Apple's AT&T Deal Is Costly

Includes: AAPL, BB, GOOG, S, T, VZ
by: Todd Sullivan

The latest estimates have "unlocked" iPhones costing Apple over $1 billion in lost revenue the next 3 years. Apple's (NASDAQ:AAPL) AT&T (NYSE:T) tie-up in the US is for another 4 years, meaning the company will continue to not realize monthly revenue, estimated at $120 annually per subscriber from phones "unlocked" for use on other carriers.

Aside from the lost revenue aspect, one can only guess at the numbers of phone that have not been sold to people not willing to switch cell phone carriers to AT&T. Apple has stood by its "10 million phones sold by the end of 2008" goal, but recent news that they have dramatically cut back on component orders can only mean sales growth has slowed.

I did a post in May of last year that said AT&T would be the big winner of the iPhone deal and to date they have been. What Apple did was delay sales of its product and allow other handset makers and carriers to come out with competing products. Now, Apple fans will say the offering from Verizon (NYSE:VZ) and sprint (NYSE:S) are nowhere near the quality of Apple's and that may be true.

What is true is that they have given their consumers an option to stem the urge to switch. When you also consider we have not seen what Research in Motion (RIMM), the Blackberry maker and clear "smart phone" leader has planned, Apple may face even more headwinds. When you can buy a Blackberry from every cell phone provider in existence, sales of the products ought to continue to outpace the iPhone.

None of this even takes into account the specter of Google's (NASDAQ:GOOG) gPhone expected later this year. Apple had a chance to "bum rush" the industry with its product and could have caught all the other handset makers and carriers by surprise. Whether it was greed, control issues or hubris, Jobs backhanded the industry instead, with his rhetoric and attitude towards it.

Instead of having a product that all carriers were glad to carry and sell, he created an atmosphere in which they embarked on a quest to compete directly with him and his product. The handset game is hard enough without intentionally making enemies of its participants, and Jobs has done this. I think Apple devotees may find themselves in the future wondering "what could have been" if only Jobs had not started out this process so adversarially.

Disclosure: Sold Apple July $280 calls when stock was at $165 in January.