“Apple will remain focused on full-featured devices with a uniform user experience,” according to analysts. In looking for a new carrier partner, they suggest Apple is likely to stick to its key negotiating conditions, such as “no co-branded handsets; no custom start screen; no revenue share on content downloads; and all-you-can-eat data plans.”
“A sales opportunity for the iPhone to new users is limited until after AT&Ts exclusivity expires.” AT&Ts iPhone penetration is about 12 percent of its postpaid users and is likely to reach nearly 18 percent by 2010, write the Citi analysts. The ceiling for device penetration is approximately 20-25 percent.
5iPhone Replacement Sales
“The U.S. postpaid market is too large to ignore.” Selling the iPhone through other carriers could lead to an incremental growth of 30 million new users, with replacement sales over time, according to Citi analysts. While Apple would have to accept a lower subsidy from carriers, these would be “more than offset” by new opportunities for growth.
“Moving to a 4G wireless technology such as LTE is not a pre-requisite to seeing the iPhone on other carriers networks.” Because LTE will initially be a data-only technology, the analysts write, Apple will have to address Verizons CDMA technology for voice. A new chip set from Qualcomm should also help Apple.
“AT&Ts interest in extending the exclusivity may be limited by the growing opportunity cost Apple would want to pass through to AT&T to ignore the larger postpaid marketplace.” Even if Apple were to extend its exclusivity agreement with AT&T for the short term, the arrangement would mean increased costs to AT&T.
“Verizon alone can contribute an incremental 10-20 million units over five years to support a non-exclusive relationship.” Based on AT&Ts success rates, the analysts expect Verizon to ring up 15 million users. Analysts also still see no reason why Verizon shouldnt also entertain talks with Microsoft about a Windows Mobile device.
9Apple App Store
10BlackBerry and Pre
11Good Business Sense
“Ultimately, non-exclusivity makes financial sense for Apple.” The Citi analysts estimate that by expanding to the Verizon Wireless network, Apple could sell nearly twice the number of iPhones in the United States, which would add approximately 6 percent to its free cash flow for fiscal year 2011.