20110525256 By YUKARI IWATANI KANE, TING-I TSAI And NIRAJ SHETH Apple Inc.

plans to begin producing this year a new iPhone that could allow U.S. phone carriers other than AT&T Inc. to sell the iconic gadget, said people brie fed by the company. The new iPhone would work on a type of wireless network called CDMA, these peopl e said. CDMA is used by Verizon Wireless, AT&T's main competitor, as well as Spr int Nextel Corp. and a handful of cellular operators in countries including Sout h Korea and Japan. The vast majority of carriers world-wide, including AT&T, use another technology called GSM. Apple is developing a new iPhone to debut this summer and also appears to be wor king on another model for U.S. mobile phone operator Verizon Wireless. WSJ's Jul ia Angwin and Simon Constable discuss. With Apple developing a phone with CDMA capability, its exclusive U.S. arrangeme nt with AT&T dating to 2007 appears set to end. Verizon Wireless, owned by Verizon Communications Inc. and Vodafone Group PLC, d eclined to comment. An AT&T spokesman said: "There has been lots of incorrect sp eculation on CDMA iPhones for a long time. We haven't seen one yet and only Appl e knows when that might occur." Apple declined to comment. Separately, Apple plans to release a new version of its current iPhone this summ er, continuing its practice of annual upgrades at about the same time of year, s aid people briefed on the matter. The model is likely to be thinner and have a f aster processor, two people familiar with the device said. Journal Community Maybe Apple feels the heat from the Android phones and needs to make a move now. Shawn Chaney For AT&T, the Apple relationship has been crucial, helping to make the carrier t he U.S. leader in lucrative smart-phone market share. According to comScore Inc. , AT&T has over 43% of all U.S. smart-phone customers, compared with 23% for Ver izon. These customers are especially attractive because they generally pay highe r monthly rates for data plans. For several quarters, AT&T's growth has come almost single-handedly from the iPh one. In the fourth quarter of 2009, the carrier said it activated 3.1 million ne w iPhones. In comparison, it counted only a net total of 2.7 million new subscri bers as some customers moved from other phones to iPhones. "You're not going to lose the iPhone [exclusivity] and make up growth somewhere else without bearing the cost," said Sanford C. Bernstein & Co. research analyst Craig Moffett. Now that a new Verizon-compatible iPhone appears to be on the horizon, Digits lo oks at what Apple can do to win over mobile business users, particularly from RI MM's BlackBerry market. Plus, WSJ's Kate Linebaugh talks to Stacey Delo about Ni ssan's new Leaf electric car and its $32,780 price tag. The people briefed on the matter said the upgraded GSM iPhone is being made by T aiwanese contract manufacturer Hon Hai Precision Industry Co., which produced Ap ple's previous iPhones. The CDMA iPhone model is being made by Pegatron Technolo gy Corp., the contract manufacturing subsidiary of Taiwan's ASUSTeK Computer Inc ., said these people.

One person familiar with the situation said Pegatron is scheduled to start mass producing CDMA iPhones in September. Other people said, however, that the schedu le could change and the phone may not be available to consumers immediately afte r production begins. Representatives of Pegatron and Hon Hai declined to comment. Verizon has publicly stated its interest in the iPhone, but people familiar with the situation said Apple originally decided against developing a phone for Veri zon to keep its development process simple, since the technologies are incompati ble. More Digits: Analysts Don't Expect Verizon iPhone Until 2011 Digits: Months of Speculation About Verizon iPhone Interest Builds in Apple Ahead of iPad's Launch Verizon also is upgrading its network to a higher-speed technology, so Apple has said it believed CDMA was a short-term technology. Apple later changed its mind as it realized Verizon's upgrade would take longer than expected, said people f amiliar with the situation. Making the iPhone available through Verizon, which has over 91 million customers , as well as potentially other CDMA carriers could open up a significant new mar ket. In 2009, iPhone sales globally rose 83% to 25.1 million, far outpacing the 20% to 25% growth in smart phones sales overall, according to Bernstein. But sin ce Apple already dominates smart-phone sales through existing partners, "sooner rather than later, Apple is going to have to look to find incremental distributi on," said Bernstein analyst Toni Sacconaghi. He estimates Verizon could help App le nearly double the number of iPhone users in the U.S. AT&T's relationship with Apple, a lucrative deal arranged by Apple Chief Executi ve Steve Jobs, shows how such a partnership with other carriers could present ch allenges. Analysts estimate AT&T pays Apple more than $600 per phone, but sells most of th em for $199 or less. Heavy iPhone users have also put an enormous load on AT&T's wireless network, pushing the carrier to a breaking point in some markets such as New York and San Francisco. Qualcomm Inc., which holds patent rights to CDMA, is the dominant designer of CD MA chips. Write to Yukari Iwatani Kane at yukari.iwatani@wsj.com and Niraj Sheth at niraj. sheth@wsj.com