Of course it would! At least, that's the gut response, but an article from Breakingviews.com today argues the contrary today. With stronger rumors recently that Verizon or another service provider could soon be added to the iPhone carrier lineup, the question matters more than it used to. How big of a blow to AT&T would losing exclusivity be?

The arguments provided for why AT&T needn't worry are summarized as follows (in bold), with a response for each:

Even though lots of people complain about AT&T, only few would actually switch. Besides, most contracts aren't near expiration.

The basis for this claim is experience in France and Britain. Yet, in these markets, the network comparison may not be the same as that in the U.S. Literally every iPhone owner I've ever known complains about AT&T. Those who switched from Verizon or Sprint reminisce about a time before dropped calls and dead zones. Considering how obsessed iPhone users are with the device, it seems obvious that many will jump at the opportunity to improve its performance.

Many iPhone contracts aren't near expiration? This depends on your view of 'near.' Contracts are for a maximum of two years. That's not a long-term commitment. Moreover, the strengthening rumors may cause people (like me) to put off buying a new iPhone after contracts have expired, hoping that a new provider will offer the device in early 2011. Plenty of people would switch between the announcement and the two years that follow.

At worst growth may slow a little, since 45% of new subscribers in the first quarter were new iPhone customers.

But isn't subscriber growth a pretty important metric for service providers? Even if only half of new iPhone owners went to Verizon instead of AT&T (and it might be more), it would amount to a nearly one-quarter drop in subscriber growth. That would hurt a lot. Investors would lose a great deal of confidence in the company's ability to provide for strong growth going forward without iPhone exclusivity.

iPhone users cause more harm than they're worth since they're such data hogs. AT&T might barely break even on them, considering all the network growth they require.

Even if network upgrades cause AT&T to only break even on the iPhone subscribers, that still means these customers are very profitable. They're paying for massive network upgrades. Eventually, AT&T's network could strengthen to be more competitive with Verizon and Sprint. iPhone users make this potential transition possible. Without them, AT&T would have far less revenue to invest in growth. Moreover, as usage-based pricing evolves, heavy users will cease to become a nuisance, and their profit margin should approach that of less intensive data users.

If other carriers take on the iPhone, they too will be forced to develop usage-based data fees, instead of all-you-care-to-consume plans. This helps AT&T's competitiveness.

These carriers will have to do that anyway. Think about Sprint's new HTC Evo. That device is virtually made for video and high resolution pictures. Verizon's Droids also provide users with ample capabilities to consume lots of data. Even if these smartphone users aren't yet doing so at the same rate as iPhone users, their usage will continue to grow in the years that follow. And with that additional network stress, usage-based fees are inevitable. The industry will arrive at this outcome even if AT&T keeps iPhone exclusivity.

AT&T's earnings forecast to equity price multiple is 15% lower than that of Verizon, so investors are already overly worried about losing exclusivity.

Or maybe they aren't worried enough. It's impossible to tell at this point. Alternatively, investors might just assume that AT&T is worth less than Verizon for other reasons. Does the market really believe that if Verizon got an iPhone, its potential growth would only warrant a 15% premium over AT&T's? Maybe, but others might think that premium should be even greater. Currently, AT&T's stock price must assume only some probability (less than 100%) that Verizon gets the iPhone. If you see a formal announcement that Verizon is getting the iPhone, that disparity will almost certainly widen.

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