The Long, Complicated Tale Of AT&T's Exclusive (And Elusive) iPhone Agreement

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The details of Apple and AT&T’s agreement in the U.S. for exclusive iPhone rights is a bit like a mythical beast. Every so often, someone comes along and says they’ve seen it. But when someone else starts to look, it vanishes again. Today, we have the latest sighting compliments of Engadget. But it appears that it may be a sighting of an old picture, rather than the actual live beast.

The gadget blog uncovered court documents from 2008 in which Apple confirms a 5-year exclusivity agreement with AT&T signed in 2007. Apple even cites this USA Today article which reported the news initially. The problem is that the case is still ongoing, and everything has been sealed since 2009. And there have been conflicting reports since then.

For example, in July of 2008 we had the very same USA Today reporting that, “Under the original iPhone contract, Apple had the right to offer the device to other carriers beginning in 2009.”

But instead, in 2008 Apple and AT&T apparently agreed to an extension — into 2010, USA Today reported citing “people familiar with the matter” who asked “to not be named because the terms are confidential.” The reason for the extension? The huge payout AT&T was giving Apple for each iPhone sold, apparently.

And then, in April 2009, The Wall Street Journal reported that AT&T’s exclusive agreement “expires next year,” citing sources familiar with the matter (that’s inline with the latter USA Today report). They go on to note that, “Mr. Stephenson is now in discussions with Apple Inc. to get an extension until 2011.”

So if the initial contract had AT&T getting the iPhone exclusively through 2012, why would WSJ and USA Today report that it expired first in 2009, then in 2010? Well, either their sources were flat-out wrong, or (and I think more likely), the contract has changed over time.

While it seems that no one outside of Apple or AT&T has actually seen the contract, it doesn’t seem a stretch to believe that it’s loaded with clauses to change the terms based on things such as performance and sales. Maybe Apple built in provisions that if they hit a certain number of iPhone units sold or new contracts for AT&T, they could opt-out.

Remember, when the iPhone initially launched in 2007, it wasn’t a certainty that it would be a hit (just ask Steve Ballmer). And in some ways, AT&T was taking a risk by giving into Apple’s demands to have full control over the software on the phone — something which the carriers previously weren’t fond of (just ask Verizon).

Obviously, there are dozens of other clauses that could have been in the contract as well. For example, what if Apple built-in one to assure a certain network quality, that AT&T failed to meet? Or that they’d scale the network for a timely launch of new features (*cough* MMS, tethering *cough*).

And in fact, the second USA Today article has wording that suggests the first contract may have expired in 2009 because of an opt-out clause in the contract.

So where does that leave us?

Well, it would seem that Apple and AT&T had the contract at least into 2010. That seems obvious given that it’s 2010, and the exclusive agreement is intact. It’s not clear if Stephenson got his 2011 extension, but it’s possible that he did.

Remember that Apple clearly had to negotiate with AT&T for its iPad 3G wireless deal. The deal is so good ($30 a month for unlimited data — about half what it costs for a dongle with such access) that it doesn’t seem crazy to think that AT&T agreed to it to make sure they got something else back on the iPhone end of things.

That said, it could just be early access to the new iPhone HD (or whatever it will be called). Reports in the past few months have hinted that an iPhone for Verizon’s CDMA network could be in the works — but that it may not happen until the end of this year. That’s by no means confirmed information, but if true, it likely means that AT&T would still have the rights to see this new iPhone first for a few months. As I wrote in March, might this, and the iPad 3G be the parting gifts from Apple to AT&T?

When reached for comment about the 2012 report today, all AT&T would say was, “We have a great relationship with Apple. We don’t comment on the specifics of our relationship.

Given the numbers coming in that Google’s Android phones may be outselling iPhones, you can be sure that Apple is looking long and hard at the other carriers. At the end of the day, no matter what kind of crazy deals they get from AT&T, that’s the only way to realistically continue growing their market share against their heated rival.

Another contract extension with AT&T may boil down to a fundamental question: does Apple care more about market share or profits? It’s clear where they stand with computers. They made that decision long ago and stuck to it (despite a slip-up in the 1990s when Steve Jobs was in exile). Now it’s time to decide if they’re going to make the same call with mobile devices. The stakes couldn’t be higher: this is about the future of computing.

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