Apple might have genuinely murdered the entire market if they hadn’t insisted on their ridiculous exclusivity plan with AT&T. Whichever Apple exec greenlit that must surely have been an industrial saboteur because it saved 5+ other companies from ruin.
I always thought this was a genius move. Remember, at the time, Apple had no product in the space. The market was highly fragmented, and cell phones were becoming commodity devices. Here's Apple wading into a sea of competitors, with a product that was priced outside of the normal range and needing to differentiate itself. With the AT&T deal, Apple accomplished several things:
1. It put the marketing might of one of the largest corporations behind its brand-new, niche product. The deal created an incentive for this corporation to market the product on Apple's behalf.
2. It created a forced scarcity. Only /some/ people (those on AT&T) could get the iPhone, which immediately created a brand distinction necessary for a luxury product. On day 1, there were haves and have-nots.
3. It provided an out for Apple not ramping up production too fast (whether they could or not). If the iPhone failed, they wouldn't have product everywhere. If Apple couldn't make iPhones fast enough, they would only be affecting a subset of the market.
4. It limited Apple's engineering requirements. They only had to support AT&T's network on day 1, and not the network technologies of the other carriers. Limiting exclusivity to AT&T meant that they could focus on the product while delaying the technical challenges of supporting multiple cellular networks.
Back then the network operators had full control over the devices on their network. They even dictated what features these phones will have. They wanted to sell services like ringtones, so the device manufacturers were almost like their subcontractors.
Apple simply didn’t have an option to do it by itself. Back then Apple wasn’t that powerful, they had a firm grip on music player and music store market but nothing else.
So the story goes, Steve Jobs meets with the CEO of AT&T(called something else back then) in a hotel room and show him the device. Apparently the guy was sold the moment he scrolled the setting and see the rubber effect and accepted to let Apple do the phone in Apple way in exchange of exclusivity.
I worked at Windows Phone leading up to the WP7 launch all the way through the last version. The carriers had two things that every device maker, including Apple (initially) needed
1) distribution - Americans went to the carrier store and not Best Buy for their new phone
2) financing infrastructure- they could finance, subsidize and generally hide the up front price of these devices. The market expected a $0-200 phone with contract.
So, you needed AT&T and their contract prices already assumed they were subsidizing the phone so it was no point selling unlocked, full price.
Samsung was paying mobile store reps (at AT&T, TMO etc) $50-100 PER PHONE to push Samsung ($9B marketing budget).
Apple went with the operator that would allow them control over the device. This was at a time where Nokia sold specific versions of their smartphones with WiFi disabled in the US. And the situation was similar elsewhere. So in many of the countries they entered, they often started with a smaller operator. They bet that the bigger operators would change their mind after seeing iPhones success (and how many subscribers they had lost), and they turned out to be right. In hindsight, they managed to upend the whole telecom industry (or at least accelerate that process), which is now more or less reduced to "dumb data pipes" that you use when you're outside of WiFi coverage.
