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AT&T and Apple May Not Be Seeing Eye to Eye With Future Distribution

Apple and AT&T are reportedly butting heads when it comes to various aspects of future distribution of the iPhone. The recent addition of nearly 4,000 distribution centers through big box retailer Walmart has seemingly opened the floodgates internally.

stock1Sources at AT&T explain that the addition of Walmart was more of an AT&T initiative than that of Apple. Additionally, future iPhone rate plans will be tailored to Apple’s liking as the iPhone family grows in diversity.

“We want the iPhone sold everywhere. Every single time another retailer gets mentioned, it just adds fuel to the fire,” a source at AT&T explained. When asked directly about Costco, Sam’s Club, Sears, Radioshack and Target as future iPhone retailers, they answered “The only place that hasn’t been mentioned lately is Radio Shack. Aside from that, most retailers are seen as opportunities.” Does this mean that Costco Sam’s Club and Target will begin selling the iPhone soon? Not likely, but it does confirm that AT&T has most of them on its radar.

As soon as the iPhone was released back in 2007, many people anticipated that Radioshack would begin selling the device and that it could potentially save the company. However, nearly 18 months later Radioshack still isn’t carrying the iPhone even though AT&T is setup through a high number of Rasioshack’s physical outlets. Conflicting interests between carriers, retailers and actual geographic locations of storefronts play into AT&T’s decisions with the iPhone’s distribution. It just hasn’t yet worked out with Radioshack.

The addition of Walmart as a distribution point for Apple’s iPhone is seen as a great move by most analysts. Apple is gaining nearly 4,000 physical locations that will sell the iPhone, and AT&T of course benefits greatly from every iPhone sold. Piper Jaffray analyst Gene Munster estimates that Apple could sell nearly 4.5 million iPhones in 2009 only through Walmart.

As Apple expands its global position with the iPhone 3G, AT&T is not going to lie dormant. Because of subsidization and long-term revenue, AT&T of course wants the iPhone sold at as many possible places nationwide. Adding as many distribution centers as possible is a high priority for the cell carrier. Where it gets sticky is when AT&T and Apple’s intentions conflict.

The prepaid iPhone that AT&T promised consumers this past summer is a prime example of this. The cell carrier promised a $599 8GB iPhone, or a $699 16GB iPhone without the need for a long term contract. A few reasons as to why we haven’t seen this from AT&T make some sense, but some information is not being mentioned. Even though Apple does make money long-term based on every iPhone subscriber that joins AT&T’s network, they also make direct revenue based on actual hardware sales. It’s believed that Apple has been pushing for the prepaid contract-free iPhone, while AT&T has remained firm on delaying the release in order to force people into two year contracts. Expect this to change either early next year, or possibly with a late holiday blitz put on by AT&T in a brute attempt to sway potential customers into iPhone purchases.

The relationship between Apple and AT&T has evolved into much more of a communicative partnership than Apple is generally known for. The intense legal pressure that both companies have been put under since launching the iPhone 3G has made them work together and share more information. This does not mean that Apple informs AT&T of all of its future plans. But it does mean that any future plans that may affect AT&T’s network, such as distribution, AT&T is more than aware of. Most likely, at this point in the partnership they are involved in those final decisions.

Additionally, we expect AT&T to focus extensively on iPhone packages and data rates in the near future. As Apple expands and diversifies its iPhone line, AT&T will be on board to cater its network as Apple needs. Expect small price drops in monthly rate plans and more flexibility in terms of customers picking their needed usage amounts. AT&T’s exclusivity with the iPhone is expected to last into 2012, however we believe it could be quietly extended even longer than initially expected.

Comments [24]

24 Comments to “AT&T and Apple May Not Be Seeing Eye to Eye With Future Distribution”

UTTU @ December 14th, 2008 at 10:33 pm
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I really hope the part about Att dropping rates (if even for a little) happens soon. A $5 to $10 drop in any coverage plan could equal tons of happy customers.

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lucas @ December 20th, 2008 at 7:37 pm
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to me the smartest move they could pull is to do unlimited data and texting for $30 total.

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mikkaQ @ December 14th, 2008 at 10:38 pm
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cheaper iphones = cheaper plans ? makes sense… to a certain extent. don’t give AT&T too much credit here.

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jojo22 @ December 15th, 2008 at 7:26 am
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I don’t know. Sears is a HUGE stretch for me. I understand the entire reason for Apple selling the iPhone at as many places as possible, but they’d still want to be selective. Can’t just throw the device in every store around.

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Jay Revell @ December 15th, 2008 at 7:39 am
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The promise of cheaper or pre-paid plans is very interesting. I could easily afford any present AT&T plan, but I just can’t bring myself to spring for a minimum of $75-$80 dollars with taxes added in. A pre-paid option or some reduced minutes variation on the current cheapest plan with he monthly reduced from $69.99 to say $40-$50/monthly and I’d go for it in a heart beat.

AT&T, listen up-there are a LOT of people like me out there.

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LOUg @ December 15th, 2008 at 8:07 am
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@Jay: Absolutely. I’m another one of them. That “Small” price drop would be huge !

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Scott @ December 16th, 2008 at 8:59 am
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I absolutely agree. I have no problem buying an iPhone — it’s the service plan that’s the sticking point. I currently pay $59 for two phones on Sprint. I can’t justify paying $80+ for something I don’t need. Granted, I want one, but it’s hard to justify when I am in front of a Mac at home or work 75% of the time. In fact, I was more willing to “upgrade” prior to AT&T’s 3G increased pricing.

But, I’m the same way with any service contract. I have lifetime Sirius and Tivo subscriptions because I deplore being fleeced on monthly fees.

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kirasaw @ December 15th, 2008 at 7:42 am
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Wish I could buy an iPhone plan with limited data usage. There is no 3G where I live or any where close and I have no signal at all at home. My cell phone is basically a helper not a must have. But it would be nice to have my phone and iPod in one along with the ability to use the net via wi-fi or if I happen into an area that has good enough signal to use the web.

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Marcos @ December 15th, 2008 at 8:16 am
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2012? What is the basis for that? This goes back to the ridiculous “5 year” thing that was reported once, unsourced, in USA Today back when the iPhone came out. It’s based on, as near as I can tell, nothing. No way the exclusivity lasts that long. The latest “reporting” (again by USA today) and all anonymous since Apple and AT&T have never said anything publicly beyond “multi-year” was that with the 3G the exclusivity was extended a year, and that it now ends in 2010 – so that the initial period was just 2 years, and now it’s been extended to 3.

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Aviv @ December 15th, 2008 at 8:45 am
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Marcos, What makes you think it ends in 2010?

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oz @ December 15th, 2008 at 10:16 am
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It doesn’t end in 2010. Those are high hopes. Too optimistic for Apple to bail on AT&T.

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Rolls @ December 15th, 2008 at 8:19 am
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@Marcos: You sound like you’re saying this based on your personal preference. It makes sense to me that AT&T and Apple won’t touch their partnership (which is working great), or ruin AT&T’s carefully customized network (visual voicemail), just because they can. Don’t be surprised if the exclusivity goes much longer than we first thought.

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Jack-O-Lantern @ December 15th, 2008 at 8:27 am
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“Costco, Sam’s Club, Sears, Radioshack and Target” Honestly, if I were Steve Jobs, I’d have these things selling at every credible retailer in the nation. I wouldn’t give two shits about customer brand BS and I’d get these things moving. Costco, Sams Club, Sears, Target, Radioshack, Best Buy, Walmart, let them all have the iPhone.

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bradley @ December 15th, 2008 at 8:42 am
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the small price drop would be huge because it would end up in a lot of saved money, over a long period of time for most people. i think it would affect att the most (negatively, if at all), but it would be a small price to pay. it could be like a little stimulus package for their network and the subscribers on it.

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foffapple @ December 15th, 2008 at 10:34 am
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Why in god’s name is Radioshack not capable of carrying the iPhone? I work at a Radioshack and there isn’t any store that carries the iPhone within 30 miles of my store. Bogus.

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secretmrx @ December 16th, 2008 at 2:26 am
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Seriously, I could see this coming. Apple always like to do things on it’s own, which is why their stuff is generally the best. They make their own hardware for their own OS, for example, and look at how much better their computers are.

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Allen @ December 16th, 2008 at 4:26 am
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@ secretmrx:

I have no idea where you got this information, as it is incorrect. They use specific hardware for their computers, but it’s the exact same hardware you can find on a PC. An Intel Core2Duo processor is the same on a Mac as it is on a PC, just as is a 7200RPM HD. None of the parts in an Apple computer are made by Apple – they are bought OEM from other companies just like virtually every computer manufacturer does.

I’m guessing that you’re confusing that with the fact that OS X’s native driver support only extends to their own hardware. This is for good reason, since the only PCs they want running OS X are ones that are sold by Apple themselves. It would be a waste of their developers’ times to create drivers for hardware they don’t intend on ever being in a Mac in the first place. However, it’s fully possible to run OS X on a PC by adding custom-made drivers for your hardware, just like it’s fully possible to run XP/Vista on a Mac since it already has native driver support for all the components in it.

Macs do not have “better components”. In fact, various tests have shown that while Apple users typically report better customer support than the average PC user, the failure rate of Apple laptops is higher than the average one from a manufacturer.

Apple products being absolutely superior to PCs is simply a myth – if you like manufactured computers/laptops and prefer Apple products then by all means buy one, but many tests have shown they don’t have anything vastly superior. Personally, I recommend just building your own PC.

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Tech010101x @ December 16th, 2008 at 4:58 am
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secretmrx wrote, “Macs do not have “better components”.” That is not strictly true. Almost every manufacturer bins the output of their production – some parts are the highest grade and quality while others coming off the same line with the same model # are not as good. For example, the hard drives in Apple Drive Modules or Vtrak 750GB drive modules are guaranteed to have zero defects – unlike the drives sold at retail stores. Apple might not be very different from other Tier 1 vendors, but it would be a mistake to think that there is not a big difference between a Tier 1 vendor that strives for a good balance of cost and quality versus your local garage PC assembler.

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Joe Anonymous @ December 16th, 2008 at 6:07 am
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“They use specific hardware for their computers, but it’s the exact same hardware you can find on a PC. ”

This is, of course, incorrect. First, some items are unique to Apple – the case and motherboard, for example. You can’t buy another PC with Apple’s motherboard. This is one of the key components which affects reliability, so it’s important.

Second, even for ‘7200 rpm HD’, it’s silly to assume that all 7200 rpm hard drives are equal. There are different specs and different quality levels and Apple chooses a higher quality level than your bargain basement PC.

If Apple hardware is identical to PC hardware, how do you explain the fact that every single survey I’ve ever seen (including multiple surveys from PC Magazine, so you can’t argue bias) shows that Macs have significantly higher reliability than any other PC vendor?

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Laird Popkin @ December 16th, 2008 at 6:40 pm
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While it’s true that Apple uses many of the same components as in PC’s (RAM, hard drives, etc.), you get some other things wrong.

- Apple does make their own hardware and OS, allowing them to integrate them together to work smoothly. This is in contrast to the PC world where there is immense variation, which can be great, but which leads to unpredictable interactions that lead to lots of time spent debugging. So while it’s true that Apple doesn’t make their own components, they do make complete systems that work together well, and are well supported by the OS. Yes, you can build your own computer, and hack Mac OS X onto it, but that’s clearly not supported by Apple, so while it’s fun, it’s not a reasonable option for most users.

- Mac’s do have better components. Apple’s build quality is very high, and they use better quality components than the bargain PC brands. This is one of the reasons that Apple has an extremely good repair history. For example, see http://www.consumersearch.com/apple-laptops/macintosh-reliability: “According to the largest consumer surveys, Apple laptops are the most reliable and have the highest level of satisfaction. Results are similar for desktops in large surveys”. Sometimes it’s a matter of selecting higher grade components (e.g. RAM, power supplies), sometimes it’s a matter of custom hardware (e.g. the CPU in the MacBook Air), sometimes custom firmware, etc.

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JAMES wHITE @ December 16th, 2008 at 4:18 am
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All I know is IPhone rocks! wIOULD HAVE WENT ANYWHERE i HAD TO TO GET MY 3g.

http://www.privacy-center.be.tc

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Free Apple iPhone @ December 16th, 2008 at 8:58 pm
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Hmm that’s interesting. I wondering what will come of it.

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George Joseph @ February 4th, 2009 at 6:14 pm
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I hope they drop ATT… the connection to Apple has gone to their head. U-Verse is the biggest POS ever. Comcast is way better and has more content, faster speed and better quality HD.

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Joe Techstrom @ June 10th, 2009 at 1:09 pm
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I switched from Comcast to U-Verse about 3 months ago and could not be happier, Comcast was over-priced and does not have the features that U-Verse offers. So far U-Verse’s picture quality is second to none. As for the iPhone, AT&T will throw whatever it takes at Apple to keep the exclusive rights to the iPhone. I do have a few dropped calls on mine, but have many, and I mean MANY friends who constantly complain about their providers and some are coming over to AT&T due to the new iPhone and it’s features. The 3G network is expanding and I have even heard rumors of AT&T possibly upgrading the network in the future for even faster data stream. As for now, I continue to be a happy iPhone owner. Can’t wait to go out and get the new 3G S!!!

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