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AT&T Has Five-Year iPhone Monopoly

AT&T Has Five-Year iPhone Monopoly
May 23, 2007 10:08AM

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AT&T's exclusivity arrangement with Apple and the iPhone is an indication that AT&T believes the iPhone is sufficiently compelling technology to motivate people to change carriers, particularly as the cellular market approaches saturation, forcing cellular companies to focus efforts on pirating customers from their competitors.

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Everyone who's still using the cell phone they bought five years ago, please raise your hand. Any takers? The odds are good that not many hands are in the air right now. According to a recent J.D. Power and Associates report, the average replacement cycle for a mobile phone is just under 18 months.

The terms of AT&T's corporate relationship with iPhone manufacturer Apple are slowly emerging, and fickle consumers notwithstanding, AT&T has reportedly inked a deal with Apple that gives the company the exclusive distribution rights to the red-hot handset for the next five years.

The distribution details were revealed in a USA Today article on Monday by Leslie Cauley, who also said that under the agreement, Apple is prohibited from developing a version of the iPhone that can work on CDMA wireless networks. Unlike Verizon and Sprint, which use CDMA networks, AT&T uses GSM wireless technology, which is incompatible with CDMA. In short, no GSM, no iPhone for at least five years.

AT&T Now Rebranding

On Monday, AT&T began a rapid rebranding campaign aimed at replacing the Cingular brand with AT&T (the two companies merged on December 29, 2006). In a press release, AT&T said that the company's brand recognition as a wireless carrier now matches that of Cingular when the two companies came together.

Randall Stephenson, AT&T's Chief Operating Officer, said that the transition was going well. "Our branding campaign is performing at and above projected levels and customer response has been very positive," he said. "We are excited to move into the next phase of transforming AT&T into the only communications provider our customers will ever want."

The transition of brand identity from Cingular to AT&T is a complicated process, one that covers everything from the logos found on billing statements to sponsorship deals with NASCAR and American Idol. The company described its retail store makeovers as "critical to prepare for the late-June launch of the Apple iPhone."

Fiercely Competitive Market

With the U.S. cellular market approaching saturation in terms of the number of customers, cellular companies are now focusing their efforts on pirating customers from their competitors. AT&T's multiyear exclusivity arrangement with Apple is an indication that AT&T believes the iPhone is sufficiently compelling technology to motivate people to change carriers.

As Wired blogger Peter Mortensen pointed out, the lengthy exclusivity deal also might help the Apple iPhone avoid the fate of the Motorola Razr, which debuted to tremendous fanfare a few years ago, but has become so devalued through wireless carrier price cutting that Motorola's revenues have been affected.

"[B]y really committing to one carrier, Apple creates tremendous value for AT&T by giving them an unbelievably premium offering that only they may carry," Mortensen said, "and they also preserve value for Apple by ensuring that the iPhone never becomes a $29 device with a commitment to a two-year plan."

It's actually worse than that for the Razr: Stop by the Web site AllAmericanBling.com, where you can pick up a Razr for just one penny. "Razr Phone Bling is a mainstay of our site," said site spokesperson Jeff Young. "We sell tons of Razr Phone faceplate covers, Bluetooth headsets, and other accessories. We know the blingheads who enjoy our site will be excited about being able to purchase a Razr Phone for one penny."

If there's one thing that Steve Jobs and the other design gurus at One Infinite Loop surely want to avoid, it's the sight of an iPhone on AllAmericanBling.com.

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