Analyst Favors iPhone Carrier Polyamory
by John Paczkowski
Posted on October 20, 2009 at 4:30 AM PT
Though Verizon’s new Droid ad campaign might seem to preclude one, Apple would be wise to ink an iPhone distribution deal with the carrier–if not to hasten iPhone adoption, then to slow rivals that would supplant it.
That’s the argument put forth by Piper Jaffray analyst Chris Larsen in a research note to investors Monday. Larsen feels that the cost to Apple (AAPL) of developing a CDMA version of the iPhone for Verizon’s (VZ) network and the subsidies the company might lose by ending its exclusivity deal with AT&T (T) would be a small price to pay for the spike in iPhone sales they would create.
“Although the iPhone is a strong player in the smartphone market, expanding its multi-vendor strategy could allow it to dominate the industry, as it does with the iPod,” Larsen writes. “The U.S. market is the world’s largest smartphone market, but we believe there is a land grab in the U.S. for smartphone share.”
Expanding his argument, Larson adds, “Apple’s exclusivity with AT&T has left the door open for strong competition from competitors, such as Research In Motion’s Blackberries, Palm’s webOS smartphones and Google’s Android operating system on multiple smartphones from OEMs such as Motorola, HTC, Samsung, LG, and others. Making the iPhone available to the other 150+ million subscribers (~2/3s of subscribers) not on AT&T’s network could result in iPod like adoption.”
Keeping the iPhone exclusive–while it might enable Apple to do more innovative things, as COO Tim Cook noted yesterday during the company’s quarterly earnings call–would also give those rival devices and platforms more time to catch up. If Apple really hopes to keep its lead in the U.S. market, it must do away with exclusivity deals, the same way it’s doing away with them abroad.
That’s bad news for AT&T. Because, as I’ve noted here before, a move to nonexclusivity in the U.S. would brutalize the carrier’s subscriber base. Analysts have long said that a material number of AT&T iPhone users would flock to Verizon’s superior network given the chance.
Larsen agrees. “A move to non-exclusivity in the U.S. could have a material impact on the U.S. wireless carriers,” he writes. “AT&T could lose meaningful smartphone share, while we think all the other carriers would gain share. We believe Verizon would be the largest beneficiary of non-exclusivity and the development of a CDMA iPhone.”
Continuing, Larson explains, “With 35% of AT&T’s iPhone sales coming from new customers, we feel it is reasonable to assume the company’s total iPhone sales could decline by 30% or more and that Verizon could pick up the bulk of this lost share (why switch to AT&T for iPhone if you haven’t left by now and the device is now available through your carrier; Verizon’s network quality could be a reason to switch from AT&T).”
Comments
The superiority of the Verizon network over AT&T is a myth. Compare:
iPhone/AT&T:
- hottest phone in the world
- desktop Web browser that alone accounts for more than half of all mobile Web browsing bandwidth
- unlimited data plan which encourages the users to eat up data at a high rate
- network congestion at peak times in some areas
Verizon:
- small selection of proprietary phones, typically years behind GSM
- has never had a phone on its network that has a desktop Web browser (their upcoming Droid phone will be their first) so all Verizon users combined do much less mobile Web browsing than just AT&T’s iPhone users
- no unlimited data plans, after 5GB you pay through the nose per megabyte, you’re encouraged to use much less data than you might otherwise
- no network congestion at peak times
It’s my simple opinion that AT&T’s desktop Web browsers on phones and unlimited data have a direct relationship to their network congestion issues, and that Verizon’s opposite position with no desktop Web browsers and no unlimited data has a direct relationship to their lack of network congestion issues. Whoever had the iPhone right now would be suffering and would be building out as fast as they can.
Finally, consider that if Apple made Verizon an iPhone, Verizon would have to compete with AT&T in iPhone pricing. If the iPhone 3G is $99 at AT&T with $30 per month for unlimited data and at Verizon it’s $99 with $50 per month buys you 5GB and 10 cents per megabyte after that then how could anyone realistically buy the Verizon phone?
My iPhone bill for the past 2.5 years has been pretty much exactly $80 per month every month. Looking at the data usage, I would have had to pay over $10,000 extra to Verizon for bandwidth above the 5GB cap. We’re talking about a completely different investment. We’re talking about a completely different kind of phone usage.
So I wouldn’t hold my breath for a Verizon iPhone before iPhone 4G, if Verizon builds out standard 4G so they can run iPhone and 99.5% of the world’s phones.
Posted by Fred Hamranhansenhansen at October 20th, 2009 at 10:31 pmVerizon does not need Apple; their decision not to agree to Apple’s original terms is starting to look wise. Their patience will soon be rewarded with a host of new, innovative smart phones – from the Palm Pre to the Google Android phones.
Verizon does not need to create another Microsoft. In the early eighties, IBM gave their most valuable asset to Microsoft, the operating system space (using Microsoft DOS) for their new IBM Personal Computer. While IBM was co-developing OS/2 with Microsoft, Microsoft was secretly developing Windows. With the release of Windows 3.0, IBM (eventually) lost both the PC hardware and software operating systems market, because the operating systems software (Windows 3.0) turned out to be the most valuable asset. Verizon does not need to repeat history.
The advantage of the iPhone above its competitors is that it was the first to incorporate an engaging user interface, and more importantly – gained the massive amount of free advertising Apple has obtained from the press, which has easily been in the billions of dollars in value (from cover stories to countless articles). This amount of advertising will sell nearly any product. The iPhone deserved the good press, but in the wireless industry, the network is king (at least for now, until there is network quality parity among carriers) – and this is where Verizon excels. Over 50% (in a 2009 survey) of iPhone users (with their disproportionately massive use of AT&T’s network resources) are dissatisfied with AT&T’s network problems and would move to another carrier if given an appropriate choice. This migration (speculation) may start in 2010 if Verizon has compelling smart phones, with or without the iPhone. The Palm Pre is the one phone that can do that (with Palm’s WebOS – which is the most innovative operating system since the release of the Apple iPhone). Now that the Palm Pre and to a lesser extent Blackberry (with an improved UI) and Android – will all soon be on the Verizon network, Verizon will be inept to carry the iPhone and handover control of their customers to Apple. The Palm Pre is selling well on the Sprint network, but three factors acted to mitigate sales. Sprint’s perceived customer service problems (which has improved greatly), Verizon’s overtures since the release of the Palm Pre that it will become available on their network, and Sprint’s initial subdued advertising of the Palm Pre phone. Without doubt the WebOS user interface (UI) software for the Palm Pre phone, which was released to rave press reviews, is more innovative than the UI for the iPhone. With Verizon’s more aggressive advertising, they can target those 50% unsatisfied AT&T iPhone customers. AT&T’s problem has definitely improved the branding power of the Verizon Network, which has already benefited from the real and perceived quality of the Verizon FiOS Internet Service.
The last thing Verizon needs is for them to handover unprecedented control of their assets to a company like Apple in what would amount to a land grab of their customers. A company that has the power to take your customers to another carrier is tantamount to playing with fire.
Posted by Andrew Augustine at October 20th, 2009 at 11:03 pm