Analyst Shaw Wu of Kaufman Brothers recently issued a not to investors outlining why the iPhone hitting Verizon’s network in 2010 is not likely to happen. In short, Wu correctly points out that both Apple and Verizon demand an exorbitant amount of “customer control” and that neither of them are likely to budge during negotiations. Remember that Apple initially approached Verizon about selling the iPhone in 2007 only to be turned down for presenting terms Verizon was unwilling to agree to.
Also, keep in mind that Verizon is also keen on making some money from its own app store, something which obviously doesn’t jive with the iTunes App Store business model Apple currently employs.
“Apple runs its own App Store and VZ has aspirations to do so,” Wu stated. “Apple controls the media experience with iTunes and VZ with its V CAST service. Moreover, Apple gets very favorable economics with an overall iPhone (average selling price) of $611 and at AT&T, we estimate it is higher at roughly $700. RIM, who is by far VZ’s largest smart phone supplier, only has an ASP of $340. Palm’s ASP is $436 and we estimate Motorola’s Droid ASP is roughly $450.”
Hmm, the $700 ASP for the iPhone at AT&T seems exorbitantly high, and we’re not quite sure how much weight to put behind Wu’s assertion here. Remember that Wu’s track record regarding Appld fundamentals isn’t always spot-on, but still, his underlying point regarding Apple and Verizon clashing heads rings true.
The iPhone hitting Verizon seems inevitable, with the only question being how much time will pass before one company realizes that it needs to cede some control over the final product. Given Apple’s track record, our money is on Verizon.
Lastly, Wu notes that Apple may very well extend its exclusivity deal with AT&T until 2011. The current deal is rumored to end sometime in 2010.