If iPhone comes to Verizon: We Got Answers

ZDNet Senior Editor Sam Diaz proposed five important questions regarding Verizon's possible addition of the iPhone next year. We attempt to answer them.
Written by Jason Perlow, Senior Contributing Writer

ZDNet Senior Editor Sam Diaz proposed five important questions regarding Verizon's possible addition of the iPhone next year. We attempt to answer them.

Yesterday, a report issued by Bloomberg indicated that in January of 2011, Verizon Wireless will launch Apple's iPhone, ending a five year exclusivity agreement with AT&T.

Upon receiving this news, ZDNet Senior Editor, Sam Diaz, posited several questions that a lot of people probably want answered. Sam cracked the door open a little bit and left a lot of room for extrapolation. I'm going to put my crystal-ball New Media Jackass hat on and try to answer a bunch of them.

Without further ado, here's my best shot at what is likely to occur.

What will happen to AT&T’s sales and subscriber numbers? Now that the news is out that Verizon is likely to start selling the iPhone in January, many people who are AT&T subscribers with existing older-model iPhones or phones from another manufacturer are likely to wait for their 2-year contract to expire and then move to Verizon, causing a possible "Osborne Effect" in current iPhone sales on AT&T.

It was reported late yesterday on Boy Genius Reportthat Verizon will activate and sell handsets in 25 US major cities that will work on its 4G LTE network in November.

This would seem to indicate that the new Verizon version of the iPhone 4 would be dual band LTE/EV-DO CDMA capable, adding that extra carrot for AT&T Wireless customers to eat a substantial termination fee (up to $350 depending on how much was left of the contract) or just walk away out of contract.

It also magnifies the Osborne effect because if the said LTE network launch and iPhone availability is confirmed for a 4Q 2010/1Q 2011 time-frame, many potential iPhone buyers will want handsets that are capable of operating on a much faster network, and will hold off on purchasing AT&T's iPhone models.

AT&T is also planning to introduce a 4G network of its own, but estimates are that the company is at least a year behind Verizon in deployment.

With real world data rates from current Verizon trials on LTE reporting from 5-12 Mbps downloads and 2-5Mbps uploads, that's one hell of a carrot, even if the handsets have to fall back to 3G or even 1XRTT in areas where LTE coverage could not be guaranteed.

AT&T's defense in this situation would be to try to retain their existing customer base and offer competing technology or special offers. A new iPhone model for AT&T is unlikely in the first part of 2011 given the most recent introduction of the iPhone 4, so what is likely to occur is that Microcells will be heavily discounted or given away for free for renewed contracts or disgruntled customers with existing iPhones that threaten to walk away.

Additionally, AT&T may also have to significantly boost the number of access points for their national hotspot service. The company already offers their service for free for customers using their phones at Starbucks and other locations, but as Starbucks is going free Wi-Fi anyway, they'll have to up the ante, significantly.

What would this do to AT&T’s network quality? Sam indicates that a massive walk-off of a large portion of AT&T's 12 million+ iPhone users might alleviate a large amount of network congestion from data-hungry customers and improve quality-of-service for the rest of the company's 75 million customers.

Maybe, but then AT&T has much bigger problems than their network quality if a ton of their customers using iPhones were just to jump ship.

If AT&T proposes enough incentives to its customers in order to retain their loyalty, said walk-off might not occur, and then you'd have status quo.

Additionally, now that the news is out -- and one must assume that AT&T has some intelligence about the veracity (or lack thereof) of the situation -- that the company will react and make network and capacity upgrades accordingly in order to remain competitive.

What would this do to Apple’s sales of the iPhone? As mentioned above, an Osborne effect -- as proposed by ZDNet Editor-in-chief Larry Dignan back in late March -- is likely to occur. Dignan believes this will freeze all smartphone upgrades, including ones for existing Verizon customers.

I'm not sure I buy that, but certainly this is going to make a lot of people stop and think about whether or not they want to re-up their contracts with new phones at any wireless carrier. However, while there would be a temporary lag in sales for Apple, the upsurge from a Verizon launch is likely to be tremendous.

Today, Henry Blodget at Silicon Alley Insider reports that Oppenheimer Investments AG is predicting 12 Million iPhones would be sold on Verizon if and when the handset launches on the carrier next year. I don't think that's an unrealistic number given the size of the current customer base and the expanding popularity of the iOS platform.

What could this mean for Android adoption? I'm going to say that while an iPhone arrival on Verizon will definitely cause some existing customers on the Android platform to switch, and some considering a Droid purchase to go with iPhone instead, Android has developed into an exciting competing platform and continues to enjoy many advantages that Apple's platform does not.

I'm not sure that even someone as pragmatic as myself who uses and enjoys both platforms -- an iPad and a Droid -- is willing to ditch Droid for an iPhone.

For starters, the Wi-Fi tether capability in Froyo is likely to continue to be a prime differentiating feature, as does the seamless integration with Google's services. To date, the iOS platform still does not seamlessly integrate well with GMail, Google Docs and Google Calendar, and key features in Google's web services will continue to premiere and innovate on the Android platform, not on iOS.

One can also not assume that Android development is going to stand still and that Verizon will want to cannibalize the branding and market share it has established with the Droid.

Whether or not a Verizon iPhone does or does not launch at the carrier in 2011, there will be more powerful, more compelling Droids, particularly ones which are likely to launch in the same Q1 LTE network introduction timeframe as a said Verizon iPhone.

Google, Verizon and the Android manufacturers -- HTC, Motorola and Samsung -- are likely to up the arms race with transflective screen technology as well as with faster processors, larger amounts of memory and storage, higher megapixel cameras with better video recording capability, as well as vastly improved enterprise integration.

And I agree completely with TechRepublic's Jason Hinerthat Apple will never be able to cozy up to the enterprise -- this is Google's market to lose if they don't continue to improve integration with Exchange, SAP and other key business software platforms such as Salesforce.com and Microsoft Sharepoint.

Additionally, the fact that Android Froyo can run Flash and other applications using the Native Interface and Apple's platform cannot is not a trivial issue either.

I don't expect Google's innovation to stop once iPhone arrives at Verizon. If anything, it will increase their competitiveness and likely expedite improvements in the software.

Can Verizon’s network really manage the demands of iPhone users or will it buckle the way that AT&T’s did? If Verizon's long trial period of LTE is of any indication, they've been planning for iPhone's and a massive upsurge of other data-hungry smartphones like the Droid for a very long time. They know that a botch of an iPhone launch would mean total disaster for the company.

Additionally, given the huge popularity of Verizon as a enterprise data carrier for BlackBerry, the company would want to make absolutely sure that their reliability would not be compromised by introducing such a data-demanding customer base on their network.

So I'm going to put a stake in the ground and put my reputation on the line and say yes, Verizon will be able to manage the demands of their entire data network if the iPhone is introduced onto their system.

Do you have other alternative answers to Sam's Five Questions? Talk Back and Let Me Know.

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