If Apple were to bring the iPhone to Verizon Wireless after AT&T?s exclusivity agreement expires, it could send shockwaves throughout the mobile ecosystem.

Everyone from rival carriers to competing operating systems?especially Google?s Android?would be affected. However, would the damage to AT&T and the benefit to Verizon be as great as everyone seems to assume?

?It is likely that some early iPhone adopters who will be off-contract by the time AT&T's exclusivity with the iPhone comes to an end are just waiting to churn to Verizon for their next iPhone upgrade,? said Susan Welsh de Grimaldo, senior analyst at Strategy Analytics, Boston.

?However, AT&T has smartly been making iPhone upgrades attractive not just to new users but to existing subscribers, and we expect that they would focus on strategies to promote upgrades and contract renewals before exclusivity ends,? she said.

Other strategies to minimize the churn impact of losing exclusive rights to the iPhone include a diverse handset lineup.

That means AT&T would have to push other smartphones and ramp up its Android offerings.

?AT&T?s share of net adds will fall with loss of iPhone exclusivity, but this will be made up for in part by growth in emerging device subscriptions, where AT&T has been very active recently,? Ms. Welsh de Grimaldo said.

Exodus on biblical proportions?
Some analysts believe that AT&T losing its exclusive hold over the iPhone would not be as catastrophic as most people think.

At least, the carrier would not have to tell its subscribers how to hold their phone.

?I think there would be a non-trivial impact, but it would be far from devastating,? said Charles Golvin, principal analyst at Forrester Research, Cambridge, MA.

?Many iPhone customers are locked into contracts?many more so with the rash of upgrades to the iPhone 4?and many also don?t live in New York or San Francisco and generally experience good quality of service,? he said.

?Additionally, the recent kerfuffle about the iPhone 4?s reception problems clearly identify the device and not the network as the cause in this particular case.

"Many may doubt that the device would improve markedly on Verizon?s network.?

It is key to remember that the U.S. mobile market is not just about who has the iPhone?network performance is also a big consideration.

That issue has been at the heart of the television advertising wars that have been raging between Verizon and AT&T.

?Coverage is king and reputation for quality is critical, and throughout the rest of 2010 and increasingly in 2011-12 we will see network speed becoming a more important factor in purchase decisions,? Strategy Analytics' Ms. Welsh de Grimaldo said.

In countries such as France and Britain where the first carriers offering the iPhone lost exclusivity, there certainly was churn, but a more significant result was additional sales for the new carriers, according to Gartner.

?In the U.S., I think the situation is different, as there is a high level of frustration with the network performance, so I would assume to see a higher number of users churning, but the majority of sales should still come from new users,? said Carolina Milanesi, Egham, Britain-based vice president of mobile devices, technology and service provider research at Gartner.

Early termination fees would probably dissuade most iPhone users from switching to Verizon?at least until their contracts run out.

Some people would swap carriers regardless of the consequences because they are fed up with AT&T?s network.

"But say there are 10.5 million iPhone users, I would be shocked if 10 percent of the install base left AT&T and paid the early termination fee to move to Verizon,? said Michael Morgan, Burlington, VT-based senior analyst of mobile devices at ABI Research.

?A gradual shift as subscribers? contracts are up?that?s one thing?but I would be surprised if there is a mass exodus,? he said.

?I could see Verizon grabbing over time a million of those iPhone users, and that would have a negative effect on AT&T?s churn rate, because [exclusive rights to] the iPhone helps keep their churn rate low.?

Thanks but no thanks
Now that Apple has launched the iAd mobile ad network, it would love to have the iPhone on Verizon Wireless?being able to reach Verizon customers would contribute to making Apple a giant in the mobile advertising space.

However, the question that not many people have asked is whether or not getting the iPhone even makes sense for Verizon, given that it has invested a mint on marketing the various Android devices it carries.

How would a Verizon iPhone affect sales of other smartphones such as the BlackBerry and the Motorola Droid? Would BlackBerry get a black eye?

Verizon is a big supporter of Android devices, but would that still be the case if it had the iPhone?

Strategy Analytics notes that Verizon would need to divert some of its marketing dollars from its Droid flagship device brand to support iPhone marketing, and BlackBerry would come under pressure until it revamps its touch experience.

?Verizon would still be a big supporter of Android and offer a range of compelling devices to its subscribers,? Ms. Welsh de Grimaldo said.

The various Droid devices have been selling well, so does Verizon need the iPhone? How would it balance both platforms?

?Verizon?s smartphone lineup is now much stronger than it was a year ago, with a number of Android models that offer different tradeoffs in terms of capabilities, screen size and battery life, where iPhone seems to have a significant advantage over Android models,? said Ross Rubin, director of industry analysis at the NPD Group, Port Washington, NY.

Since Android devices have been successful, it seems it would not make sense for Verizon to mess with a good thing.

Verizon would likely heavily promote the iPhone if it were to come to the network, but the dynamics are different.

The iPhone has the lion?s share of smartphone sales at AT&T, and it would most likely grab a significant share at Verizon.

"There is simply a lot of brand cache and applications support for the iPhone that we still do not see in Android devices, particularly given how Verizon has directly positioned some of its Droid handsets against the iPhone,? Mr. Rubin said.

?They would be competitive, and while the iPhone might not achieve the same level of share on Verizon as it has on AT&T, it would certainly have significant share,? Mr. Rubin said.  

BlackBerry is going after a slightly different target than iPhone and Android.

And given that Google continues to upgrade Android and devices based on the operating system continue to sell well, many analysts believe Android will be able to compete against the iPhone.

Adroit
That said, the iPhone will steal some market share from Android devices if it is on Verizon. 

"I?m starting to wonder if in the long run Droid can?t do a good job catching up with the iPhone,? ABI's Mr. Morgan said. ?There is currently no hero Android device going head to head with iPhone?AT&T doesn?t have the Droid X to go up against the iPhone.

?BlackBerry would probably do a good job sneaking in as a lower-priced device appealing to enterprise users and those who prefer a QWERTY keyword, but it would not be a direct hit on BlackBerry as it would be on Droid, but I still would expect Android to hold its own,? he said.

A new version of Android, code name Gingerbread, is expected to roll out before the end of the year, possibly as soon as October, which is rumored to be a very significant upgrade to today?s Android operating system, according to NPD Group.

The better Android-based handsets get, the less pressure there is on Verizon, Sprint and T-Mobile to try to get the iPhone.

?That leaves me confused?why does Verizon want to bother with the iPhone?? Mr. Morgan said. ?It?s an expensive phone that hasn?t been shown to drive revenue.

?The biggest factor is that it reduces churn,? he said. ?The market is getting saturated, so growth is becoming more difficult and retention is much more important to carriers? overall strategy.

?Still, it might be cheaper for Verizon to keep the Droids and not bother with the iPhone.?

Smartphone Web usage not too far behind iPhone
Another key issue: Given that iPhone users have the biggest appetite for data, does Verizon want the headache of the network woes that AT&T has experienced?

?The iPhone has caused problems for AT&T because iPhone users by nature are heavy media consumers and Internet browsers,? said Dmitry Molchanov, analyst at Yankee Group, Boston.

The average mobile phone owner spends 19 minutes per day browsing the Internet on their mobile phone and the average smartphone owner spends 32 minutes per day?iPhone owners spend 37 minutes per day.

IPhone users download an average 12.6 applications every 90 days, compared to the average smartphone owner's 5.6, per Yankee Group.  

Any service provider supporting that level of application usage and browsing activity is going to have problems with their network.

Verizon is already feeling the effect of traffic from Droid devices, and it would certainly see more traffic growth with the iPhone.

?However, collectively carriers across the board are learning the lessons from network challenges caused by increased smartphone usage?both on signaling and on throughput?and are working to add capacity in backhaul, in heavy traffic areas with smaller-sized cells, for example, picocells, and by better optimizing the network for the new traffic patterns and applications,? Strategy Analytics' Ms. Welsh de Grimaldo said.

Forewarned
Verizon does have one advantage over AT&T, though: It got the benefit of learning from its competitor?s mistakes.

?Verizon would get more data usage certainly, but the data usage on the iPhone is no longer a mystery,? Mr. Morgan said. ?Verizon would have a pretty good idea about how many they would sell and a really good idea of how much data consumption that would entail.

?With a little bit of advanced planning they can be prepared,? he said.

Other analysts agree.

?I think Verizon?s network would be additionally stressed, but it would not suffer nearly as visibly as AT&T?s did,? Forrester's Mr. Golvin said.

?This is primarily a function of timing: Verizon has had the luxury of observing the impact of increased data usage via its Android and other data-centric devices, and has been able to tune its network accordingly,? he said.

?AT&T did not have that luxury and flew blind into the demands of iPhone users, which were unlike any previous customers on its network.?

And do not forget the use of pricing plans with data caps as a tool to manage traffic.

?Verizon would enter the iPhone world with tiered-pricing options and not a one-size-fits-all unlimited data plan,? Ms. Welsh de Grimaldo said.

That would not be an appealing scenario for marketers and content providers.

If competing carriers follow AT&T?s lead and phase out unlimited data plans, the consumption of paid and ad-supported mobile content may be affected (see story).

Waiting for LTE
Sprint already has the Android-based HTC Evo 4G handset, which can connect to its WiMax 4G network.

The other carriers are preparing to roll out LTE 4G network, and Verizon Wireless is expected to be first to the party. That could affect Apple?s decision-making.

?Apple will not offer an iPhone on Verizon until the company has significant LTE coverage,? Mr. Rubin said. ?As Verizon rolls out LTE, it may take some time before things like in-building coverage are at the point that we associate with Verizon?s 3G network.

?Look at Sprint, which is rolling out 4G, even in cities where it has coverage, 4G still not as robust as the 3G coverage,? he said.

An LTE iPhone would enable Apple to address a much larger group of carriers with essentially one handset design, which is why many analysts speculate that Apple will keep its exclusivity agreement with AT&T until LTE rolls out fully.

?AT&T?s LTE?s deployment schedule is far behind Verizon, so if Apple really wanted to maximize the network capabilities on AT&T, it might wait even longer to release an LTE handset,? NPD's Mr. Rubin said.

?Bear in mind that Apple released the first iPhone as an Edge device, even though AT&T was actively ramping up its 3G network,? he said. ?It may hold off on shipping an LTE handset until it is satisfied that it can achieve comparable battery life to what it can on 3G.?

Aside from the impact on competing carriers, operating systems and handset manufacturers, there is a potential effect on Apple itself.

That is why some analysts do not expect any news on this front for some time.

?During the Verizon-AT&T ad wars Apple created ads to promote the ability of the iPhone to simultaneously support voice and data, for example, check movie times while talking with a friend about seeing a film,? Mr. Golvin said.

?This capability would be lost on Verizon?s network unless they relied greatly on VoIP, reducing the value proposition of the Verizon network, so Apple would have a PR challenge in managing an apparently conflicting set of capabilities,? he said.

?I remain a skeptic that Verizon Wireless will get the iPhone any time before the second half of 2011, and even then it may not be until 2012 when Apple can make one that relies on Verizon?s upcoming LTE 4G network.?

Final Take
Dan Butcher, staff reporter, Mobile Marketer

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