AT&T's iPhone Dilemma

To some, AT&T's agreement to sell iPhones seemed ill-advised at first. Apple CEO Steve Jobs set some exacting demands in exchange for granting AT&T the sole U.S. rights to the iPhone. U.S. carriers had always maintained nearly complete control over the devices on their networks. But Jobs wouldn't even let Ma Bell affix its logo to the handset. He also insisted AT&T surrender a hefty chunk of the monthly service fees it would collect and only Apple could decide what software would be used on the device. In exchange, AT&T got a multiyear deal to be the exclusive network to carry the device. So far, that bet looks brilliant. But now AT&T is having to contemplate life without that iPhone exclusive—and it's bound to be a difficult adjustment. Should Apple widen the circle of iPhone carriers, those new partners will take a slice of iPhone customers, who are not only numerous but highly profitable; they pay an average of $85 in wireless charges per month, roughly double the average. Also, AT&T will no longer be able to lean on Apple's marketing muscle, and it will have to face the long-term impact of ceding so much authority—and brand equity—to Apple. With every iPhone it sells, AT&T becomes known that much more as Apple's partner.