Estimating the Verizon iPhone Impact

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Updating the latest rumor, the Wall Street Journal is now reporting as fact that Apple “is making a version of its iPhone that Verizon Wireless will sell early next year.” The question then becomes one of how much a Verizon iPhone will help Apple in the U.S. smartphone market.

The U.S. wireless market has just under 300 million subscribers, with around 90 percent accounted for by the four biggest carriers. As of July, Verizon and AT&T were roughly the same size, while Sprint Nextel and T-Mobile combined have fewer customers than either. Considering that Android devices are available to triple the number of potential customers as the iPhone, Apple hasn’t done too badly, though arguably AT&T has done better.

At the beginning of the year, AT&T was approximately 5 million subscribers behind Verizon. As of July, that number is 2 million, and it’s very likely that lead will shrink further with the first full quarter of iPhone 4 sales being reported this month.

AT&T iPhones have made up a large minority of total iPhone sales in every quarter since the iPhone launched, the last four quarters seeing activations of 3.2, 3.1, 2.7, and 3.2 million devices respectively. For the last three quarters, between 30 and 40 percent of all new iPhones activated have been on the AT&T network. While it should be noted that Apple’s and AT&T’s respective fiscal quarters don’t align perfectly, the difference is measured in days and doesn’t impact the trends.

For AT&T, a Verizon iPhone will mean the loss of an indeterminate number of customers. AppleInsider reports on a survey by Credit Suisse that suggests as many as 23 percent of AT&T iPhone subscribers want to switch to Verizon. That translates to 1.4 million customers, but that’s a best-case scenario. For Verizon, 1.4 million customers, with more to follow as contracts expire, is a great thing, but Apple will be the big winner starting in January.

Assuming Verizon customers are no different from AT&T customers, Apple can expect around 3 million additional iPhone sales per quarter. Before the iPhone 4, iPhone sales had stabilized at between 8 and 9 million units for the last three consecutive quarters. The perpetually supply-constrained iPhone 4 will probably drive that base number to 10 million per quarter, at least initially.

Apple is currently on track to sell between 35 and 40 million iPhones in 2010, vs. 25 million in 2009. A Verizon iPhone will make that more like 50 million iPhones in 2011, or even 60 million with additional market growth. On a related profit note, it’s hard to imagine Apple not offering the iPad on the network of its new best friend, too.

Finally, a Verizon iPhone will have at least some impact on Google and the seemingly unstoppable Android. Android activations have climbed from 100,000 per day in May to as many as 250,000 a day in October. That’s nearly 8 million phones per month. A Verizon iPhone will slow, though by no means halt, Android’s growth.

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