Could 4G Threaten iPhone Sales?

I recently wrote about Samsung's smartphone sales eclipsing those of Apple's (NAS: AAPL) iPhone for the quarter just past. That was an unprecedented achievement for Samsung, but one that provoked a big "so what?" from some readers of my article.

One thing I said was that the anticipation building up over the release of the next iPhone model may have affected present iPhone model sales numbers. Many iPhone buyers would rather wait a month or two for the latest iteration from Cupertino's finest, than to have the embarrassment of premature expenditure and suffer iPhone feature envy. Hence, perhaps, a temporary blip in Apple's sales figures?

What's in a number?
As it turned out, Apple held back a bit with its latest release, and introduced in early October, not the long-awaited iPhone 5, but what it called the iPhone 4S. Even though the upgrades in the 4S included a more powerful processor, a better camera, and the well-received Siri voice-recognition software, many reviewers seemed very disappointed that it wasn't what they considered to be a "full-blown" upgrade. The stock market's immediate reaction to the iPhone 4S was a big sell-off; Apple shares plummeted 5% before recovering by the end of the trading day. But iPhone sales didn't stumble, selling a record 4 million units during its first weekend.

That sales triumph came about even though the iPhone 4S still lacked one feature that could prove to be the most important quality that the smartphones of 2012, and for several years beyond, must have. I'm referring to the ability to run on a 4G network, especially an LTE network -- even better, an LTE-advanced network.

During the second quarter, the one in which Samsung smartphones outsold the iPhone, more than one in five smartphones sold in the U.S. were 4G capable, according to NPD Group. One year ago, that figure was 3%. Smartphone sales are growing exponentially. The leaders in U.S. 4G smartphone consumer sales during the second quarter were HTC with a 62% share, Samsung with 22%, Motorola Mobility (NYS: MMI) with 11%, and LG with 4%.

The iPhone is still 3G.

If they can do it, why not Apple?
There certainly are plenty of incentives for Apple to produce an LTE-capable iPhone. China Mobile (NYS: CHL) has been talking with Apple about producing a phone for its TD-LTE network. In September, China Mobile's chairman, Wang Jianzhou, said, "We discussed this issue with Apple. We hope Apple will produce a new iPhone with TD-LTE." China Mobile, by the way, has 621 million subscribers. That's a lot of incentive. So why isn't Apple scrambling to meet that demand?

According to Apple CEO Tim Cook, speaking as COO during a conference call last April, the LTE technology is just not up to the iPhone standards. "The first generation of LTE chipsets force a lot of design compromises with the handset, and some of those we are just not willing to make" he said.

Falling behind?
The four handset makers mentioned above have a significant head start on Apple in the 4G arena, and sales of phones powered by Google's (NAS: GOOG) Android mobile operating system have been steadily outpacing sales of iPhones. In June, July, and August, Android phones outsold iPhones by two to one: 56% of the smartphone market to 28%, respectively.

The demand for ultra-fast mobile broadband -- and the ability to meet that demand -- is zooming. There are currently 35 LTE networks in operation worldwide, and by the end of next year that number is expected to be more than 100. LTE-capable smartphone models are becoming available even more quickly; according to the Global Mobile Suppliers Association, the number of different LTE phones has tripled in the last three months.

How much longer can consumers wait for Apple to pull into the fast lane before potential iPhone buyers check out the other offerings on their carriers' shelves? AT&T (NYS: T) and Verizon (NYS: VZ) have been pounding us with commercial after commercial touting their supersonic 4G networks. Even if there is more hype than reality to their claims, they can still put doubt into shoppers' minds. Whether the iPhone provides a better overall user experience than the faster phones is immaterial. It's the perception that counts.

I applaud Apple for not rushing forth with a product that it can't be proud of, but they have to be careful. Consumers can be fickle creatures, and their "must-have" instincts can change with 4G speed.

One of the features that some hoped would come with the iPhone 4S was a revolutionary new technology called "near field communication." It wasn't included with this iPhone model, but it will likely be an important part of the next generation of all smartphones. Learn about "near field communication" by requestingthis special free report.

At the time thisarticle was published Fool contributorDan Radovskyowns shares of AT&T. The Motley Fool owns shares of Google, Apple, and China Mobile.Motley Fool newsletter serviceshave recommended buying shares of China Mobile, Apple, and Google.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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