When the iPhone made its debut in 2007 everyone knew it would be an exclusive to AT&T for some time. The exact length of that exclusive agreement was rumored to be five years but it was never possible to get confirmation on the exact terms of the agreement from any of the parties involved, especially Apple. That is, until now.
Based on court papers filed in 2007 as part of an ongoing class-action lawsuit in California which claims Apple and AT&T illegally exerted a monopoly over iPhone service by telling customers the iPhone’s required service contract was two years long when the Apple / AT&T exclusivity deal was actually for five years, there’s now some light to be shed on the deal.
Responding to the lawsuit, Apple’s lawyers argued that no one was ever promised an unlocked iPhone after two years and they repeatedly confirm the existence of the five-year agreement while noting it was publicly reported in USA Today.
[…] there was widespread disclosure of [AT&T’s] five-year exclusivity and no suggestion by Apple or anyone else that iPhones would become unlocked after two years. In fact, the iPhone box itself disclosed to the prospective purchaser that a “[s]ervice plan with AT&T [would be] required for cellular network capabilities on expiration of initial new two-year agreement.” This at-purchase information was more than enough disclosure to put consumers on notice that they might never have a choice of cellular service for their iPhone, and to thus preclude a Kodak-type aftermarket.
Moreover, it is sheer speculation –- and illogical -– that failing to disclose the five-year exclusivity term would produce monopoly power, i.e., would allow Apple, a brand new entrant in cell phones, to “exert raw power in the aftermarket without regard for commercial consequences in the foremarket.”
Well, there you go. Apple and AT&T have an exclusive agreement on the iPhone until 2012. Now we know for sure. The real question, as pointed out by several people including Engadget‘s Nilay Patel, is if this contract is really still valid and enforceable. With AT&T’s spotty performance and the explosion of the iPhone it would seem Apple would be within their rights to renegotiate the agreement and have iPhones on other carriers.
In fact, they must have had to revisit this in some way during negotiations for the iPad’s data plan, which is provided by AT&T. So, based on that, it follows that the five-year exclusivity must have been a bargaining chip in the bid for AT&T to get the iPad deal. Did Apple threaten to leave AT&T if they didn’t give the iPad a very favorable data plan? Was AT&T forced to comply in order to keep the iPhone until 2012? I wonder. Whatever exactly happened during those meetings, it would have been interesting to be a fly on the wall for them I’m sure.