Apple’s iPhone Coming to Verizon Wireless

Shares in Apple Inc. (AAPL) hit a new 52-week high this morning on a report from the Wall Street Journal that the company will introduce a CDMA-compatible version of the iPhone in late summer 2010. If the report pans out, the big winner will be Verizon Wireless, a joint venture between Verizon Communications (VZ) and Vodafone. The big loser will be AT&T (T).

Since the iPhone was introduced in 2007, AT&T has been the exclusive carrier for the 3G-compatible smartphone. The length of the contract has never been made public, but nearly everyone believes it ends sometime late this year. Apple negotiators almost certainly want to do no worse than maintain the current high margin on sales to AT&T, while the phone company wants to get a break on pricing.

Of course AT&T could negotiate an extended exclusive deal with Apple, but that deal seems unlikely. AT&T has come under fire from iPhone users for lousy service and it would benefit the company, and Apple, if iPhone users could go clog up someone else’s network.

That’s only slightly facetious. Smartphones use up a lot of network bandwidth, and AT&T has simply not been able to build out capacity fast enough. That has to irritate Steve Jobs who probably can’t stand to see second-rate execution on delivering broadband service. And if Apple really does introduce a CDMA-compatible phone, the first users to leave AT&T will be the loudest complainers. To whom the phone company is likely to say, “Good riddance!”

Verizon’s CDMA network is the largest in the US though it hasn’t been tested with the enormous demand for data that iPhone users will surely want delivered. It’s not just a matter of how big the pipes are, but how well the switches and routers will be able to handle the increased traffic. If Verizon runs into the same problems that AT&T had, it will only result in a public relations win for AT&T.

Even if Apple does release a CDMA version of the iPhone, the 3G version retains its advantage for international sales. Most of the rest of the world’s cell transmissions take place over 3G networks.

Overall, though, a CDMA version of the iPhone deals a nasty blow to AT&T. Apple gains at least one more partner and potentially more. AT&T’s only hope of maintaining exclusivity is to pay Apple even more than it is now paying for iPhones. The phone company can’t afford it, and it would not be a good deal for AT&T anyway.

Without exclusivity, AT&T will lose subscribers but get back the premium it is now paying Apple for iPhones. The money can be used to pay bonuses to the executives who made the deal in the first place.

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