Does Verizon discourage iPhone sales? Tales from the inside

You’ve probably seen the stories: the carriers aren’t happy about how much of a subsidy they have to pay Apple for each smartphone, and as a result some carriers may have an incentive to push competing handsets. As an experiment, CNN called around to Verizon stores in New York and discovered that sales associates were quick to push 4G Android phones over the iPhone when given an open-ended request, but were less inclined to do so when asked directly for an iPhone. And now an analyst has revealed that the Droid RAZR MAXX outsold the iPhone on Verizon during Q2 of this year, in part due to “aggressive marketing" of 4G LTE phones.

Verizon of course denies any particular bias, but what do they say behind closed doors? To find out we spoke with Verizon sales associates, and what they revealed was…well…revealing.  The representatives we spoke to reiterated that Verizon definitely does not make it official policy to push one mobile OS over another – during training sessions that were scheduled around the same time as the CNN article sales reps were reminded that it isn’t Verizon policy to “dissuade” people from buying iPhones.

It turns out that’s not the whole story though, as Verizon’s sales targets and compensation models paint a somewhat different picture. To be fair, Verizon’s main goal is to make money – like that of every other carrier business – and the easiest way to do that is to upsell customers from feature phones to smartphones. The reasons for this are obvious: smartphone customers must add data plans to their voice and text options, which adds quickly to a carrier’s bottom line. Verizon's specific target for smartphone sales varies by region, but according to our contacts can reach as high as 80% - that is 8 out of every 10 phones sold "should be" smartphones. Those numbers aren’t totally crazy – around 70% of mobile phone sales in Q2 were smartphones in the U.S., and some places do much better than the average.

Of those smartphone sales, Verizon has also set sales targets for how many phones should be 4G LTE devices – a number that we’re told is can be as high as 60%. So for a high-volume region where 80% of phone sales in an area are smartphones, the goal is that 60% of that number (or 48% of all phones sold) would be LTE devices. The kicker of course is that the only 4G LTE phones available on Big Red are powered by Android.

Store and regional managers get reviewed (and compensated) based on how well their numbers match up against sales targets. Sales associates are also rewarded for selling 4G phones; we’re told that in at least some regions they receive an extra $25 bonus for each 4G phone they sell. The results are predictable: managers and sales associates alike do their best to push 4G phones. They certainly won’t stop you from buying an iPhone or a BlackBerry, but you’re likely to hear about the benefits of 4G before you do.

We've had plenty of good things to say about Verizon's stable of Android phones (if not always their price), and we love us some 4G LTE, so for many Verizon customers those devices make excellent choices. At the same time it is tempting to view these facts in light of the “Verizon likes Android better than the iPhone” narrative – you can almost hear the sound of pitchforks being brandished by iPhone connoisseurs. But a closer look reveals some important nuance to the situation.

Windows Phone handsets, for example, were quite publicly turned down by Verizon until they can ship LTE-equipped versions later this year – we imagine that Windows Phone fans may feel that the 3G iPhone is actually getting special treatment. 3G BlackBerry phones are given even shorter shrift than the popular iPhone, and so are 3G Android devices; try to purchase a Droid X2 or an HTC Rhyme and you are more likely than not to hear a sales pitch on how great 4G devices are.

The reasons for this aren’t hard to understand: the carriers really want you to use more data (once they move you to tiered data plans) so that their revenues will climb as people consume ever growing amounts of bandwidth. Moving people to 4G phones is the fastest way to accomplish that goal. Verizon’s large 4G network is also the biggest differentiator for them as a carrier. Given these facts it would probably be foolish of them not to promote 4G phones.

So for now it seems that Verizon's main "bias" is padding their bottom line - what would demonstrate a larger scale OS bias would have to play out in the second half of 2012, if say an LTE iPhone 5 continued to get the short end of the stick. And that’s not an unimaginable situation - it’s likely going to be true that Verizon (and every other carrier) will make less money on iPhone 5 customers than they will on other smartphone customers. If Verizon (or other carriers) demonstrate a lack of sales enthusiasm for Apple’s newest device after the initial sales surge it might be indicative of a larger issue that Apple should address.

But that will be up to Apple; there’s nothing stopping them from lowering their take from the carriers, or following Microsoft’s example and offering to pay sales reps for every iPhone sold. Or perhaps Apple will be content to lose a few sales in order to preserve their industry-leading margins – Apple employs some fantastic business minds, and they are surely aware of the repercussions of their pricing strategy.

So there you have it: Verizon does favor 4G Android phones over the iPhone, just as some suspected. It also favors them over 3G Android phones, 3G BlackBerrys, and 3G WP7 devices (which are being excluded all together). And we suspect that none of the corporate players involved will be the slightest bit surprised by these revelations. The people actually caught in the crossfire are customers and sales reps; the best sales associates from a customer’s point of view would have one goal: find the best phone for him and/or her. And we have no doubt that there are many employees who genuinely want to do this. But as is true in so many industries they are being incentivized to sell what most benefits their employer, rather than meeting the needs of each customer as an individual.