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Why Verizon Needs the Apple iPhone Sooner Rather Than Later

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With no iPhone to offer customers, Verizon (s vz) has turned largely to Google Android (s goog) smartphones. On the surface, that strategy has paid off, as Verizon continues to hold the top spot for mobile subscribers in the U.S., although AT&T (s t) is nipping at its heels. But detailed data showing Verizon’s smartphone sales surfaced this weekend, and if the information is accurate, paints a different picture: Verizon needs Apple’s iPhone (s aapl), or else it risks losing its biggest carrier status.

The sales data appeared in a report from ITG research analyst Matthew Goodman, first showing an alarming trend for Research In Motion (s rimm): BlackBerry devices accounted for more than 90 percent of Verizon’s smartphone sales just 14 months ago. The rise of Android (s goog) devices from multiple manufacturers has since eroded RIM’s share of Verizon smartphone sales to under 20 percent, as of last month. Verizon customers have, instead, turned to Google Android phones, presumably because they’ve found Android to be a reasonably acceptable substitute for an Apple iPhone, or a BlackBerry handset, for that matter.

Asymco’s Horace Dediu took the sales data a step further by comparing Verizon’s smartphone sales against those of AT&T’s iPhone. Assuming the ITG data is correct, Verizon’s strategy to offer several Android phones actually hasn’t competed well. Add up the total number of Android phones Verizon has sold in the last few quarters, and AT&T has still sold more iPhones. Even with a multi-device strategy based around Google Android, Verizon is losing sales ground to a device on a single platform.

Image credit: Asymco

The largest gap between AT&T’s iPhone sales and all of Verizon’s smartphone was in the third quarter of this year, which very likely got a huge bump from the iPhone 4 debut. We’ll have to wait to see the fourth quarter sales numbers to see if the trend continues or not. Even so, the numbers are alarming for Verizon because it means Verizon’s entire smartphone portfolio is getting outsold by Apple’s iPhone on the AT&T network. And more consumers, not fewer, are buying smartphones, with some estimates suggesting 50 percent of U.S. mobile subscribers carrying a smartphone by this time next year. On its most recent investor call, Verizon reported that only 23 percent of its retail postpaid customers have smartphones, so there’s ample opportunity for sales growth in 2011.

Between now and then, however, many are pinning hopes on Verizon working a deal for an iPhone of its own. As I said back in June, there are a few tangible reasons why 2011 is likely to see an iPhone on Verizon’s network. Since that time, there has been no lack of rumors and reports suggesting it will happen; odds are favorable that Verizon will offer an Apple iPhone next year.

If Verizon does land the iPhone in 2011 as expected, it would likely reverse the trend of AT&T smartphone sales dominance in the U.S. and keep Verizon in the top subscriber spot, but the question is: by how much? Verizon could offer early upgrades to existing customers who want an iPhone, which would help sales figures, but won’t affect the total number of subscribers. It may come down to an issue of perception in terms of how consumers believe both networks perform, something that despite heavy upgrade investments and marketing, AT&T continues to battle; Consumer Reports recently named it the worst network carrier in the U.S.

For many, Verizon is seen to have a more reliable network, although experiences vary by location and coverage. What doesn’t vary is the heavy promotion Verizon is giving its new LTE network, which offers blazing fast speeds even if it doesn’t technically qualify as a 4G network. And the carrier did say that the first LTE handsets for the network will arrive in 2011. I’m not suggesting that one of those first LTE phones will have an Apple on them, but if it does, I’d expect Verizon to reverse the current trend and start pulling away from AT&T in terms of smartphone sales.

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24 Responses to “Why Verizon Needs the Apple iPhone Sooner Rather Than Later”

  1. Android smartphones is now the leading most popular smartphone in the market according to reports during the 1st, 2nd, and 3rd quarter of this whole year!

    This suggests that consumers are less interested in iPhones and prefer the wide range of handsets and smartphones that run the Android operating system. As my niece recently explained, she’s getting the Samsung Galaxy S running Android because everyone has it. That is, everyone in the medical college she is attending.

    I think Android has become the better choice than iPhone simply because it supports Flash which is really popular for watching movies, playing games, and all kinds of embedded apps built in Flash. No matter what excuses anti-Flash supporters say, Flash is surely here to stay and everyone loves it on the Android platform.

    Android also uses true multi-tasking where iPhone uses a poor excuse for multi-tasking which many consider more like task-switching. iPhone just can’t compete with the growing army of Android smartphones that just keep pumping out better smartphone hardware and features every couple months!

  2. skgtheblij

    Has anyone ever wondered if Verizon even wants the iphone? I bet AT&T is paying Apple a good deal for every iphone, to the level that it may not even be truly profitable. In the process, they overloaded their network and destroyed their reputation for reliability. Part of the reason Apple is able to create the products they do is that they have AT&T subsidizing them, while Android phone makers do not have anything of the sort. My guess is that Verizon wants apple to offer them the iphone with little to no subsidizing, and apple will not agree. Again, although the iphone has greatly increased subscriptions to AT&T’s network, I highly doubt it has been very profitable.

  3. The difference is Android is on several carriers, including low cost carriers such as Cricket and Virgin Mobile who offer significantly cheaper plans (often with the same coverage). The best Android phones, the Evo 4G and Sprint’s version of the Samsung Galaxy, are on Sprint, Sprint also has the advantage of the ability to get a new cell phone every year for the die-hard android fan who wants the latest tech. Oh, Androids are on T-Mobile too, where the unlocked option is in place. Android is not unique to Verizon the same way the iPhone is unique to At&t (which also has android). Since the iPhone came out I heard from Verizon devotees who said “I will wait till its out on Verizon”. Many I imagine ultimately ended up with an Android. Android is expanding because it is on EVERY carrier with tons of options, can’t afford a smartphone plan, here is this option on Virgin Mobile, want the latest and greatest 4G or HSPD+ phone, here is the Sprint or T-mobile phone, etc. Verizon is just another player in a crowded market, sure they have the best service in terms of coverage, but they also nickle and dime on texts and data, something the other carriers with androids do not. Also remember Sprint is nipping at the heels in terms of customer ratings with Verizon.
    Android is choice, not a last resort. It is not just about Verizon either, Androids expanse also comes from expanded offerings that appeal to a wider user base, instead of just apple users.

    (PS own an Android EVO 4G. Did not like the iPhones tiny screen. Plus Android has a better GPS system and a more capable browser, on top of the better integration with google.)

    Like At&t Verizon nickles and dimes on text messages.

  4. Trace McDude

    It still painfully obvious to anyone that objectively analyze the smartphone offering’s today that the iPhone still knows of NO EQUAL even though some of those Android copycat phones trying hard to emulate the awesomest maximus of the mighty iPhone.
    Look for the LTE-enabled iPhone 5 to spank the Android clones like nobody’s bidness. Steve should see his $55 billion in CA$H grow handsomely once Big Red customers are able to finally get the phone that they all really wantz.
    2011 will be another year with the iPhone securely nestled upon its throne atop the hill where only Kings dare go. Android will be the choice of the commoners and porn lovers while those with an eye for quality will clearly stick with all the iPhone goodness and excellence eminating from the geniuses working 24×7 in Cupertino to better enrich those with an appreciation for the finer things in life.

  5. It is not that no one buys an Android phone for Android is that non tech customers but Verizon Droid’s because they can not get an iPhone and they have or want a Verizon phone.

    Most Droid owners don’t even know what Android is. The problem is that Google’s Android is not a consumer brand, the iPhone is the Droid is and even the Galaxy is.

    The Android market is not just segmented by operating system version but also by consumer branding. The do not have the same kind of brand awareness that Windows or Intel achieved. And while Google is maturing quickly they are still a very poor consumer marketing organization.

  6. I’m not sure I conclude the same thing you do from that data. Verizon will surely get a huge boost from access to the iPhone, but Android options have been pivotal in reducing attrition.

  7. What percentage of iPhone 4 sales replaced iPhone’s (3 or 3gs)?

    For years Apple played this game with iPod sales. While it’s true they had sold 100 million iPods, half of them were no longer in service. You need to add life expectancy of the product into the mix to understand the numbers. Raw unit sales by themselves are pretty meaningless.

    • Unit sales may be meaningless to carriers, who rely on the incoming, monthly revenue of their installed base. (The same is also true of Google, w.r.t. advertising and application sales.) But unit sales is mainly where the manufacturers (Motorola, Samsung and Apple) make their money. If I buy a smart phone off-contract, or break my contract before the early termination fee lets the carrier break even, the manufacturer has made its money off me. So, to that extent, comparing Verizon to Apple is apples and oranges.

      But in the marketing fairy-tale world where every buyer in the smartphone market really wants an iPhone on Verizon and nobody breaks their contracts: The folks who settled for a Droid on Verizon can reach the promised land after 18 months on-contract while the folks who settled for an iPhone on AT&T have to wait 24.

      If we assume all of this is true, and this is where the unit-sales figures come back into play, the longer Verizon waits to introduce the iPhone to its network, the more people will be trapped in this six-month gap where they can’t ditch AT&T for Verizon, but they could have ditched Android for iPhone.

      I don’t believe these assumptions, myself, but it’s in the job description for technology reporters.

    • telcom modeler

      The short answer to your question is 76% of iPhone4 purchases in Q3 were from existing AT&T customers; presumably a large percentage owning and earlier version of the iPhone. But the question goes to the crux of the article; that’s market share. Unit sales tell you very little about market share. In Q3 AT&T sold 5.2m iPhones but activated only 1.3m new iPhone customers. They lost 500k customers with other devices so the net additions were 745k, a far cry from 5.2m. Verizon added 584 similar customers. Year to date they are at 1.7m each, not exactly a huge swing in market share.

  8. My personal experience is that many people buy an Android device because it does enough of what they need to do. From an app perspective, could they be more sophisticated and polished? Sure. But, over the coming months this will change.

    Android is a solid choice. The question is, besides text and email, what does Blackberry do well? Definitely not web!…

  9. +1 on Android being a choice, and not a last resort.

    I’d also argue that Verizon would sell even more Android phones if they didn’t get greedy and Bing half the handsets. They also need to offer at least one new stock Android phone (I know Droid 1 is). Nexus S would do very well I think in a CDMA version on VZ.

    • Peter,
      I think the biggest reason people flock to the iPhone is that the carriers in general completely suck at customer service and product sales, while Apple seems to have a good handle on it.

      This manifests itself by Apple being trusted by more folks than say, AT&T or Verizon (Google has a similar position vs. the carriers).

      If the data and analysis is accurate, the major take-away is that Google needs to take a stronger hand in the OHA and Android and deliver a better customer experience rather than simply let Verizon or the other carriers to themselves.

      If Google steps up and keeps the carriers in check, then they can provide a strong alternative to Apple. If they don’t then people will chose Apple vs. your average carrier any day.

  10. “Verizon customers have instead turned to Google Android phones, presumably because they’ve found Android to be a reasonably acceptable substitute for an Apple iPhone”

    Did it ever occur to you that maybe they just want an android phone? The assumption by most bloggers that the majority of people buying android phones are doing so because they can’t get an iphone is really frustrating. If that was the case, I doubt we would see such a huge rise in android market share in the United States.

      • Android devices have really made the entry into competition this year. Therefore it can be said that a survey from May is old. There are much more different Android devices available now than back in May.

      • I don’t think the survey results are completely invalid at this point in time, but yes, there are more Android devices available now, many of which are compelling.

        That doesn’t change the fact that based on the most recent sales figures, the iPhone on AT&T has been outselling all Android phones on Verizon’s network. If Verizon does get the iPhone, it has a chance to gain some current iPhone owners away from AT&T and be additive to sales & subscriber count, regardless of how well Android is selling for Verizon.

      • thinkaboutit

        Its all about how you look at the data, how many of those iphone purchase in Q3 were upgrades from iphone-3 to iphone-4, so not really increasing customers for AT&T.