After titillating the media for months, Verizon finally delivered on its highly-publicized, three-year quest to secure the iPhone for its network. The communications firm's stock soared on the news, hailed by financial and business analysts' as a sure-fire boon to its wireless segment.
However, upon closer examination, the move looks more like a dud. Verizon gets a phone that doesn't work on its new, faster 4G network. The CDMA model is not as full featured as AT&T's GSM version and it likely will be outdated by summer. So what's the big deal?
To understand the significance of this move, you have to remove Verizon from the equation. They are a bit player. This is all about Apple, a company which has built its economic prowess by demanding absolute control of its products. That's the reason Verizon lost out on the launch of the iPhone in 2007. It wasn't willing to give up control to Apple, while AT&T put its ego in cold storage and was handed an exclusive deal.
Looking at the Verizon agreement from Apple's perspective, it is another clever maneuver designed to expand its market. In its launch on June 29, 2007, the iPhone was engineered to only work on wireless networks that use GSM technology. The reason for this decision was simple: 219 countries in the world have GSM networks. It is a virtual global standard. There are currently 3 billion people served by GSM technology.
By comparison, the CDMA technology preferred by Verizon is not as widespread. It serves about 550 million customers worldwide. However, there are wireless carriers in Asia and China that use the standard. By making a CDMA phone for Verizon, Apple now has a device it can market to the rest of the world where GSM networks do not exist or provide inferior coverage. That helps explain Apple's motivation. They received free engineering help from Verizon to manufacture a smartphone for use on CDMA networks worldwide. Brilliant!
While peddling the iPhone will increase sales for Verizon, it is unlikely to produce the kind of eye-popping numbers the AT&T launch did four years ago. Undoubtedly, some AT&T customers, convinced the Verizon network will be better, will switch. But the media has overestimated the impact. The guess here is there will be no mass exodus of AT&T subscribers because the CDMA version of the iPhone has some distinct disadvantages.
For example, customers who travel to Europe and many other countries, will not be able to roam with their iPhones because of the ubiquity of GSM networks. In addition, the CDMA version will not allow users to talk and surf the Web at the same time. It means customers cannot download any Web-connected mobile application during a phone call. That is a major drawback. Add to that the expense of AT&T contract buyouts and you have significant barriers to consumer switching.
But the biggest disadvantage is the non-exclusive contract Verizon has with Apple. If it chooses, Apple can now shop its iPhone to Sprint and other CDMA carriers in the U.S. If that happens, any perceived Verizon advantage shrinks substantially.
That leaves one burning question that has not been addressed. What happens when Apple releases a revamped iPhone, as it surely will by summer? Will that model be GSM only? Will it be offered exclusively on AT&T's network? The answers to those questions will go a long way toward determining just how much Verizon will benefit from offering a CDMA version of the iPhone.
Until those questions are resolved, Verizon stockholders and potential investors would best be advised to ignore the current media hype.
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