Verizon will likely wait longer for iPhone

NEW YORK Fri Apr 9, 2010 11:47am IST

The iPhone is held inside the Apple Store in New York June 29, 2007. REUTERS/Shannon Stapleton/Files

The iPhone is held inside the Apple Store in New York June 29, 2007.

Credit: Reuters/Shannon Stapleton/Files

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NEW YORK (Reuters) - Testing the patience of consumers and investors, Verizon Wireless is unlikely to sell an iPhone this year and may not do so until it has mostly completed a high-speed network it is just now building.

Analysts say investors may have bet too soon on a Verizon iPhone after reports surfaced last week that Apple is making a phone based on CDMA, the technology used by Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc.

Apple, which has declined to comment on this subject, is notorious for its secrecy about the iPhone, including whether it plans to offer it at all on Verizon's network. Verizon Chief Executive Ivan Seidenberg, meanwhile, said earlier this week that any decision is "Apple's call."

Indeed, Seidenberg's comments seemed designed to cool off the buzz about the phone coming to Verizon anytime soon, according analysts and investors.

Among other statements that stood out, Seidenberg said that "over time ... as the devices come to a common architecture" Verizon would "be eligible" for carrying Apple products. At the moment, Verizon's network uses a technology common in the United States but less so in other countries.

"He's trying to realistically set expectations," said Credit Suisse analyst Jonathan Chaplin, who recently predicted that the current iPhone carrier in the United States, AT&T Inc, the No. 2 U.S. mobile service, would maintain its exclusive rights for 12 to 18 more months.

"The Seidenberg comment adds a little credibility to what I've been saying," Chaplin said.

Expanding iPhone sales to Verizon, the biggest U.S. mobile operator, would give Apple much wider distribution. For its part Verizon could use the blockbuster device that has become a cultural phenomenon to win new subscribers and keep current customers.

Investors in Verizon pushed its shares up 2.6 percent after the reports last week, while AT&T shareholders mourned the potential loss of exclusivity by pushing its shares down 2 percent. Apple shares rose 1.5 percent.

RISKS FOR VERIZON

Still, selling a Verizon iPhone this year would simply go against how Verizon and Apple usually conduct business, analysts point out.

For example, such a phone would require Apple to embrace a technology not used in most countries around the world. Today it supports only the most common mobile technology standard.

"It's not in Apple's nature to do a one-off for a technology Verizon itself is moving away from," said Current Analysis analyst Avi Greengart, citing Verizon's move from CDMA to Long Term Evolution (LTE) for its next generation services.

"I don't think it matches Apple's product development philosophy to do a CDMA iPhone and it certainly seems like Verizon's CEO agrees with me," Greengart said.

For its part, Verizon is only starting an upgrade of its mobile network to fourth generation (4G) LTE services this year. It has promised 4G phones around the middle of 2011.

To support nationwide services, a 2010 iPhone would likely need to use Verizon's slower third generation CDMA network as the company only expects to cover a third of the U.S. population with its 4G network this year.

A CDMA iPhone could also support LTE, but if this happens the mobile Web surfing would likely appear much slower in CDMA markets compared with the markets with LTE.

That would undermine what has been one of Verizon's big marketing messages: That it currently has the widest coverage for high-speed services in the United States.

"Given how much focus they've put on the map, I think they have to have near nationwide coverage (for an iPhone) or they risk all the brand equity they've built up," said Hudson Square analyst Todd Rethemeier.

Verizon has said that in 2012 it will double its 4G coverage to markets with about 200 million people. By the end of 2013, it has committed to supporting 4G across its entire network, which has coverage for about 285 million people.

There is one issue that may change Apple's mind about using Verizon's existing network for the iPhone, according to Greengart of Current Analysis. That's competitive pressures.

While the iPhone is still very popular among consumers, phones based on Android, mobile software from Google Inc have been gaining ground recently. Verizon, for example, has heavily promoted Droid, a Motorola Inc Android phone.

"If they do (CDMA), it's because they're spooked by the spectre of Android, with Verizon Wireless putting literally hundreds of millions of dollars in advertising behind it," Greengart said.

(Reporting by Sinead Carew; Editing by Paul Thomasch, Bernard Orr)

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