Verizon IPhone Won't Disrupt Mobile Market

So Verizon has announced the long-awaited iPhone for its network. Short of the first iPhone release in 2007, I can't remember such hysteria over a single handset. Does this phone have the potential to cause disruption to all other carriers in the U.S. market now that iPhone is offered by the one with the greatest geographic coverage and the most subscribers? The iPhone hardware, with its slight redesign and new mobile hotspot feature, is nice.

The impact of a Verizon iPhone on the U.S. mobile market isn't nearly as profound as it would have been a year or two ago. The most interesting question is how it will affect Android. Without an iPhone to offer, Verizon turned in 2009 to Google Android handsets, starting with the popular Motorola Droid. Droid was followed again and again by top-notch Android phones and Verizon spent millions in advertising dollars to make the Droid brand synonymous with Google Android. The carrier isn't likely to let its investment fade away. At the same time, in anticipation of losing iPhone exclusivity, AT&T has been beefing up its handset portfolio with new Android devices. One of the most impressive ones at CES—the Motorola Atrix 4G—is an AT&T exclusive.

Horace Dediu's Asymco blog took a unique approach to the Android vs. iPhone battle, basing his analysis on the ratio of Android phones to iOS phones on AT&T. Dediu pointed out that:

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 number of users as does Android at Verizon

Although T-Mobile had the Android franchise to itself for all of 2009, it was overtaken by Verizon within four months

These valid points need perspective. It's not surprising that iOS users outnumber those with Android on AT&T, considering that the iPhone has been with AT&T for 3 1/2 years. In contrast, the first comparable Android handset available to AT&T customers, in my opinion, was the Samsung Captivate, which arrived only five months ago. As for Dediu's second point: AT&T has offered the iPhone for twice as long as Verizon has offered Android devices, which helps explain why the number of iOS users at AT&T is double Verizon's Android users.

And Those New Android LTE handsets?

In that light, Android is holding its own, growing faster than iOS handsets and even surpassing them earlier this year.Verizon customers are surely going to evaluate the iPhone against the company's Android offerings. Those who have waited for an iPhone will surely get one. But four new, very high-end LTE handsets with dual-core processors and 1080p playback running Android are coming soon to Verizon's network, which should help propel Android handset sales. 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. I also expect AT&T to put marketing muscle behind the exclusive Atrix 4G and additional Android phones to help differentiate its lineup from Verizon's.

After 3 1/2 years of exclusivity with iPhone customers, AT&T is surely keeping a close eye on how many people leave it for a Verizon iPhone. Some potential defectors may be restrained by AT&T's early termination fee, which was raised in May to $325, from $175. Those with coverage issues in their particular areas could bolt to Verizon. Jan Dawson, Ovum's chief telecom analyst, suggested to me via e-mail Tuesday that one to two million consumers fit this profile in the short term—far less than the mass defection some expect.

I tend to agree with Dawson. I think that unless customers have had extremely poor iPhone experiences on AT&T's network, the majority of iPhone owners will stay put. As for the potential customers on T-Mobile, Sprint and smaller networks that don't have an iPhone available, many could have moved to AT&T for the iPhone prior to now if they really wanted one. I expect most to wait and see how Verizon's voice and data plans compare with their current cellular bills, then stay put. AT&T no longer has iPhone exclusivity, so the handset could now come to any U.S. carrier. Why switch to Verizon if you're happy with your current carrier, which may offer an iPhone at some point?

That Refreshing Summer iPhone boom

February is likely to be a big month for Verizon iPhone sales. As we approach the summer, the number should flatten or even decrease on a month-to-month basis. Why? Apple has consistently refreshed the iPhone every summer refresh cycle for its iPhone and there's no reason to think it will stop now. Customers on the fence about the current Verizon iPhone may thus hold off as we approach the anticipated iPhone announcement in five short months. Summer iPhone sales traditionally jump due to new model availability.

Although it's purely speculative—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 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.Each network has 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).As I pointed out Monday, the more phones Verizon can get on its 4G network, the less its 3G network will be affected by a flood of new iPhones, and the better it will handle the traffic.

I'd be surprised if Verizon moves fewer than 10 million iPhones by the end of this year. Still, 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, half will have one. Not everyone wants an iPhone. With more compelling handset alternatives, new 4G networks, and the prospect that the iPhone could appear on any U.S. carrier, the Verizon iPhone impact is far smaller than it would have been a year or two ago. It's a win for consumers, who face more handset choices now that the relationship between the iPhone and AT&T is "friends with benefits," not an exclusive marriage.

Also from GigaOM:

Mobile Operators' Strategies for Connected Devices (subscription required)

How Social Networks and Mobile Tech Helped in Haiti

Six Ways to Charge Your iPhone With Solar

Flash Still Rules in Chrome's WebM-Only World

How the Mac App Store Could Lead to a Better iTunes

    Before it's here, it's on the Bloomberg Terminal.