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Potential Verizon-Apple ties highlight device as killer app

Update: with comment by AT&T on its network investments

Excitement over a potential deal by Verizon to carry Apple’s iPhone, highlights a trend in the mobile phone industry that the device – and not necessarily the network – is what is driving consumer choices.

Currently, the iPhone is offered exclusively on AT&T’s network. The phone giant continues to add subscribers – many coming from smaller competitors like T-Mobile and Sprint Nextel – who want the iPhone. And they stay even with complaints about the network operator’s patchy service – where metropolitan areas like New York and San Francisco suffer network congestion at times because of the high volume of data traffic from iPhone users.

In a survey this year, Consumers Union, the nonprofit advocacy arm of Consumer Reports magazine, found that 38 percent of cellphone subscribers who had switched carriers in the past two years did so to get a handset offered by a competing carrier. More than one-quarter of cellphone users said they shop around for a service provider depending on the phones they offer.

That, said policy analyst Joel Kelsey, makes carriers focus on striking exclusive partnerships and relying on those deals rather than investing more in their networks.

“If Verizon [Wireless] and AT&T had to compete just on their network quality, I believe they would have put more into their network rather than relying on devices like the iPhone,” Kelsey said.

AT&T spokesman Michael Balmoris noted that the company has invested $17 billion in its network in 2009 and intends to increase that by $2 billion this year.

Verizon Wireless declined to comment on a Wall Street Journal report that it was preparing to offer the iPhone on its CDMA network by the middle of this year. Apple didn’t respond to a request for comment.

In a research report by Bernstein Research, analyst Craig Moffett estimates that the loss of an exclusive contract by AT&T to carry the iPhone could pare new-subscriber growth by 1.4 million users in the first six months of a deal between Verizon and Apple. Verizon, meanwhile, could gain about 3.5 milion post-paid subscribers.

As noted in a previous post, the Federal Communications Commission had appeared last year to be interested in taking another look at the business practice – one that smaller competitors and consumer groups criticize. But amid the launch of its national broadband plan, the FCC has been quiet about the issue, which was part of a bigger review of wireless industry competition.

Advocates of policy reforms say the best handsets go to the biggest carriers (Verizon Wireless and AT&T serve 65 percent of all cellphones users in the U.S. and are adding subscribers while the third and fourth largest carriers Sprint Nextel and T-Mobile have been trying to curb subscriber losses).

Sen. John Kerry (D-Mass.) and other lawmakers have called on the FCC to scrutinize exclusive handset agreements, and FCC Chairman Julius Genachowski said during his Senate confirmation hearing that he would review the practice.

“The FCC has a full plate with the national broadband plan and despite promises to senators, it seems that other pressing issues have taken priorities in recent months,” Kelsey said.

By Cecilia Kang  |  March 30, 2010; 4:12 PM ET
Categories:  AT&T , Apple , FCC , Mobile , Sprint Nextel , T-Mobile , Verizon  
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I'm not understanding just how cell phone networks work and if they work as I think they do,then how can ATT?Verizon afford to offer unlimited network access to the internet, when a customer is basically using the hand set at home or work he is stationary and not moving through different cells. There are only twenty or so different cell phone frequencies available to talk on in any one cell at a time therefore, twenty or more handsets with unlimited service plans stationary in the same cell using the internet would logical tie it up from other users. I do not see how cell phone providers can market internet access as practical or anything more than a novelty. ATT or Verizon will not be able to meet the demand for internet with their present technology. Love to hear some other comments.

Posted by: customer77 | April 2, 2010 3:59 AM | Report abuse

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