Don’t Count on a Verizon iPhone

by David Goldman
Friday, May 28, 2010

It’s that time of year again: The weather is getting warmer, Apple‘s (Nasdaq: AAPL –News) annual Worldwide Developers Conference is just around the corner, and rumors about the iPhone coming to Verizon (NYSE: VZ – News) are sprouting up.

Don’t believe it, Verizon fans. It’s unlikely that Steve Jobs will announce a Verizon tie-up when he gets on stage at the WWDC event on June 7.

The rumors have been swirling around for years because an Apple-Verizon partnership seems to make sense for both parties.

The top reason consumers who are in the market for an iPhone decide to pass is AT&T‘s (NYSE: T– News) 3G network problems, which are notorious in New York and San Francisco, according to a CFI Group study. Meanwhile, Verizon has built up its reputation as the “most reliable network.” Also, Verizon’s 93 million wireless customers would present a huge opportunity for Apple to grow its customer base.

Yet there are some fundamental reasons why a deal isn’t imminent.

Different Networks

Verizon’s network runs on a wireless standard called CDMA, which is incompatible with AT&T’s GSM network. It’s not impossible to offer phones on both networks — Research In Motion(Nasdaq: RIMM – News) sells BlackBerry phones on every major U.S. network. But it wouldn’t necessarily make economic sense for Apple.

For one, Apple has proudly advertised that consumers can make calls and surf the Web simultaneously on the iPhone, but Verizon’s CDMA network can’t support that feature.

Secondly, Verizon is set to roll out its 4G network later this year, and AT&T will unveil its 4G network in 2011. Those networks will be on a new universal, global standard called LTE, making a 4G/LTE iPhone much more cost-effective for Apple and easier to sell around the world. That would make next year or even 2012 a more likely timeframe for debuting a Verizon iPhone.

And suppliers haven’t given any indication that Apple is building a CDMA phone, according to Jagdish Rebello, principal analyst of communication systems at iSuppli.

AT&T’s Exclusivity Contract

Apple has a five-year exclusivity deal with AT&T, according to court documents, making it unlikely that the iPhone could come to Verizon before 2012.

Many analysts said nothing is set in stone and speculated that the terms could have been renegotiated.

“No one has a good handle on how long that exclusivity deal runs, but those contracts usually last 90 days to six months,” said Josh King, general counsel at Avvo.com and former senior corporate development executive at AT&T Wireless.

But one big indication that AT&T’s contract will continue for a while is its sweet 3G pricing deal for the iPad.

AT&T offers unlimited 3G access for the iPad on a contract-free basis for an average of about $22 a month. Because those sales only account for 15% of AT&T’s data revenue, according to data tracker Trefis, it may be part of a bigger strategy.

“There is speculation that AT&T is offering attractively priced 3G data plans … as part of a broader deal with Apple to maintain iPhone exclusivity for longer than the original agreement,” Trefis said in a recent analyst note.

“AT&T is our exclusive partner in the U.S. and we’re very happy with that,” said an Apple spokeswoman but she would not comment on Apple’s plans to sell the iPhone on other carriers.

Verizon Might Not Want the iPhone

When Apple was searching for a network to carry its iPhone in 2007, Verizon was widely reported to have balked at Apple’s demands to take a share of the company’s revenue.

Verizon said it would be able to handle the iPhone on its network, but wouldn’t comment on its interest in carrying the iPhone specifically.

“The Verizon Wireless network is optimized for maximum efficiencies and … we can mange the growth,” a Verizon spokeswoman said. “We pride ourselves on having an array of smart phones on several different operating systems.”

Recently, Verizon appears to be shrugging off the iPhone by going all-in with Google(Nasdaq: GOOG – News). Verizon’s past two flagship phones have been Google Android-based phones, and the company is working with Google to launch a tablet to compete with Apple’s iPad.

Verizon also couldn’t have made Apple too happy after launching a scathing “iDon’t, Droid Does” campaign, in which the company went after all of the iPhone’s deficiencies. And in a separate campaign, Verizon poked fun at Apple’s “there’s an app for that” slogan when it went after AT&T’s 3G network with its “there’s a map for that” ad.

“There’s a lot for Verizon to consider, including revenue sharing and how much the iPhone would fit in with what the company is doing now,” said Ramon Lamas, mobile device analyst at IDC. “But right now, they’re all about Google.”

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