Interestinthings Law, Startups, Music; maybe in that order

Is Verizon the real reason I can haz iPhone 4?

I was one of the true believers who bought the original iPhone on launch day (in a mall in Danbury, IIRC), and so I was stuck only halfway through my two-year contract when the iPhone 3G came out, with no chance for upgrade pricing. That was the only way a law student like myself was going to think about getting one, so instead I soldiered on with EDGE data and faux GPS for another year. The hunger to escape those limitations grew daily; when the iPhone 3Gs was announced I was fully primed, and I pounced immediately. The important thing to note here is that AT&T got their two years out of me, and then got me signed up for another two.

It's now a year later, and I pounced again; I'll be on the SoHo Apple Store line bright and early tomorrow to pick up my pre-ordered iPhone 4. You may wonder how, since I'm in the same position now as I was with the 3G, but AT&T has magnanimously deigned to offer me the full upgrade discount (plus an upgrade fee of $18, but why quibble?). In his keynote, Jobs said customers can upgrade to iPhone 4 up to 6 months early, but many took that to mean that we Day 1 upgraders had to wait until around New Year's. Not so; AT&T clarified to Engadget that it was 6 months early from the upgrade date (a magic number they calculate internally), which means most of us early adopters are ready to go on Day 1 again. Now, I don't want to appear ungrateful, but I really have to wonder why. What did I do to deserve this beneficence?

I do have a theory: AT&T's iPhone exclusivity isn't going to last as long as we think. The word recently has been 2012, but I think AT&T is afraid of a 2011 Verizon iPhone, or even a holiday 2010 one. They would know what's possible under the terms of their agreement with Apple, and they certainly know that a huge number of iPhone users would rather be on Verizon. If they lock us up for another two years now, they're buying themselves much needed time to upgrade their network and rehab its image.

To be clear, I think it is definitely a move designed to keep iPhone customers for the long term, because the actual economics of the deal could be a little shaky. If they just let me ride out my 3Gs contract, they'd get 2 years out of me for the cost of 1 phone subsidy. Now, they're going to get 3 years for 2 phone subsidies. I don't know exactly how AT&T's margins work, but if there's any semblance of competition in the industry (I see you smirking; stop that), then my guess would be that the subsidy would need more than half of the revenues it produces to start generating profit, so adding a contract year by adding a subsidy wouldn't seem like a strong move. Put another way, if there isn't a viable competing iPhone on the way in the next six months or so, why not just get those six months from me, and then let me re-up for two more years?

There's also the HSPA+ rollout to think about, mentioned in this great GigaOm post. As some of you know, the 3Gs and the 4 have radios capable of 3G speeds that AT&T doesn't yet support in most markets, though they claim it's comin' real soon. If that's not going to roll out in a reliable way before a Verizon iPhone drops, which might even be their first LTE phone (though that's currently scheduled for mid-2011), then AT&T definitely has an incentive to lock us onto their soon-to-be inferior network long enough for them to get back to parity.

In sum, I'll be really surprised if AT&T's iPhone exclusivity lasts the full reported term. As a final, sort-of-unrelated note, with the proceeds from the sale of my used iPhone 3Gs on craigslist, I could buy a new iPhone 4 and a new nook. Carrier subsidies and locks make for zany aftermarkets.