That "demographic" isn't actually a demographic; it's mainstream America. So long as the iPhone had a hefty price tag, Stephenson says, he and Jobs feared it would never become a mass-market item. With a price of less than $200, however, they thought the iPhone could finally jump into the mainstream. "It seemed like an opportunity to change the game," he says.
AT&T also gets some serious lift. As with the original iPhone, 3G customers must sign a two-year wireless contract. Existing AT&T customers have to re-up for two years. (When the unsubsidized iPhone makes its debut — date unknown — contracts won't be required.)
Those who want to surf the mobile Web — and why else buy an iPhone? — also must buy a data plan. Total cost: around $100 a month. That's almost double the $55 generated by the average AT&T wireless customer.
"You just don't find many opportunities like that," Stephenson says.
Roger Entner, a senior vice president at Nielsen IAG, agrees. "It's a no-brainer that if you bring down cost, more people will buy it," he says. If the iPhone cost less than $100, he adds, "it would sell even better."
As for that fat subsidy: Painful in the short run but a shrewd long-term move, Golvin says.
Why: The U.S. cellphone market is rapidly approaching "saturation" — meaning everybody who wants a cellphone already has one. To add subscribers, he says, carriers basically have to steal them from each other. That's where the iPhone could come in handy, he says.
In exchange for its payout, AT&T got a year extension, into 2010, on its exclusive distribution deal with Apple, people familiar with the matter say. Sources asked to not be named because the terms are confidential.
Under the original iPhone contract, Apple had the right to offer the device to other carriers beginning in 2009. If Apple exercised that clause, AT&T would have lost one of its biggest points of leverage with customers — exclusive access to the iPhone. Nailing the extension "is a very big deal," Entner says.
Stephenson declined to discuss the contract, saying only that he is "very happy" with the arrangement.
Standing firm on a vision
Stephenson might be new to the CEO's office, but he's an old hand at the telecom game. Prior to taking the top job a year ago, Stephenson was the No. 2 to the company's longtime chairman and CEO, Edward Whitacre Jr.
Whitacre's 17-year run was defined by deals — big, sweeping mergers that dramatically recarved the competitive landscape. By the time he stepped down, he'd transformed the smallest of the original seven Bells — Southwestern, later called SBC Communications — into the USA's largest telecom. It also had a new name: AT&T, one of Whitacre's final acquisitions. The Apple partnership also was formed on Whitacre's watch.
Stephenson, who served as chief financial officer and chief operating officer under Whitacre, rode herd on many of those deals. Stephenson says his former boss taught him a lot about the importance of standing firm on a vision and taking the long-term view. It's a mindset and a business approach that continues, he says.
Sounding a lot like his former boss, Stephenson says it takes grit, a steady vision and, at times, a strong stomach to grab opportunity by the throat. That's true, he says, whether the goal is a new partnership or a big global acquisition.
"If you're not pushing forward hard, nothing happens," Stephenson says. "You don't do that by making little incremental moves. You've got to make big moves." Considering his words, he quickly adds, "You've just got to be right more than you're wrong."