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Verizon Wireless, RIM Unleash a Storm

Will it rain on iPhone's parade? The new touchscreen BlackBerry Storm will be available exclusively to Verizon Wireless and Vodafone customers

Until recently, Verizon Wireless was the undisputed leader of the U.S. wireless industry. While AT&T (T) claimed more subscribers, Verizon Wireless came out ahead on virtually every other important yardstick of wireless company performance—including revenue, profit margins, network reliability, and customer-service rankings.

Then came the iPhone. Dallas-based AT&T signed on as the exclusive carrier of Apple's (AAPL) iPhone in the U.S., mounting an impressive counterattack that has knocked Verizon Wireless back on its heels. Thanks largely to the iPhone, in the past 12 months alone AT&T has attracted 9.2 million new subscribers, nearly 40% more than the 6.6 million lured by Verizon Wireless, which is owned by Verizon Communications (VZ) and Vodafone (VOD).

Now, Verizon Wireless is firing back—with the BlackBerry Storm, the first-ever touchscreen phone from Canadian smartphone maker Research In Motion (RIMM). On Oct. 8, Verizon Wireless and RIM said that beginning in November, the device will be available exclusively to Verizon Wireless customers in the U.S. and to Vodafone customers in Europe, Australia, and New Zealand. Verizon Wireless will be the exclusive Storm carrier for as long as the device is sold, the companies said.

Under Two Flags

Like Apple and the backers of the Android mobile operating system did for their respective handsets, Verizon Wireless is also opening an online bazaar where customers will be able to download a range of games, tools, and other applications for use on the Storm. On Oct. 9, the company will release a toolkit designed to help software developers build applications for the store, dubbed the App Zone. "Our goal was to bring one device to the marketplace under the flags of two companies," Verizon Wireless Chief Marketing Officer Dave Lanman says.

Verizon needs all the firepower it can muster. The most recent version of the iPhone, released in June, seems to have bolstered AT&T's assault on Verizon Wireless. Of U.S. consumers who purchased the new faster iPhone through retail outlets in August, 30% switched from other mobile carriers to join AT&T, according to a report from the research firm NPD Group released Oct. 6. Among those who switched, 47% migrated from Verizon Wireless, while another 24% switched from Deutsche Telekom's (DT) T-Mobile and 19% from Sprint Nextel (S). "We have no way of knowing how accurate those numbers are," Verizon Wireless spokesman James Gerace said of NPD's numbers.

Early reviews of the Storm have been favorable. The onscreen keyboard is more tactile than the iPhone's, making typing easier and more accurate. The Web browsing capability of the Storm marks an improvement over previous devices from Research In Motion, though it doesn't quite match the elegance and utility of the iPhone's Web browser and its pinchable touchscreen technology, says BusinessWeek Tech and You columnist Stephen Wildstrom. And the Storm is a truly global phone—the first to work on the high-speed wireless networks of both Verizon Wireless and Vodafone. "It should serve as Verizon's strongest response to the iPhone yet," says Ross Rubin, an NPD analyst.

Marketing Push for the Holidays

Verizon Wireless execs play down comparisons with the iPhone. "I'm not here to talk about them," Lanman says. Research In Motion has built a brand known for enabling business users to gain access to their e-mail with a secure yet stodgy device. Over the last few years, though, the company has rolled a new line of sportier devices that have been popular with consumers.

The Storm, says Lanman, is designed to appeal to both consumers and business people. Verizon Wireless plans a big marketing push for the yearend holidays. "There is a gap in the market and we will bridge that gap," Lanman says. "We think it's worthy of investing significant marketing dollars."

The Storm should help slow customer defections from Verizon Wireless, says Matt Thornton, an analyst at Avian Securities. "The only caveat is if they cut the iPhone's price again," Thornton says. He adds that the price—about $200 for a low-end iPhone 3G—is so low that Apple and AT&T don't have much more room for reductions. Verizon Wireless execs declined to specify their pricing, but most analysts believe the company will charge about $200 for the Storm, provided the customer signs up for a one- or two-year contract.

Watching the Numbers

To gauge the true impact of the iPhone 3G in recent months, analysts will be closely watching third-quarter earnings reports from both carriers. AT&T reports earnings on Oct. 22, while Verizon Wireless reports on Oct. 27. The Storm's impact won't be seen until the fourth quarter, the results of which are typically reported in January.

Ante is an associate editor for BusinessWeek. Kharif is a senior writer for in Portland, Ore.

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