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Technology giant Apple (Nasdaq: AAPL ) and its exclusive wireless partner AT&T (NYSE: T ) are expected to part ways as early as 2011 and both the companies are gearing up for the inevitable -- a Verizon (NYSE: VZ ) iPhone.
According to TechCrunch reports, sources close to the development said that, "Apple has submitted orders for millions of units of Qualcomm (Nasdaq: QCOM ) CDMA chipsets for a Verizon iPhone run due in December." Verizon, the No.1 mobile operator in the U.S., is a CDMA-based wireless carrier.
The Verizon iPhone is expected to launch in January 2011 and could come with a "fixed internal insulator on the antenna." The external antenna of the current iPhone 4 suffers from a design flaw, resulting in weak reception and causing sudden, dropped calls.
The iPhone has been AT&T's goose-that-lays-golden-eggs, because despite having a formidable line-up of other smartphones, it's the iPhone that has helped bump up AT&T's subscriber base -- in Q2 2010, the iPhone alone generated 3.2 million activations, contributing significantly to AT&T's bottom line.
However, it appears that AT&T is bracing for the inevitable -- that the iPhone will no longer be sold exclusively by the company from 2011 when the exclusivity agreement with Apple runs out.
In fact, AT&T in a recent filing with the Securities and Exchange Commission, said clearly that though there are risks involved when the "exclusivity arrangements end," it sees no "material negative impact" from the loss of the iPhone.
"We do not expect any such terminations to have a material negative impact on our wireless segment income, consolidated operating margin or our cash from operations," the company said in Friday's filing.
The No.2 mobile operator in the U.S. said that it offers a large variety of other smartphones -- at least 18 of them -- to help it reduce dependency on any single handset. One such device is BlackBerry Torch 9800, which AT&T unveiled earlier this month. Torch 9800 is RIM's first BlackBerry to feature a slide-out Qwerty keyboard as well as a touchscreen. It is also the first BlackBerry to come with five-megapixel camera and the new BlackBerry 6 OS that has social networking features.
"Such (exclusivity) arrangements may not provide a competitive advantage over time, as the industry continues to introduce new devices and services," AT&T said.
The company also cited several reasons why it does not expect its subscribers to jump ship when the exclusivity arrangement ends. They are:
One: AT&T's post-paid subscribers are allowed to accumulate unused minutes ("rollover minutes"), a feature that is currently not offered by other major post-paid rivals. In other words, if subscribers switch carriers, they'll lose those minutes.
Two: AT&T iPhones are GSM-based and cannot be used on CDMA network. And, even if the subscribers switch to other GSM carriers, they would lose several key features that are available only on AT&T network.
Three: AT&T iPhone subscribers, who bought the device from June 2010 but want to jump ship within their two-year contract period, have to pay the huge early termination fee, which was doubled recently from $175 to $350.
Four: AT&T recently offered a tiered data plan, which other major carriers do not offer. The tiered data plan gives flexibility to subscribers and lowers their costs.
Five: AT&T is offering lucrative iPhone 4 upgrade offers to existing iPhone users. Those who switch carriers will have to pay more to get their hands on the device.
AT&T shares were up 0.26 percent at $26.61 during pre-market trade on Monday. Apple shares were up 0.31 percent at $260.90.