AT&T Inc.'s (T) Mobility unit might as well be called the "iPhone carrier."

That, essentially, is what it's become as nearly three quarters of AT&T's new wireless contract customers last quarter were iPhone users - an extremely large amount of influence that one product has over AT&T. Being so closely tied to the iPhone carries risk, should the phone lose its chic status or competitors catch up with similar bells and whistles.

In addition, the dependence illustrates how badly the telco needs to maintain its exclusivity agreement with Apple Inc. (AAPL) which reportedly expires next year. While it's unlikely to change near term, negotiations could get interesting when the iPhone steps up to fourth-generation wireless technology.

"AT&T needs to have a second leg," said Roger Entner, who runs the communications practice for Nielsen Co. "Right now, that one leg is very strong."

Typically, 40% of iPhone purchases come from new AT&T customers, the telecom giant has said. In the first quarter, AT&T switched on 1.6 million new iPhones, suggesting that 640,000 subscribers, or 73% of the company's 875,000 new post-paid customers, were iPhone buyers.

AT&T rose 1.8% Wednesday to $25.74, while Apple slipped 25 cents to $121.51.

 
   Deal A Virtual Lock

The results could weigh into the negotiations between Apple and AT&T, which are reportedly working on extending their exclusivity agreement. Regardless of any posturing, the two are likely stuck together for the next few years.

The partnership has been a boon to AT&T. While the carrier has to pay a hefty upfront payment to cover subsidies on the iPhone, it also attracts higher-tier customers, as illustrated by the stronger margins seen in the first quarter.

While AT&T clearly needs Apple, Apple has few other options.

Verizon Communications Inc. (VZ) Chief Executive Ivan Seidenberg said in a recent interview that he doesn't believe Apple would ever make an iPhone that is compatible with its current generation network. An iPhone 4G on Verizon's wireless network is possible, but isn't likely until at least 2011.

The only other option for Apple, T-Mobile USA, is too small and lacks a fast-enough network to handle the data-intensive smartphone.

AT&T declined to comment on the discussions. An Apple spokesman wasn't immediately available.

 
   Too Much iPhone?

Longer term, there is a risk associated with being tied too closely to one product. While Apple's iPhone has been a juggernaut for the past two years, its run could end with the entry of other flashy devices.

"Eventually, the competition is going to catch up," Entner said.

High-profile products such as the Palm Inc.'s (PALM) Pre is already stealing away some of the hype.

"The big issue with AT&T and Apple is what's the second act?" said Maribel Lopez, an analyst for Lopez Research LLC. "I'm not sure there is one beyond iPhone 3.0."

AT&T, however, dismisses the notion that it relies solely on the iPhone.

"The iPhone is important, but we have a great lineup of other devices," said AT&T spokesman Mark Siegel.

Ultimately, it's not a major concern if AT&T maintains its exclusive arrangement.

"It's an issue for 2011," said Todd Rosenbluth, an analyst at Standard & Poor's. "We still got some time."

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com