Summary

Gruber follows up on his earlier question about why Apple's iPhone leasing program requires a Big Three carrier account. Two distinct reasons emerge: credit-risk fraud prevention and, more significantly, contractual co-marketing agreements worth hundreds of millions of dollars annually between Apple and AT&T, T-Mobile, and Verizon. A former Apple carrier team employee explains that the Big Three pay for exclusivity as part of tier-1 partnership deals, and the carrier restriction is one of Apple's concessions in return. A former Apple Store employee adds color on the fraud problem, estimating that double-digit percentages of in-store phone sales on some days were fraudulent, with stolen identities used to acquire high-end iPhones for resale.

Key Insight

Apple's Big Three carrier requirement for iPhone leasing is less about consumer protection than about lucrative co-marketing exclusivity deals — carriers pay hundreds of millions annually for exactly this kind of preferential treatment.

Spicy Quotes (click to share)

• 4

  Every year, the Carrier Teams at Apple negotiate a deal/program (hundreds of millions of dollars) with each of those Big 3. In return for those dollars, Apple will make concessions exactly like this.

• 3

  It also acts as a carrot to perpetually try to motivate smaller partners into behavior Apple wants.

• 6

  I'd estimate on some days a double digit percentage of in-person phone sales were fraudulent.

• 5

  They always wanted the highest end phone, and would pay the sales tax due at time of sale in cash. Never wanted any accessories. Never wanted to open the box or set up the phone.

• 4

  The carriers ate the cost for millions of dollars in devices they never got paid for.

• 5

  If they do, it sounds like they'll need to pay Apple for the privilege.

Tone

investigative, explanatory