CEO Randall Stephenson admitted July 23 that AT&T's partnership with Apple as the exclusive provider of the iPhone will inevitably end and network quality will ultimately be the differentiator for wireless carriers. AT&T's deal with Apple—originally signed in 2007—is rumored to end next year.

AT&T added nearly 7 million subscribers in 2008, many of them seeking the sleek, touch-screen iPhone and poached from rival carriers Verizon, Sprint and T-Mobile. For the second quarter alone, AT&T added 1.2 million new subscribers. Approximately 1.2 million of the new users signed up for a subsidized iPhone and a two-year contract.

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"On balance, I think [the deal with Apple] works really, really well—maybe as well as any strategic partnership we have," Stephenson said at Fortune's Brainstorm: Tech conference in Pasadena, Calif.

To underscore the iPhone's importance to AT&T, Pali Research issued a June research report that concluded with a buy rating for Verizon and a sell advisement for AT&T. The Pali report was based on the theory that Verizon is ready to grab the iPhone.

"Our buy rating on Verizon is based on our view that its market share gains will lead to profit growth that tops other telecom companies and Wall Street consensus estimates," the report stated. "Our sell rating on AT&T is based primarily on our belief that its wireless business will enter a prolonged period of erosion after being propped up by the iPhone for the past two years."

With or without the iPhone, Stephenson told the conference that any carrier's future rests with the quality of the network. "It’s a big deal. All of us rely on these services for our day-to-day activity. You’re only going to win in this business if your network quality is the best."

That could spell trouble for AT&T. Recent studies by Wired and PC World claim AT&T's 3G network speeds are slower than competitors Verizon, T-Mobile and Sprint.

Stephenson admitted there are some issues with AT&T's 3G network but noted the carrier has a higher call volume than other carriers and most of the problems are centered where iPhone use is most concentrated.