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Will Verizon’s iPhone Shake Up the Mobile Market? Not So Much.

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Verizon (s vz) today announced the long-awaited iPhone for its network, and short of the first iPhone in 2007, I can’t remember such hysteria over a single handset. Does this one phone have the potential cause disruption to all other carriers in the U.S. market now that iPhone (s aapl) is on the carrier with the largest geographic coverage and with the most current subscribers? The iPhone hardware with its slight redesign and new mobile hotspot feature is nice, but the impact of a Verizon iPhone on the U.S. mobile market isn’t nearly as big as it would have been a year or two ago.

What Happens to Android?

To me, this is the most interesting question when it comes to the Verizon iPhone. Without an iPhone to offer, Verizon turned to Google Android (s goog) handsets, starting with the popular Motorola Droid in October 2009. Droid was followed up again and again with top-notch Android phones, and Verizon spent millions of advertising dollars to make the Droid brand synonymous with Google Android. As a result, the carrier isn’t likely to let that investment fade away. At the same time, in anticipation of losing iPhone exclusivity, AT&T (s t) has been beefing up its handset portfolio with new Android devices. One of the most impressive ones at CES, the Motorola Atrix 4G (s mmi), is an AT&T exclusive.

Horace Dediu’s Asymco blog took a unique approach to the Android vs iPhone battle based on the ratio of Android phones to iOS phones on AT&T, pointing out:

  • As of November, the ratio of iOS to Android users was more than 15 to 1 at AT&T.
  • iOS at AT&T has twice the users as Android at Verizon
  • Although T-Mobile had the Android franchise to itself for all of 2009, it was overtaken by Verizon within four months

All are valid points, but need some perspective. For example, it’s not surprising that iOS users outnumber those with Android on AT&T considering the iPhone has been on AT&T for 3.5 years. In contrast, the first comparable Android handset even available to AT&T customers in my opinion was the Samsung Captivate, which only arrived this past August, just five months ago. A similar concept applies to Dediu’s second point: AT&T has offered the iPhone for twice as long as Verizon has offered Android devices, which helps explain to a certain degree why the number of iOS users on AT&T are double the Android users at Verizon.

In that light, Android is holding its own and has been growing faster than iOS handsets, even surpassing them earlier this year. Verizon customers are surely going to evaluate the iPhone against Android offerings, and those who have waited for an iPhone will surely get it. But four new very high-end LTE handsets with dual-core processors and 1080p playback running Android are coming soon to Verizon’s network, and that should help propel Android handsets forward. Will there be a decrease in overall Android activations? Here I agree with Dediu, who expects Android sales at Verizon to flatline, at least in the short term. But I also expect AT&T to put marketing muscle behind the exclusive Atrix 4G  and other Android phones as a differentiator from Verizon’s line up.

How Many Switchers from AT&T and Others?

After 3.5 years of exclusively grabbing iPhone customers, AT&T is surely keeping a close eye on how many people leave for a Verizon iPhone. Some potential defectors may be held back due to AT&T’s Early Termination Fee, which was raised in May to $325 from $175, but those that have faced coverage issues in their particular areas could bolt to Verizon. Jan Dawson, Ovum’s chief telecoms analyst, suggested to me via email Tuesday that one to two million fit this profile in the short term, which is far less than the mass defection some expect.

I tend to agree with Dawson and think that unless customers have had extremely poor iPhone experiences on AT&T’s network, the majority of current iPhone owners will stay put. There’s also a potential loss of customers on T-Mobile, Sprint (s s) and smaller networks that don’t have an iPhone available. But many in this profile could have moved to AT&T for the iPhone prior to now if they really wanted it. I expect these folks to wait and see how Verizon’s voice and data plans compare with their current cellular bill, and again, most will stay put. Besides, AT&T no longer has the iPhone exclusive, so the handset could appear on any U.S. carrier going forward. Why switch to Verizon if you’re happy with your current carrier, which may offer an iPhone at some point in the future?

Summertime Will See Even Greater Demand

February is likely to be a big month for Verizon iPhone sales, but as we approach the summer, that number should flatten out, or even decrease on a month-to-month basis. Why? Because Apple has consistently followed an annual summer refresh cycle for its iPhone, and there’s no reason to think it will stop now simply because it has one more carrier in the U.S. As a result, customers on the fence about the current Verizon iPhone may hold off as we approach the anticipated new iPhone announcement in five short months. Traditionally, summer iPhone sales jump due to new model availability, and this year is likely to be no exception.

Although it’s purely speculative, with some educated guesswork on my part, I expect a summer announcement of iPhone 4G, not iPhone 5. Verizon’s LTE network already covers one-third of the U.S. population in 38 markets, and it will add 140 more markets in 2011. AT&T’s HSPA+ network upgrades started last year and the carrier plans to begin rolling out LTE service later this year. Even if LTE isn’t ready, an iPhone 4G for AT&T could include a faster HSPA+ radio. Both networks have a 3G network to fall back on, so it’s not impossible that a 4G iPhone will surface in 2011, although Apple prizes battery life: something we don’t have data on for LTE handsets. But as I pointed out Monday, the more phones Verizon can get on its 4G network, the less its 3G network will be impacted by a flood of new iPhones, and the better it handles the traffic.

Everybody Wins

I’d be surprised if Verizon moves less than 10 million iPhones by the end of this year. But AT&T has wisely built up its handset portfolio over the past six months and has promising products for the future. More U.S. consumers are adopting smartphones too; by the end of this year, 1 in 2 will have one, and not all want an iPhone. With more compelling alternatives to Apple’s handset, new 4G networks and the fact that iPhone could appear on any U.S. carrier now, the impact of a Verizon iPhone is far less now than it would have been one or two years ago. It’s a win for consumers who have more handset choices now that the relationship between the iPhone and AT&T is “friends with benefits” and not an exclusive marriage.

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19 Responses to “Will Verizon’s iPhone Shake Up the Mobile Market? Not So Much.”

  1. Minor point of the article (which was a good read), but I don’t think the next iPhone is going to be called the iPhone 4G. The next iPhone is the 5th iPhone. If they call ti the iPhone 4G, then in 2012 the next iPhone will be the iPhone 6, which will be odd because there was no iPhone 5x.

    It made sense to call the 2nd iPhone the iPhone 3G because that was the lacking part. But then you couldn’t call the 3rd iPhone the iPhone 3 because then it seems like you’re leaving something off, so you call it the 3GS, and then you have the 4. The naming issue with the 3rd iPhone was that Apple had jumped to calling the 2nd iPhone something with the number 3 in it. 4G doesn’t jump the gun, it actually backtracks by calling the 5th iPhone something witht he number 4 in it. Apple isn’t going to do that.

  2. I am curious how many people will port over their numbers to Verizon and then potential (if it is possible) switch their phone numbers on their AT&T iPhone account, lower their plans (removing data, for example) and figure out a way to ride out the contract without having to pay such a large amount to terminate the contract.

    • Curtis Carmack

      Dwayne, I already asked AT&T about this late last year. The answer was that the minute you port your number out you’re done. Even if you want to keep the line, it’s a new contract. Doesn’t make much sense to me, but that’s what I was told.

  3. Apple having waited 3.5 yrs to bring their iPhone to Verizon should have come to Verizon with iPhone with 4G even if it meant a delay of 6 months. The fact that smart phones with 4G are going to be available at Verizon at the time when iPhone with 3G will become available at Verizon will have some impact on the uptake of iPhone at Verizon. Finally one would expect that customers at Verizon who have waited so long for iPhone would rather wait few more months and get iPhone with 4G rather than purchase iPhone with 3G right now.

  4. Thanks for reasonable balance Kevin.
    You may want to compare this exclusivity change in the US to what happenned in Canada about a year ago. One of the large carriers had exclusivity for the first 2 years of iPhone products. The exclusivity ended last summer with new network builds and the iPhone 4 and subsequently there has been a re-balancing of net new adds. All three carriers offer iPhone and Android devices.
    Very similar to the pending shift in the US and a similar social-economic.

  5. I long for the day the iPhone is available on EVERY carrier, large or small. Neither AT&T nor Verizon offer service where I live, but T-Mobile, CellularOne, Sprint, US Cellular, and Pioneer Cellular do, and they all have roaming agreements that allow their customers to use their phones on the “big boys” networks. Tim Cook said yesterday that the deal with Verizon is non-exclusive, so I am hoping that the day I can buy an iPhone through my local carrier is coming very soon.

    • I also noticed that “non-exclusive” aspect of the agreement and hope that all carriers get to have the best of all platforms in the near future. This will allow the end users to (ultimately) win! I am a loyal Sprint user who has moved from Blackberry (World Edition) to Palm WebOS (Palm Pre) to Android 2.1 (Samsung Epic 4G with hopes of an upgrade to at least 2.2 Froyo in the very near future). Each offered great options and some disadvantages! Hence, I remain hopeful for the day wherein all customers have the option of all platform, no matter the carrier!

  6. Please stop quoting Horace Dediu. He’s just a hyped up analyst who’s no more credible than Gruber when it comes to Android or anything anti-Apple.

    I still can’t forget when he mislead his readers by saying how Android phone manufacturers were not making any money BECAUSE of Android, when in fact they weren’t making any money because 99% of their business was still non-Android and they were just getting started with Android.

    • Lucian, I think Horace has a refreshing take more often than not, so I’ll agree to disagree. And in this case, I think he’s putting too much emphasis on a Verizon iPhone, which is why I used his data points and explained why I don’t necessarily agree with him on this one.

  7. Hamranhansenhansen

    Why is Verizon even offering the iPhone if demand for Android is just as high? Why is Verizon giving a handset maker completely unprecedented control over a Verizon device? There is no Verizon logo or software on the device at all, something Verizon said years ago that they would never do?

    Your excuse that Android only starts counting from Samsung Captivate is ridiculous. That same logic can be applied to say iPhone doesn’t count until iPhone 4 because that was the first one with multitasking of 3rd party apps. Other than the original iPhone which was US-only, AT&T-only, had no 3rd party apps, no 3G, no GPS, and sold only 6 million units in 2007-2008, iPhone and Android have been shipping for almost the same amount of time. iPhone 3G shipped July 2008, and the first Android handset in November 2008.

    Smartphone sales on Verizon collapsed 7-8 months ago after iPhone shipped, so your “Android started 5 months ago” is even more ridiculous. Once there was a credible rumor iPhone 4 was coming to Verizon, Verizon users stopped buying smartphones. That is why Verizon had to capitulate to every Apple condition and why they are shipping their first truly 3rd party phone.

    So the shake up has already happened. Verizon Droid was killed by rumors of iPhone 4 on Verizon.

    If you want to refute numbers, answer them with other numbers, not how you think it ought to be. High-end Android is dead. Android has moved down market to replace free feature phones. You get a Web browser and rudimentary Java applets on your free phone now thanks to Android. The vast majority of Android sales are free phones in China and India. In the US at least, consumers want iPhones, not smartphones, same as they want iPads, not tablets, same as they want iPods, not MP3 players. A smartphone contract is $80/month in the US. For that price, you want the best phone $199 can buy. You want to replace the $199 iPod you bought a couple of years ago with a $199 iPhone and keep using your iPod features as before. While tech industry people pretend smartphones and tablets are generic PC market type things, they are name brand iPod type things. The numbers show this. No amount of wishing changes it. Many Verizon loyalists are on Verizon because they feel they bought the best network, and they want the best phone also. Everybody knows that is iPhone.

    • Verizon is offering the iPhone because it knows customers on its network (and others) want it. ;)

      Did you actually read the post? Here’s why I ask:

      “Your excuse that Android only starts counting from Samsung Captivate is ridiculous.”

      That’s not what I said and you’ve missed the point. I was illustrating that on AT&T the iPhone has been sold for 3.5 years while the first decent Android handset that could compete with the iPhone (solely on AT&T’s network) was the Captivate, which arrived in August. Are you saying that potential iPhone customers on AT&T opted instead for a Cliq or Backflip? I doubt it.

      The point was to put the ratio of iOS / Android sales on AT&T into perspective and explain why the ratio might be 15:1 due to timing and competing handsets. I think you missed that point because you also said “Smartphone sales on Verizon collapsed 7-8 months ago after iPhone shipped, so your “Android started 5 months ago” is even more ridiculous” I kept the AT&T and Verizon datapoints separate (on purpose) but you’ve attempted to tie them together. Hope that better explains the reasoning, even if you disagree with it.

  8. Scooter McCoy

    I suspect many Verizon customers will eventually ditch their plastic Android phones and upgrade to the industrial-grade iPhone 4 they always wanted. Also the four should be available to China Mobile’s 500 million customers later this year. And once APple unleashes the iPhone 5 this summer a new world order will indeed be established as this new super phone will rapidly become the most popular and powerful phone in the entire world bar none. I would think the combined sales of iOS devices (i.e. iPads, Apple TVs, iPods, iPhones and new embedded iOS devices) should easily outpace Android in 2011 and the Google may start to be worried by disappointing Android tablet sales, despite more than 80 varieties of cheap android slates they will trail the single iPad by millions of units.
    Apples profits should grow handsomely in 2011 and will propel it into the largest company in the world by overtaking ExxonMobil and Android will spend most of its time eating iOS dust throughout the year. So Yeah, the Big Red iPhone is just the start of a Mobile Market Shakeup that is coming from those geniuses in Cupertino who should never ever be underestimated.

  9. Good analysis and surprisingly neutral, compared to the heavily biased editorials that seem to be flooding other sites like Techcrunch.

    I think that this will not have the impact that many expect? Why? Look at other nations. The iPhone was an exclusive in the US, but not elsewhere and the net subscribers is not much greater. True, in many other places, people buy their phones up front rather than the subscription model, which may deter people, but in nations with subsidies, even then, it is not as great as expected.

    I suspect that the smartphone market may be closer to saturation point than most people think. We will see prepaid Android devices flooding the market at the $100 price point soon. But most people who buy such things, if they aren’t willing to spend more than say, $150 on a phone, they certainly aren’t willing to pay a massive monthly data bill.

    • Hamranhansenhansen

      If you’re paying a high monthly bill, that is even more reason to spend $199 up front on the best phone in the world instead of getting a free phone.

      Verizon has almost no smartphone users at the current time. They have more users who are waiting for iPhone than they have smartphone users. In the past year, even though AT&T has less users, AT&T sold more iPhones than all of Verizon’s smartphone sales combined. There are more Verizon users with a feature phone plus iPod than Verizon smartphone users. The smartphone market is the furthest thing from saturated. Yes, monthly bills need to come down, but there is no question that the smartness of the handsets is going up. You get more than 2x the value out of an $80/month iPhone contract than you get out of a $50/month feature phone contract.

      • “that is even more reason to spend $199 up front on the best phone in the world” But then nothing changes… Verizon has had Droid phones for over a year now, so people already had that option.