Apple’s 5 Year Lock-In with AT&T Is Actually Good News for Its Rivals

by James R. Stoup Jul 09, 2007

Five years is a long time to wait for a cell phone. My daughter is three and a half months old and by the time the iPhone is potentially available with Verizon she will be entering kindergarten. Not that I could actually use it with Verizon’s current service unless one assumes that they will switch networks from CDMA to GSM in the near future. And somehow I don’t really see that happening. Or, Apple could do them the favor of releasing two versions of their phone, the second of which would support CDMA. Wouldn’t that be just swell of them? Helping out Verizon like that?

Getting back on track though, I think this five year exclusive contract with AT&T is the one of the few bits of good news for Sony, Motorola, and the rest of the cell phone makers out there. Of course, when I say “good news” I mean that in a very relative sense. It’s the best of a heap of bad news. It’s that faint silver lining on the cloud that’s raining flood waters down upon your house. You have to be in the right frame of mind to see it, though. You have to be able to, on one hand, consider the fact that your house is being washed away, while on the other hand remember that at least you don’t have to water the rose bushes anytime soon. Like I said, it’s all relative.

This five year exclusive deal has two main upsides for Apple’s competitors. First, it limits the number of iPhones that will be sold. Regardless of how great it is, there will always be a large group of people who just won’t buy it. I imagine the biggest reasons will be price and availability of service, but in the end the reasons don’t matter, just the fact that they aren’t buying iPhones. Secondly, by limiting themselves to one carrier, customers of Verizon, Nextel/Sprint, and T-Mobile will have no choice but to buy from someone other than Apple.

Basically Nokia, Samsung, LG, Sony, Motorola, etc. have five years, at most, to come up with a killer phone before the full force of the iPhone is unleashed on them. Now, I am not so naive as to think that Apple and AT&T will just be standing still these next few years waiting for the competition to catch up. But I do think that when Apple finally has the option of selling their phones to any carrier who wants them, then they will become one of the bigger players in the cell phone market.

So, my advice to the cellphone makers of the world is this: don’t try and make another iPhone. Why? Because you can’t. And if you try, it will just look like a hideous knock-off of Apple’s amazing design. But if you really don’t believe me, take a look at the Zune to see how well piss-poor copies of Apple gadgets fare in today’s market. So, how then do you compete? Well, how about trying something different? Don’t do another generic candybar/clamshell phone. Why not take your best designers, put them in a room, and say, “come up with something different, the more unique the better” and see what they produce? Give them a challenge. Tell them the phone has to be no thicker than a CD case, can only have 3 buttons and must get 20 hours of battery life. Tell them you want a phone that folds together on 3 recessed hinges or tell them you want a phone that has no display other than a simple LED bar. Tell them to do something, anything, that will be different from the thousands of types of phones currently out there. Tell them all this, then leave them alone for a while and see what they come up with. Worst case scenario is they produce junk, at which point you could always go back to selling the same old crap you’ve been peddling for years now. What have you got to lose?

However, for the immediate future I expect Apple’s rivals to cut their prices (to further highlight the expense of the iPhone) and to pack as many features as they can into this next crop of phones. I don’t expect these features will be very well integrated, but that really won’t matter I suspect.

In a few years’ time I think Apple will have a firm lock on the upper end of the cellphone market. And if that wasn’t bad enough for Motorola et al, what should really worry them is this: what is the cellphone equivalent of the iPod Shuffle? In other words, if Apple decides to enter the lower end of the market, what will their phone look like? And how well will it do? I realize the Shuffle isn’t the most popular MP3 player in its class, but it sure does well considering no one really thought Apple could make a player for that segment of the market. Can you imagine if they decide to make an iPhone Mini? If they do I think at least one of the current cell phone makers won’t be able to ride out that storm. Maybe they will just go out of business or maybe we will see some mergers happening in the next few years; either way we as consumers will reap the benefits. After all, the cell phone industry has been long overdue for a shakeup. I can’t wait to see how it all settles out.


  • I agree, no matter how hard they try, Nokia, Moto, et al will never be able to make another iPhone.  Why?  No iTunes, no iPhone knockoff.

    I wonder though if Apple’s exclusivity deal with AT&T covers all mobiles that Apple designs or just smart phones.

    tundraboy had this to say on Jul 09, 2007 Posts: 132
  • Very well-inspired article James and congrats! to your little critter. How’s that for inspiration in the wee hours of the morning? Hmmm?

    As for leave them alone for a while and see what they come up with, that tactic has already been tried and the result is: the beautiful iPhone.

    Yes, there are zillions of opinions zipping through the blogosphere at this point a week after we saw the 2nd Coming! Yes, now we know IT was that BIG! Bigger than anything any of us have witnessed in the tech world, really! If you disagree, just roam around and find out for yourselves. Just google “iPhone” or “iDay” or “iHype” and come up with more than you can read in a week! Enjoy.

    Back to Mr. Stoup’s excellent piece. No, only Apple can design and produce a superbly engineered mobile. Not Moto, Nokia, Sony-Ericsson, LG, nor Samsung. Those guys can blatantly imitate the iPhone’s form in a day but never can duplicate its function. That is Apple’s creme-de-la-creme that we all know. Apple knows how to deliver with what matters the most in a device - its user interaction. It is amazing!

    No, I still don’t have an iPhone but went to an upscale Apple Store near and played with the demos for a while. It is even better than the demos I’ve seen. The slick interface is so responsive and the algorithms of the multitouch is unbelievable. It is the equivalent of the first iPod touchwheel to the power of 100 (the factor of 10^100 or Googolplex wink .

    As to the 5-year exclusive deal being a God-send to those handset oligopolies, maybe so. Those handset makers will be hard-pressed to come up with something close to the iPhone by the other wireless provider oligopolies - namely Verizon, Sprint, and T-Mobile. Whether, they can make one or not is not the point - they won’t.

    The 5-year exclusive is actually best fitted for Apple as they can focus on engineering ONE platform for only ONE network architecture - GSM/EDGE -> UMTS/HSDPA. I doubt Apple will care about Verizon or Sprint with their CDMA architecture since The Steve will not forget. Remember how he swore to that Michael Dell guy? He is sticking it in manly now isn’t he? How about a 10:1 stock valuation ratio. Michael Dell’s best effort of late is Ubuntu on your lap - great!

    So, perhaps Steve will forget and give those CDMA guys a break after 5 years. So what! By then UMTS/HSDPA should be the norm worldwide and let’s not forget - faster editions are being tested in the labs as we speak. Technology just keep evolving and same with the iPhone.

    Can’t wait for the HD-based iPhone by Christmas or next summer.

    Robomac had this to say on Jul 09, 2007 Posts: 846
  • Just to clarify what I meant by ...since The Steve will not forget, we have read from the WSJ’s Mossberg, NYT’s David Pogue, and even <gasp!> John C. Dvorak of TWiT.TV that Verizon “dumped!” Apple’s courting and heated demands prior to then Cingular’s (now AT&T Mobility) acceptance for a lasting 5-year exclusive relationship.

    This “dumping” has to be on The Steve’s permanent memory and will not vanish without big compensations later from the big V.

    In 5-year time, as can be observed, the iPhone will be so huge and will cover not just the high end of the mobile market but it will do, like the iPod, just about all the market segments from low-end no-frills editions, to not-too-shabby mid-range, and the coolest-of-them-all the current edition.

    Mobile industry, wake up and smell the iPhone!

    Robomac had this to say on Jul 09, 2007 Posts: 846
  • Nokia has already seen the light. They have started their own software devision. Don’t count out those canny Fin’s yet.

    Charel had this to say on Jul 10, 2007 Posts: 6
  • One word:  SOFTWARE

    Mobile phone user interfaces SUCK. There are too many menus; it’s hard to find what you want, and it takes too many clicks to get to the options most used. It’s all bad.

    To compete with the iPhone, how about making existing phones easier to use?  There’s no need to make a whole new design or copy the iPhone form factor… Just make better phone software.

    Heck, the Motorola Razr and Slivr (or whatever they’re called) are still pretty sexy phones.  Make the user interface easier to use, make the address book easy to sync with a PC/Mac, put the best apps “near the top” and just polish up the usability and you’re halfway there.

    It’s not all about adding new features… It’s making existing features easy to use. That’s the one thing Apple gets that the competition (thus far) doesn’t.

    vb_baysider had this to say on Jul 10, 2007 Posts: 243
  • Charel,
    Hopefully the can come up with something better than the Ngage.  wink

    vb_baysider had this to say on Jul 10, 2007 Posts: 243
  • Only advantage I see the other phones having is the replaceable battery.  That $85 seems like a lot for a new battery considering how soon it looks like it will be needed.  I did some looking around and found that is already offering an iPhone battery replacement service that is less expensive than apple’s.  Nice to know there will be options.

    laura123 had this to say on Jul 26, 2007 Posts: 1
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