretty sweet deal for Apple, too.

The Industry Standard prediction market agrees that a Verizon iPhone is looking extremely unlikely before summer, with community consensus under 30%. Unless the efforts by consumer organizations and rivals to outlaw exclusive mobile phone partnerships are successful, it doesn't look like the Apple/AT&T agreement will be ending any time soon.

Melissa Chang (@mchang16) is the president of Pure Incubation, and her blog can be found at www.16thletter.com. Chang writes about The Industry Standard Prediction Market as part of an ongoing series. She's betting that she won't be able to use an iPhone on Verizon until at least 2010.