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Thursday, July 16, 2009, 09:30 am PT (12:30 pm ET)

Analyst says iPhone is lifeblood of AT&T success

If the iPhone's exclusivity with AT&T were to expire, one market research firm predicts that the cell phone carrier would suffer due to the superior network offered by competitor Verizon Wireless.

This week, Pali Research released a prediction that AT&T will net less than 1 million new subscribers in 2010, compared with the 4 million it gained in 2008. The report operates under the assumption that the iPhone will leap to Verizon's network once the contract has expired.

The statement comes as AT&T is pushing to keep Apple's phone exclusively on their network through 2011. The Wall Street Journal has reported, through anonymous sources, that CEO Randall Stephenson is currently negotiating with Apple. iPhone-AT&T exclusivity in the U.S. expires next year.

If Pali Research is to be believed, AT&T's future could depend on retention of the iPhone, making Stephenson's alleged negotiations all the more crucial.

"As the iPhone exclusivity period rolls off between AT&T Wireless and Apple, a material number of AT&T customers will flock to Verizon’s superior network," the firm states. "We estimate that nearly a third of AT&T’s post-paid customers are being retained by AT&T primarily because of the iPhone exclusivity."

The market research firm based its conclusion on two recent studies that show AT&T has 3G speeds that lag behind Verizon, T-Mobile and Sprint. The study from Wired, with a sampling of 12,000 mobile phone customers, demonstrated that AT&T has an average download speed of 901 Kbps. Another survey from PC World corroborated those results.

This, despite numerous attempts by the company to boost bandwidth capacity for the iPhone and the network's influx of users.

This year, it was estimated that a third of AT&T's new customers are switching solely because of the iPhone. The same study from ChangeWave suggests that AT&T customers are also less likely to switch carriers.

Pali Research recently gave investors a buy rating for Verizon and sell for AT&T, based on the latter's dependence on the iPhone.

"Our Buy rating on Verizon is based on our view that its market share gains will lead to profit growth that tops other telecom companies and Wall Street consensus estimates," the firm said in June. "Our Sell rating on AT&T is based primarily on our belief that its wireless business will enter a prolonged period of erosion after being propped up by the iPhone for the past two years."