Synchronoss out as iPhone activations stay in-store

One of the intriguing “inside-baseball” success stories for the Apple iPhone was the emergence of billing/OSS vendor Synchronoss as a key enabler of the iPhone’s slick self-service phone activation process.

But the decision by Apple and AT&T to require in-store purchase and activation of the new iPhone 2.0 means that Synchronoss is out of the iPhone activation process. It also represents a setback for wireless industry efforts to support more open approaches to distributing phones and applications.

Last July, Synchronoss scored a much-touted contract to handle the back-office end of the Apple iTunes-driven activation process for the iPhone. The activation process allowed customers to purchase the phone in-store or online and then self-provision and activate it at home using the iTunes software.

While the software generally received good marks from customers, it also allowed users to take their phone home and – via so-called “jailbreak” software – hack their phone to work on other networks. In early May, Synchronoss blamed jailbroken phones for a significant drop in its quarterly revenue and long-term growth plans. That news dropped Synchronoss shares sharply; this week’s further clarification left Synchronoss trading at $10.48 mid-day Thursday, down from a 2008 high of $48.03.

Synchronoss relies heavily on AT&T and the iPhone. First-quarter revenue for the vendor from AT&T was about $21 million, representing about 72% of its total revenue. Much of that revenue comes from iPhone activations, though Synchronoss also plays a role in the activation of other phones purchased via the AT&T.com Web site.

Whether Synchronoss lowered its guidance because it knew its platform was being cut out of the iPhone 2.0 launch isn’t clear. Synchronoss did not respond to a request for comment, although it did make a Form 8-K filing with the SEC describing the situation, more evidence of the seriousness of the change on its bottom line. According to that filing, “Synchronoss will continue our relationship with AT&T as it relates to the activation and provisioning of Apple iPhones. However, Synchronoss will not participate in the on-site, retail store activations associated with the 3G iPhone.”

It’s not clear what role Synchronoss could possibly play with the iPhone since, as announced, all iPhone 2.0 activations will occur at retail locations.

As for AT&T, it declined to comment directly on Synchronoss and whether the activation change was a direct result of jailbreak problems. Through a spokesperson, the company said:

“Many customers enjoyed the convenience of at-home activation, but we also found that many others wanted to complete purchase and activation in one stop so they could walk out of the AT&T store with their iPhone up and running. We have decided to take the latter approach, and we think customers will like it. It will be especially helpful if any questions or issues arise during activation, as they can be resolved on the spot and in person. This is the way our wireless phones have been activated for years, and customers have been very happy about it.”

The fact that the iPhone 2.0 is supported by an AT&T subsidy – which helps to keep the entry price down at $199 – clearly played a major role in AT&T wresting more control over the activation process. AT&T made no money from jailbroken phones and simply couldn’t allow subsidized phones to be jailbroken. With the new process, customers can’t leave a retail store with an iPhone under their arm without signing up for a two-year AT&T contract first.