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Ahead of iPhone 5, AT&T-Verizon battle heats up

AT&T is selling more iPhones than ever, but Verizon is improving its numbers at a faster clip.


The second-quarter earnings report from AT&T is out today, revealing that the company activated 3.7 million iPhones, with 22 percent new to the company.

AT&T also posted its best-ever churn rate -- 0.97 percent for postpaid devices like the iPhone -- and total smartphone sales of 5.1 million, a third of them 4G-capable devices.

But it's the iPhone number that's most interesting. AT&T, of course, was the first American carrier to offer the industry-leading Apple device, and it enjoyed a domestic monopoly on four generations of the phone from June 2007 to February 2011. After that, Verizon joined the fray with the iPhone 4. Sprint followed later that year.

Much ink has been spilled about declining iPhone sales in the face of stiff competition from Google devices, and that's certainly an interesting angle. Just as interesting is AT&T's continued hold on the iPhone crown, five generations in -- and its slipping grip with each passing quarter.

To wit:

In the fourth quarter of 2010, AT&T activated 4.1 million iPhones.

In 1Q11, AT&T activated 3.6 million. Verizon activated 2.2 million.

In 2Q11, AT&T activated 3.6 million. Verizon activated 2.3 million.

In 3Q11, AT&T activated 2.7 million. Verizon activated 2 million.

In 4Q11, AT&T activated 7.6 million. Verizon activated 4.3 million.

In 1Q12, AT&T activated 4.3 million. Verizon activated 3.2 million.

In 2Q12, AT&T activated 3.7 million. Verizon activated 2.7 million.

You'll notice that sales of Apple's most profitable device in the U.S. haven't let up. Even excluding Sprint, they've steadily increased over the last year and a half.

But AT&T's lead is slipping. The carrier continues to have a strong lead over Verizon, yet Big Red has increased more on a year-over-year basis. (Call it "most improved.") Verizon is slowly gaining iPhone market share, despite AT&T's tremendous lead owing to contract exclusivity, even as the overall iPhone pie chart grows. (Where is that share coming from? We can't be sure until Sprint and T-Mobile release their earnings for the quarter.)

The biggest question is what we'll see in the next two quarters. Not just because of an anticipated fifth-generation iPhone model, mind you, but also because of AT&T's backlog of iPhone 3GS users and first-month iPhone 4 buyers. Many of these people are still on two-year contracts signed before competing carriers entered the iPhone fray; what will they do as their contracts come up for renewal? Assuming they stick with the iPhone, will they stick with AT&T?

In 2011, AT&T insisted that its churn rate didn't drop after it lost iPhone exclusivity. That may be true, but it's not a fair test until you allow customers to let their contracts run out. (At up to $325, that "early termination fee" does wonders for your churn, no?) The reality is that for all but the most passionate buyers, the effects of AT&T's exclusivity loss won't truly be evident until...well, right now.

This story originally appeared on ZDNet under the headline Is AT&T's iPhone dominance slipping?