At last, a Verizon iPhone. Verizon Wireless made its long-awaited iPhone announcement Tuesday, ending years of speculation over when it would carry Apple's (AAPL) world-beating smartphone on its CDMA network. While the announcement that the iPhone would be available "early next month" promises to dramatically shake up the wireless market, Verizon (VZ) and Apple investors sawthe stocks fall as profit-taking set in given that thepending announcement has been circulating since last week.
Shares of Verizon slipped 2.06% to $35.23 a share in morning trading, and Apple inched down 0.28% to $341.49, while the broader markets were on the rise. AT&T (T), which up to now has held the lucrative exclusive on iPhones, also lost ground, falling 1.31% to $27.97 a share.
Verizon customers eligible for an upgrade can preorder the iPhone 4 on Feb. 3, with general availability on Feb. 10. With a new two-year service agreement, the phones will retail for $199.99 for the 16-GB model and $299.99 for the 32-GB model. Verizon plans to make the iPhone 4 available at Verizon stores and on its website, as well as at Apple stores and the Apple website.
A Big Chance for New Subscriber Growth
"Verizon Wireless customers have told us they can't wait to get their hands on iPhone 4, and we think they are going to love it," said Tim Cook, Apple's chief operating officer, in a statement. "We have enormous respect for the company Verizon has built and the loyalty they have earned from their customers."
Verizon has long pined to carry the industry's game-changing smartphone on its network as it watched rival AT&T post huge subscriber gains over the past three years on the back of its agreement with Apple to be the only domestic iPhone carrier.
Verizon will now share that market with AT&T, a move that's expected to generate 8 million to 12 million iPhone sales on its network, according to Wall Street analysts. Last year, AT&T generated 11.1 million iPhone sales during the first nine months, of which 5.2 million occurred in the third quarter, as AT&T benefited from a full quarter of sales of the iPhone 4, the latest model, that accounted for 24% of those transactions.
Unlimited Data Included for $29.99 a Month
"I think [AT&T] sales will experience a material decline," says Brian Marshall, a Gleacher & Co. analyst, in an email interview. He predicts AT&T will sell only a few million iPhones this calendar year, compared with the over 5 million in 2010's third quarter alone. Marshall, however, expects Verizon to sell 12 million iPhones during the year, based on the results of AT&T's iPhone launch back in its fiscal 2007 year.
Under its iPhone offering, Verizon said consumers would have access to an unlimited data plan for $29.99 per month, the current rate it charges for any smartphone it sells. That, too, could likely push iPhone shoppers to Verizon's network rather than to AT&T, which last year put a cap on its unlimited data plans and turned to a tiered data-pricing plan.
AT&T, which has struggled to accommodate intense data usage on its network by smartphone customers who love watching videos on their tiny screens, introduced its tiered data-pricing plan to rein in some of the use. Marshall predicts that Verizon may encounter a similar situation.
"Ultimately, iPhone will likely bring [Verizon's] network to its knees like it did on [AT&T], but it's starting with a better network and CDMA," Marshall says.
How Android Played a Role
Nonetheless, Verizon believes it can handle the data surge.
"We are pleased to introduce millions of wireless users to the industry leading iPhone 4 on the nation's most reliable network," said Lowell McAdam, Verizon president and chief operating officer, in a statement. "This is an important step for the industry as two great companies join forces to give wireless customers one of the most important technological additions to the mobile landscape this century."
Verizon also has the advantage of a wide breath of Android-based smartphones, like Motorola Mobility's (MMI) Droid lineup. Google's (GOOG) Android mobile operating system, a rival to Apple's iOS that powers iPhones, has come on strong in the last year, seizing significant market share and propelling Android to the No. 2 mobile operating spot above iOS. And for iOS, which also powers its iPad, the news got even worse in the third quarter as it lost year-over-year market share for the first time in its history.
That Android threat is playing a heavy role in Apple's decision to expand the various channels and carriers that make its iPhone available, notes Ashok Kumar, a Rodman Renshaw analyst.
"It's the only way for Apple to have market growth," says Kumar, who's forecasting that Apple will sell 8 million iPhones via Verizon. He anticipates Apple will post $21.50 a share in earnings for this calendar year.
Reaching Out to the Lower End
Apple last year also expanded iPhone's retail availability beyond the Apple Store and AT&T to include such big-box retailers as Walmart (WMT) and Best Buy (BBY). The move to Walmart gave it access to a channel partner where it could indirectly sell iPhones at heavily discounted prices and tap into a new market without affecting Apple's image as a premium product vendor.
Apple was late to reach out to the lower-tier market, where Android smartphones are also sold, notes Kumar, who adds that it's too late to overtake Android in that market.
But when Apple releases its iPhone 5 in the summer, which is expected to be a universal GSM/CDMA phone, that would be an opportune time to add on Sprint (S) and T-Mobile as additional carriers, Kumar says. For now, he says, adding Verizon "is a step in the right direction." Let the iPhone sales competition begin.
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