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Report: iPhone to Stay With AT&T for Now

Apple is likely to extend its exclusive iPhone deal with AT&T, despite an investigation by the Feds and the increasing strain on their relationship due to a bumpy patch during the iPhone 3GS launch, according to a report issued today.

Based on an analysis of wireless technology deployed, research firm iSuppli believes Apple (NASDAQ: AAPL) will extend its exclusive iPhone deal with AT&T (NYSE: T).

"Speculation is rife that Apple will end its exclusive U.S. iPhone service deal with AT&T when the current contract expires in June 2010 and begin to offer phones that work with the Verizon network," Francis Sideco, principal analyst for wireless communications at iSuppli said in a statement.

"However, iSuppli doesn't believe this will be the case. The main reason Apple is likely to stick with AT&T beyond 2010 is the relatively wide usage and growth expected for the HSPA air standard used by the carrier for 3G data."

The cumulative number of global subscribers of HSPA wireless services, which consist of High-Speed Downlink Packet Access (HSDPA) and High-Speed Uplink Packet Access (HSUPA) protocols, are set to rise to 1.4 billion in 2012, up from 269.1 million in 2009, according to iSuppli's data.

In contrast, the company says cumulative subscribers for the EVDO standard used by Verizon will amount to 304.6 million in 2013, up from 145.2 million in 2009. The iPhone uses HSPA protocols and would require a fair amount of revision to support EVDO.

"The FCC investigation notwithstanding, Apple has no reason to move away from its highly successful exclusive deal with AT&T, which has already generated strong growth in iPhone sales and is expected to fuel a continued expansion in the coming years," Sideco says.

Neither Apple nor AT&T returned calls seeking comment by press time.

The iSuppli suggestion that the type of network each carrier operates will play a large role in any future device talks involving Apple is backed by some other industry experts. William Stofega, analyst at IDC, has told InternetNews.com that he doesn't see Apple switching to Verizon or Sprint because they use different technology than AT&T.

Since Verizon's current network doesn't support the iPhone, Apple would either need to wait until Verizon completes its transition to 4G, by way of its Long-Term Evolution (LTE) technology -- a process that could take several years -- or it could redesign the iPhone to work on Verizon Wireless' existing infrastructure.

However, Gene Munster, analyst with Piper Jaffray, just issued a research note saying Apple would bring the iPhone to multiple carriers by next summer.

While there may be benefits to the partnership for Apple, FCC review aside, AT&T is finding the arrangement to be a bit more problematic, despite the increase in new subscribers realized under the deal. Of the 2.4 million iPhone activations in Q2, a third were new customers.

The number two wireless carrier appears to be having some difficulty keeping pace with the iPhone owner demographic, as heavy data use combined with a high concentration in urban areas takes a toll on the carrier's network.

Also at issue is the carrier's inability to support new iPhone features, such as Multimedia Message Service . AT&T recently said MMS support will be available September 25. Tethering is still unavailable, and the lack of immediate support for these at the launch of the 3GS tarnished AT&T's reputation to a degree with some Apple fans.

Still, Apple could sign on another carrier for other wireless devices.

"There is no available information that would indicate that Apple is prohibited from pursuing a relationship with Verizon for non-iPhone products, such as another Apple phone model, tablet, Mobile Internet Device (MID), netbook or an enhanced version of the company's iTouch," says Sideco.