Few disagree that AT&T’s exclusive deal to sell Apple’s iPhone has paid huge dividends for the cable competitor in the wireless space. After all, Verizon Wireless—with its vastly superior network—had been eating AT&T’s lunch until Ma Bell sucked it up and agreed to massively subsidize the true cost of the iPhone in order to gain millions of new customers. Many of those customers defected from Verizon, perfectly willing to part with a better network in order to possess the hottest tech gadget of the last decade: The precious iPhone.
But as AT&T rides this wave of short-term success in the wireless market, a few holes are starting to form in an otherwise air-tight strategy. Basically, Apple isn’t happy with AT&T’s wireless network performance, including shortcomings such as a lack of multimedia messaging or a computer tethering option (allowing an iPhone to be used as a wireless modem). AT&T’s earlier promises to upgrade its 3G network as necessary to handle new iPhone users and demand for bandwidth-intensive services have gone largely unfulfilled, mainly because the company has been more interested in cutting costs amid a recession to please Wall Street (again, the short-term thing) rather than cement its relationship with Apple and solidify its potential long-term wireless future. Piper Jaffray analyst Gene Munster has predicted Apple will dump AT&T as soon as 2010, which would be a crushing blow to Ma Bell and a huge boon to competitors like Verizon Wireless as many of its old customers come back home.
Cable should be watching all of this very closely—and not just because the industry has set its sights on the wireless quad-play. In fact, AT&T’s desperate attempts to keep Apple from bolting may create an interesting competitive advantage for cable in the triple play market where U-Verse has been making inroads lately. The truth is that even a behemoth like AT&T has limited resources and must allocate money to the most pressing need. At the end of the day, preserving its high-margin and relatively low-cost growth on the wireless side may trump its desire to steal cable subscribers while spending billions to slowly build out expensive wireline cable systems neighborhood by neighborhood across its territory. After all, Apple’s threats to start selling the iPhone through other carriers could, in fact, be yet another bargaining chip to get even better subsidies from AT&T—as well as a legally binding contract obligating the carrier to spend a certain amount of money upgrading its cell towers and accelerating its migration to faster LTE technology. Any such deal would likely draw money away from AT&T’s U-Verse efforts. And even if AT&T was able to find the money elsewhere and continue its U-Verse push, the resulting drain on corporate people resources and the attention of top execs charged with overall strategy would likely detract at least somewhat from U-Verse efforts.
AT&T’s trouble with Apple and desire to hold on to those profitable iPhone customers could be a nice opportunity for cable operators that compete (or will soon compete) with U-Verse in various markets. Of course, AT&T is still bleeding landline subs—so it must continue to build out U-Verse as a matter of necessity. But with corporate attention fixed on wireless and its iPhone gold mine, AT&T might slow its U-Verse march just enough to give cable operators a bit of an advantage. At least for now. The flipside, of course, is that loss of exclusivity over the iPhone could refocus the company’s U-Verse efforts. So the next time AT&T execs meet with Apple’s brass to discuss the iPhone, cable might want to root for another exclusive deal. It’s one of those rare cases in which what’s good for AT&T may also be good for cable.
(Michael Grebb is executive editor of CableFAX Daily).