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Why AT&T Needs The Apple iPhone

AT&T staved off a poor first quarter financial performance with the help of its knight in shining armor: the Apple iPhone.

The now-iconic smartphone has become AT&T's saving grace, protecting AT&T from further revenue decreases. While other areas performed well in AT&T's first quarter, such as its U-Verse IP TV offering and its home Internet services, it was the iPhone that helped it truly stave off poor performance, helping AT&T boost smartphone sales and subscriber numbers.

According to AT&T, it activated more than 1.6 million iPhones in the first quarter. The telecommunications giant also saw a spike in its wireless subscriber base, upping that by 1.2 million in just three months. Of those, more than half are new customers that activated AT&T accounts for iPhone 3Gs. It is estimated that in the second half of 2008, AT&T added 4.3 million iPhone subscribers.

And if that wasn't enough to keep AT&T satisfied, the company said more than 40 percent of the 1.6 million new iPhone activations in the first quarter were new customers who did not previously have a contract with AT&T, meaning the iPhone is single-handedly wooing consumers away from AT&T's competition.

While other areas of AT&T's business struggle or flatten, its wireless division, on the back of the iPhone, flourishes. Overall, AT&T's revenue fell less than 1 percent to $30.6 billion, down from $30.7 billion in the same quarter in 2008.

And AT&T knows where its bread is buttered. AT&T locked down the exclusive rights to sell and provide service for the iPhone in the U.S. in 2007, with the launch of the first-generation Apple iPhone. Last August, AT&T and Apple renewed that exclusivity for another year in 2008, coinciding with the release of the Apple iPhone 3G.

"I am particularly pleased with the success of our iPhone 3G initiative, which has driven strong high-end customer growth and delivered financial benefits ahead of our original outlook," AT&T Chairman and CEO Randall Stephenson said in a statement. "Business and consumer expectations for mobility are on the rise, wireless innovation is flourishing and the opportunities ahead are substantial. AT&T is strongly positioned to lead in the next generation of wireless growth."

That growth is why AT&T is going to fight to keep its iPhone exclusivity. The deal between AT&T and Apple is set to expire at the end of this year.

Last week, reports surfaced that AT&T is pressuring Apple to continue the exclusive partnership for another two years, through 2011. Apple, however, has been less than forthcoming about its future carrier plans, noting only that "We have a great relationship with AT&T."

Extending the contract through 2011 would give AT&T the right to carry the next new iPhone that hits the market -- and the two-year service contracts that come with it -- and also open the door for AT&T to re-up customers who have contracts on their first-generation and 3G iPhones that are set to expire.

And with the rumor mill churning about a new iPhone being released soon, possibly as early as Apple's Worldwide Developers Conference in June, AT&T wants to again get in on the ground floor and shut out competing carriers such as Verizon Wireless and T-Mobile so it can continue the momentum the iPhone has given it.

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