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iPhone and the Future of AT&T

Posted on Wednesday, May 23rd 2007

In my recent iPhone series, I touched a lot of nerves when I said that Apple might drive the industry towards a global standard, and that standard might be GSM.

USA Today reports: “AT&T has exclusive U.S. distribution rights for five years — an eternity in the go-go cellphone world. And Apple is barred for that time from developing a version of the iPhone for CDMA wireless networks.

That ban is no small thing. AT&T rivals Verizon Wireless and Sprint are both CDMA shops. AT&T uses GSM, a global standard incompatible with CDMA.

Bottom line: If you want an iPhone anytime soon, you’ll have to take your business to AT&T.”

Wow! I was thinking that Apple would go for market share, and also develop a CDMA phone to work with Verizon … but no, looks like they’re locked in the arms of AT&T for a while!

Of course, Verizon will work with a different vendor for its own “laptop replacement device“, but AT&T surely looks like the sole beneficiary of Apple’s magnificent PR machine at work. No wonder, they’re using the iPhone launch as their rebranding campaign from Cingular to AT&T!

It also means that Qualcomm will not benefit from the iPhone anytime soon.

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Sramana Mitra on Strategy » Blog Archive » iPhone and the Future : Synthesis Sunday, May 27, 2007 at 11:49 AM PT

Sramana, you simply don`t get it. The world is not going to GSM. GSM is evolving to (W)CDMA. ATT is rapidly morphing to WCDMA/HSDPA for their high speed data. Their first iPhone uses antiquated EDGE, a so-called 2.5 G data technology, but everyone knows the 3G (WCDMA/HSDPA) version will soon follow. When that occurs, Qualcomm will profit handsomely, by selling chipsets, and being paid royalties.
For some reason only you can supply, you are intent on spinning this issue as negative to Qualcomm. It is not, no matter how successful the iPhone becomes, which itself is far too early to determine.

Jeffrey Tuesday, May 29, 2007 at 7:26 AM PT

Jeffrey,

No YOU either don’t read the series or don’t understand, or own a ton of Qualcomm stock which you blindly want to defend.

Even if the world moves to WCDMA, Qualcomm’s WCDMA royalties may or may not be equivalent to their CDMA royalties. If they are not, and if the European block wins in what they’re pushing for, then their QTL business unit’s revenues will drop.

If Qualcomm does maintain the 5% royalty level, then they will be fine, which is your assumption. I have said about 15 times, that I don’t know one way or the other, but there is a question mark around this assumption.

Read, for heaven’s sake.

Sramana

Sramana Mitra Tuesday, May 29, 2007 at 10:23 AM PT

I give up, Sramana. Your argument has been that the iPhone will only be on GSM networks for 5 years, so the world will flock from CDMA to GSM, delivering a powerful blow to Qualcomm. Then, when confronted with the reality that the iPhone will soon go to 3G, which in all varieties involves flavors of CDMA, you now posit that Qualcomm wont continue to be paid the same royalties in WCDMA that they are paid in CDMA. Sramana, they have over 70 licenses that pay them the same royalties for WCDMA as CDMA. Only Nokia is presently trying to reduce their rate through a new agreement, to replace the same rate license they signed in 2001. No major license is up for renewal before 2011. All of the "what ifs” that you use to construct an anti-Qualcomm premise are an intellectual house of cards. Frankly, you have continuously expressed such ignorance of the wireless world that I no longer will have discussions with you, until you do some serious research. Bias and top-sheeting are no substitute for knowledge.

Jeffrey Tuesday, May 29, 2007 at 4:34 PM PT

Amen, Jeffrey!

You are one of the first persons in my LIFE to question my intellectual horsepower. Thank you for the new experience.

I have never said that the iPhone won’t go to 3G. In all likelihood, it will. You are unable to follow simple logic, it seems …

Sramana Mitra Tuesday, May 29, 2007 at 4:44 PM PT

a couple of thinking points.

Point 1)
Apple is shooting for 10% of mobile sales. Cannot be achieved by getting only AT&T subs. Showstopper for Apple, because last i checked, AT&T had 62.2m subscribers vs. the combined rest of 137m (spcs=51, verizonw=60.1, TMo=26). So in order for Apple to get 10% of the market, they would have to get 31% of AT&T. Not gonna happen.

Point 2)
Wireless devices are modular. As EVERY other mobile phone vendor has shown (MOTO with the RAZR, RIMM with the 870x series) a device can easily be adapted to a new network technology, and an iPhone, just because it’s GSM/EDGE today will not be GSM/EDGE tomorrow. It will be adapted to what fits the market.

Point 3)
5 years is an eternity in the mobile business. 5 years ago, I had a nokia 3310 with B&W screen and 10 keys. At the current rate of mobile device innovation, there will be a plethora of mobile phones that have a similar if not better user interface to the iPHone. Also, carriers are already lowering their music prices and making music downloadable onto the device using the data capabilities of their networks (it is, after all, one of the ways of monetizing their $b investment in high speed data technology). Guessing that a pretty good share of iTunes store sales are “hit” music, the carriers will be pretty well off if their music stores carry the hottest tunes and charge similar prices. At least the music allure of the iPhone loses some of its edge, especially given the iPhone only has 8G of memory and cannot hold one’s entire music collection.

Point 4)
Qualcomm does make money whether it’s CDMA or WCDMA. Due to competition, they may not get full premium on WCDMA chipsets, but they get a licensing fee and then some. The delta between CDMA and WCDMA is more than made up by the difference in volume in these two markets. As WCDMA/HSDPA deployments ramp up, QC will make plenty of money, and will not be ONE IOTA affected by the iPhone. If anything, the iPhone will spur another round of innovation by Apple’s competition and QC will sell even more chipsets, this time of both kinds.

So, while i have 0 position in QC, I have to side with Jeff in that Sramana, while a great writer, is simply out of her league in this field. A good consultant should have the good judgement to know when they don’t have enough data or knowledge to make material comments on it. It seems that Apple had equally little knowledge and or regard for the complexities of the wireless segment, hence their approach.

Aldo Thursday, May 31, 2007 at 11:32 PM PT

Aldo,

Your comments above are well presented. However, as you said, 5 years is an eternity in the mobile business. In all segments of technology, it is, indeed, an eternity.

Ofcourse, I don’t have enough data on this 5-year evolution. Neither does Steve Jobs. Neither, might I point out, do you. I have clearly stated that the timeline I am using for this set of discussions is 5-7 years.

So this prophecy that you make with such authority is just another instance of speculation. Based on assumptions and biases. Not data.

Quite similar to mine. And quite similar to Steve’s.

Don’t forget, that if the devices converge, then the industry is no longer separated along the boundaries of handset and computer. The handset becomes a computer.

The rules of engagement changes.

You guys can keep trying to tell me that I don’t know enough about the wireless business. It doesn’t matter. I have worked in industries as diverse as fashion and education, to chip packaging to mechanical design.

I know exactly how to look at data, trends, industry movements, and ask the right questions. You guys hate that because I am putting my fingers on the right question vis a vis Qualcomm:
Are WCDMA royalties going to be the same as CDMA royalties? If not, then will volume sales offset the difference to allow Qualcomm to preserve the QTL revenues?

I don’t think you have data to support your emphatic “assumption”, because data about the future doesn’t exist. Data only exists about the past. Only questions and assumptions exist about the future.

Mine is one such question. I have noticed in my consulting work, that, whenever I put my finger on a really good question, everyone in the room gets uncomfortable.

Is that what’s going on here, to stir up such passionate defense of Qualcomm?

Sramana

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