The Verizon iPhone: win-win for Big Red and Apple

The Verizon iPhone: win-win for Big Red and Apple
The Verizon iPhone commotion did not actually start with the iPhone launch in June 2007, but rather when Apple's finest was just a twinkle in Steve Jobs's eye, and he was shopping the iffy idea to first Cingular and then Verizon. We've had numerous rumors over the course of these 3.5 years, which we are sure you are intimately acquainted with.

In 2010, however, the media chorus really revved up the pace. We ran the Verizon iPhone phrase in Google News Timeline from 2007-2011, and saw that the amount of news about it reached two notable peaks – one in June, and one in October 2010, for some reason, as illustrated below.

The June spike is easier to explain, because that's when the iPhone 4 was introduced, and people were hoping it will have a CDMA radio inside as well, so there were comments galore. But why the sudden spike in Verizon iPhone rumors in October then, right after the Q3 results were announced? And what happened with Big Red's CEO saying they have to "earn" the iPhone, he "can't speak for Apple", and hoping that Verizon's 4G rollout will bring the carrier a step closer to that goal as recently as September?

The third quarter of 2010

The reason might be that both Verizon and Apple got uneasy after the third quarter of last year, and for different reasons. For Verizon it was the sheer amount of high-paying customers AT&T added in Q3 - 2.6 million people, compared to the 997 000 of Verizon. The difference in subscriber numbers then shrunk to less than half a percentage point - 92.8 million for AT&T, against 93.2 for Verizon. We wouldn't be surprised at all if in the last quarter of 2010 AT&T actually surpassed Verizon to become the biggest US carrier - after all, it needed just half a million subscribers more to achieve that.

Considering that it sold 2.5 times more iPhones than Verizon Android smartphones in Q3, AT&T could very well be the biggest US carrier as we speak. Verizon has the lowest monthly cost per customer among US carriers - $26.88 per head in Q3, so we would not be too worried about the subscribers' number per se, but for the actual revenue.
Average monthly revenue per user was much lower for Verizon in Q3 than what AT&T’s customers spent - $51.99, compared to AT&T's $62.84. We should know who came ahead pretty soon, as the carriers are to report Q4 results at the end of January. In the meantime, take a look at these self-explanatory charts below, which visualize the carnage inflicted on Verizon's smartphone sales in August, when iPhone 4 really took the reign at AT&T.

Since he archrival AT&T is earning more per subscriber thanks to the iPhone, this really showed in Q3, when AT&T finished with the astounding 36.85% net profit margin (these are Goldman Sachs-type numbers), against Verizon's still decent, but way lower 11.3%, according to Google Finance.

The little story above explains why Verizon had all the incentive in the world to iron out any control differences it might have had with Apple before, and swallow the $400 subsidy it must pay Cupertino for each Verizon iPhone. That's no small change - analysts are predicting 8-12 million Big Red iPhone subscribers this year, which amounts to 3.2 billion minimum cash outlay from Big Red to Apple. AT&T is recuperating the iPhone subsidies for six months into a contract on average, way shorter than with other phones, because iPhone users spend more data, and Verizon is hoping for the same.

For Steve Jobs, on the other hand, a CDMA iPhone costs about 10-15% more to make just in terms of parts, not to mention the redesign expenses. We also have to add eventual penalty fees for breaking up the contractual exclusivity with AT&T, but we don't know when the contract was actually a done deal. If it was signed at the 2006 meetings, we are sure that Apple's lawyers, of which there are plenty, could have found some wiggle room that it is due to expire right now. Alternatively, the penalty fee tab could have been split with Verizon, since rumor has it that Big Red also paid Apple extra to keep the iPhone away from Sprint and T-Mobile.

Most likely Apple just ran the numbers what it will gain and lose for breaking up the exclusivity clause earlier than planned, and the pros outweighed the cons by a large margin, especially in line with Android's rapid growth last summer. To put Steve Jobs's irritation with Android in perspective - he was so annoyed by Google's decision to enter the smartphone business, that after ousting Eric Schmidt from Apple's board of directors in 2009, in September 2010 he literally snapped at Google's Android subscribers claims, adding also that Android is not as open as it paints itself to be, and is very fragmented.

"Well, we didn't go into search", said Steve Jobs childishly in an interview, when asked how he feels about Google entering the smartphone game. Just watching the little green robot march past iOS recently, and gain market share at neck-braking paces on all carriers, while the iPhone 4 was locked down tightly to AT&T, must have been a reason enough to sit down with Verizon and talk about speeding up this iPhone business of theirs.

Memory lane

Let's introduce some historical perspective, just to see how we got here. Steve Jobs about the conception of the iPhone in an interview: "I'll tell you. Actually, it started on a tablet first. I had this idea about having a glass display, a multi-touch display you could type on. I asked our people about it. And six months later they came back with this amazing display. And I gave it to one of our really brilliant UI guys. He then got inertial scrolling working and some other things, and I thought, 'my god, we can build a phone with this' and we put the tablet aside, and we went to work on the phone."

Steve Jobs, who was just coming out of a disappointing mobile relationship with Motorola, resulting in the ho-hum ROKR line, immediately saw the chance to get vindicated by applying this amazing technology in a touchscreen-only phone, which will be unlike anything anybody had seen so far. A carrier realationship would be necessary for these plans, and he met with Cingular (now AT&T) in February 2005 to sell the idea. There was not even a product yet, just the idea, and Cingular didn't promise anything, but remained interested.

Apple's intention to buy services from the carrier like an MVNO, and resell them together with the iPhone, was, of course, shot down. For 2.5 years after the meeting Apple worked day and night (not even counting the year before when it worked on the tablet concept), so it can announce its own phone. Subsequently AT&T promised to back up the project and agree on Apple's novel branding terms, if it receives 5 years of exclusivity.

Steve Jobs reportedly pitched the idea to Verizon as well at the end of 2005, or beginning of 2006, but Big Red reportedly turned down Apple's advances after hearing about the iPhone concept, considering the terms rather looney, and backed up only with the Steve Jobs charisma. Fast forward to now, and Verizon's head offices must have seen a lot of grown men cry in the last three years, when Apple became the most profitable cell phone company in the world, and AT&T was piggybacking on all that glory by almost reaching Verizon's subscriber numbers, and making quite a chink of money in the process.

The Verizon iPhone is here

Well, this is all behind Verizon now. AT&T is poised to slow subscriber growth in 2011, analysts are predicting anything from adding just 1.2 million new contracts, to losing 3 million when its iPhone exclusivity ends. We think that people who were holding off for a Verizon iPhone, didn't sign with AT&T anyway when the rumors started circulating. Besides, the carrier did a good job locking up people in two-year contracts by allowing early upgrades and slashing the price of older iPhone model.

Moreover, AT&T introduced a trio of amazing Android smartphones for this year, so the Verizon iPhone effect might be felt until the summer, when the next iPhone version arrives, and those Android powerhouses have been on sale for a few months already. On the bright side, current AT&T subscribers will probably benefit from having a less congested network. Verizon's 3G network might be slower than AT&T, but the claims are for better and more stable coverage. Besides, if you only have Verizon coverage where you live or travel, it's unlikely that you signed up with AT&T just for the iPhone.

We'll know how the sales numbers pan out in just a quarter, but in the meantime we can all finally put the longest-lasting rumor in the cell phone industry to sleep.

source: GoogleTimeline, Asymco, BusinessWeek



1. networkdood

Posts: 6330; Member since: Mar 31, 2010

Wow, now we will have no more stupid 'verizon is going to get the IPHONE' articles....because they finally did it. I am sure that BIG RED can find 4-10 million chumps to buy the I(nferior) phone - this phone may hurt ANDROID sales more than AT&T as APPLE is much better at marketing than those that produce ANDROID phones (as in just about every other company besides APPLE).

16. cellgeek82

Posts: 518; Member since: Dec 20, 2009

Unfortunatly it's a matter of time before people start the "Sprint's getting the iPhone" and "T-mobile is getting the iPhone" crap. But this proves the true popularity of smartphones. When a new Android device come out, people are like "yay". But when something in the iPhone realm happens the media has full attention on the iPhone and web blogs and forums nearly explode with people posting information. May the epic battle of AT&T vs. Verizon begin.

2. Manny unregistered

Someone would be a fool to purchase the Verizon IPhone. The Verizon IPhone has no LTE connectivity and no GSM roaming. They are selling an outdated phone. The Android based phones with LTE connectivity are more future proof. I thought Verizon would have implemented 1X Advanced CDMA technology in their network which would allow simultaneous voice and data, I believe though I'm not sure. Man this announcement is a joke. I have to agree with AT&T that Verizon dropped the ball on this one.

3. Jase4g unregistered

Yes Been Waiting So Long Just YESSSSSSSSSSSSSSSSS, Finally A Super Secure I Phone, 32gigs And In Black And Mobile Hotspot And Unlimited Data And More Coverage And So Much More, YESSSSSSSSSSSSSSSSS I Don't Care About Any Other Comments After This......

4. JeffdaBeat unregistered

Why would someone be foolish to buy the iPhone 4? Is Verizon's current internet speed not fast enough for the iPhone's target audience...which is everyone? You guys have to stop thinking like nerds and think like a business that has a phone that caters to everyone. Why come out with an LTE phone when LTE isn't everywhere yet? Will LTE really matter to the very non-techy people who carry iPhones? I am a super nerd and I carry and iPhone. I don't care about labels or "Gs" I care about speed. Verizon's speed was just fine before the iPhone 4 and it will be fine afterwards too. Same with AT&T. Apple is successful because you don't have to be a techie to enjoy their products. You can be a kid, mom, grandmother, student, or business person and still use the phone. That's Apple's target audience and that's why Apple sales so well.

5. Slammer

Posts: 1515; Member since: Jun 03, 2010

Sorry Jeff, but I fully believe you purchased an iPhone because everyone else was. It was cool at the time and status quo was too hard to pass up. I am going off experience here. Out of the 13 individuals I know that purchased the iPhone, only 4 were aware of differences between the iPhone and other handsets. You may know the difference between the two but I also feel you bought for the sake of saying: "I own an iPhone". Why do I believe this? Because as you said, you are a techie and know what the other devices are capable of. It is an elite status to own an iPhone whether it has the functions of the newer devices or not.

10. JeffdaBeat unregistered

I'm glad you know me so well Slammer although we've never met. First, the reason I purchased an iPhone was because of the large assortment of apps. I'm able to do my banking on my phone as well as use the navigation programs that are available (where you can download the entire mapping program instead of using Telenav). I also like the ability ZumoCast gives me in that I can stream any video, audio, pictures or documents from my computer on 3G or Wifi. I also wanted a 32GB hard drive for the massive amount of music I have on my computer... Oh, I've been in the wireless business for going on 4 years now. So, I'm happy for you and all 13 of your friends. It's my business to know what goes on in the wireless industry because it directly effects my pockets. Now, as for your saying the iPhone is a status much of a status symbol is something that everyone has? If everyone has a diamond ring, is it really a status symbol to have a diamond ring anymore? True, everyone doesn't have an iPhone, but there are too many people out there who do have one for me to really feel like I am special. Hell, there are 80-year-old's with iPhones...I'm not exactly trying to earn cool points...But you can keep thinking I am trying to gain some elite and the 80-year-olds that also carry iPhones... I bought an iPhone because it's the smartphone that works for me and I've carried a Blackberry Bold, Curve, and Pearl. I've carried the HTC Mogul and Touch 2. I've carried a Palm Treo and Pre. I've even carried a few Android Phones and a Windows Phone 7. They are all awesome phones and they do have a lot of functions...but none that I really care about, otherwise I'd get it. I love Apple Products, but I won't say their shit don't stink if it's shit. I don't have an iPad or Apple TV. I don't run out and buy a product because Steve Jobs talks about it. And although it's easy for you and others to assume so, not everyone else thinks like that either. It's all about what works for you and I'm sorry dude, what works for you doesn't work for everyone else. Obviously, the iPhone doesn't work for you, but I'm not calling you a fucktard because of it.

15. Kjayhawk

Posts: 294; Member since: Oct 07, 2010

LOL well said, but like you said think business I'm afraid out of the many people I know that have an iphone don't know anything about phones and they bought it simply because everyone else does and its an iphone. My friend who works for AT&T says the same thing people don't ask questions they say they are ready to upgrade. Correction I don't know anyone that really cares about the specs of the iphone, its a good phone and has been advertised as that. You are not really arguing slammers point, people buy the iphone because its the iphone, its simply that. Is the iphone a bad phone defiantly not. I don't believe you personally purchased the iphone because its an iphone, you bought it because you love apple and at the time it was a great phone! And don't call people names.

18. JeffdaBeat unregistered

His arguement would have been completely legit had he not pinned it to me personally. People do get the iPhone because it is an iPhone. People also get Android because it's a "Droid." People get products that have good reputations because they are good products. That's fine, but don't tell me why I get products I get...I could care less what the name brand is, I care about function.

24. luxzy801

Posts: 140; Member since: Jun 16, 2010

Actually JeffdaBeat; The iPhone is a status symbol, cell phones have been that way for a long time. If you are in the wireless industry, then you would remember the insanity around the Motorola RAZR back in 2004 when T-Mobile gained exclusivity and gained several million customers. But after three years, the RAZR was in bad times. The only reason the iPhone did so well it because if it's exclusivity to at&t, and now that there are two networks with it, it will leave something open for a different product just as it had happened with the RAZR. You will also see a lot of people dumping the iPhone because it is no longer a exclusive product since 80 million more people are going to have a chance to carry it in their pockets. Also, if you have been in the Wireless market, you would know that apps are not everything. Take Palm and Windows mobile for example; Palm has always had more apps than WinMo for their PalmOS platform, however, WinMo still came out on top with nearly 3 times less apps than PalmOS, and where is Palm now? Gone. It is now just a matter of time that the iPhone starts losing steam like the RAZR did. Now to talk about the phone itself, it will go down in history as a trend setting phone (Just as the RAZR). And people will still carry the phone for a long time after it gets hit and drops from consumer site (unless Apple can come out with another product that is different than its iPhone). That is how the wireless industry works, there will always be something newer and better that comes out and unless apple can come up with something besides that iPhone and stop relying so much on the product, they are going to end up the same way Motorola did after people stopped buying the RAZR.

6. dha0708080808 unregistered

well hooooraaayyyyy!!!!! vzw finally got their iphone killer : )

7. JohnBFTL unregistered

So disappointed in Verizon. This is a huge slap in the face to Google and everything they have done for Verizon. All for an inferior product. Everyone should expect Verizon's ratings on Consumer Reports go way down in the coming year in Call Quality and Customer Satisfaction because of this piece of garbage.

9. testman22

Posts: 339; Member since: Nov 03, 2009

actually even though its the same model as At&t, they have completely redesgined the antennas and have corrected the issue

11. hawk62

Posts: 320; Member since: Nov 21, 2009

U r a moron. Vz customer has been going to shit long before iphone. The iphone is not the problem vz is. "what google did for vz". Omg Talk about a fan boy! If an iphone user said something like that they would be jumped on. Yes google saved thr number one cell carrier! And they read ur email while doing it! Haha

14. CRICKETownz

Posts: 980; Member since: Oct 24, 2009

So i guess you have no more purpose on now that Verizon has your precious iP4. it's been real hawk62...see you back on Verizon soon. lol you can cut the irony with a knife.

20. dpullen81

Posts: 13; Member since: Dec 31, 2010

so disappointed in verizon??? what google did for vzw??? you sir are an idiot. verizon is giving the customers what they want. for years everyone has been begging for iphone to be on vzw and now it is... all i c on this forum is people complaining about whatever than can find to complain about. get a life. first you complain we dont have it . now you complain we do... i just dont understand. and as far as the google slap... you said what google did for vzw... you mean what vzw did for google? vzw sold/sells the crap out of thier phones and will remain to do so because it has higher ratings than the iphone. think about it if you come up with a great product and you want it sold, you go to the company with the best name and ask them to sell it for you correct? so y do you think vzw is slapping google in the face? the correct statment would be google slapping vzw in the face for asking us to sell thier item and then going to other carriers to have them sell it. anyway to all you complainers out there please get a freaking life and do something more possitive with your time

8. oneandonly478

Posts: 10; Member since: Jan 06, 2011

iphone is a great smartphone , watch how many verzion sell. wonder how facetime going to work and will u be able to facetime att users, main question itunes and verzion.

19. Whateverman

Posts: 3295; Member since: May 17, 2009

Why would iTunes working on VZW be in question? Better question, what good is an iPhone without iTunes? Would you buy one, and what company would sell one? Did VZW tell RIM that they will not allow their Blackberry to connect to BIS/BES servers? Or tell Microsoft that the KINs could not connect to the "Spot"? No! So why would they take a one trick pony like the iPhone and stop it from doing it's one trick? It'll work just fine, so buy it if you like it. Like the article

12. Bossman unregistered

So they are releasing in middle of Feb and supposedly iPhone 5 or 4G will come out in June or July. I wonder if Verizon will get the new iPhone 5 or whatever they name it right away. Basically they might have 3 or 4 months if this is the case to push iphone 4. Something iPhone fans will want to consider.

13. cAstro unregistered

Reason not to focus on the fact that Verizon's Iphone 4 will only be 3G... At&t's Iphone is only 3G. Apple is always going to release something better. So you could wait...or you could buy the phone, keep it in decent condition, then sell the phone for anywhere between $200-$400 used. I see listings on craigslist for the iphone 3Gs at around $200 still! That could definitely help you buy the new Iphone at full retail if you needed to.

17. cellgeek82

Posts: 518; Member since: Dec 20, 2009

Now instead of iPhone vs. Android we have a new battle to watch. iPhone (AT&T) vs. iPhone (Verizon). Just when I thought I seen it all.

21. darthray

Posts: 72; Member since: Nov 04, 2009

iam glad iphone came to verizon. Everyone now can have a wide selection of which phone to purchase . Everyone is entilted to their opinon on which phone to their liking.

22. Slammer

Posts: 1515; Member since: Jun 03, 2010

@Jeffdabeat. You will need to forgive me for sounding abrasive but I call things as I see it. At my age, it amazes me of how full this world is of individuals that impulse buy without considering options. I was once an Apple addict. I tired of the closed minded direction they consistantly practiced. Years later, their direction has not wavered. Instead, they have preyed on the new generation to reinstate vision of a whole new company. However, if you break it down, they are the same. Nothing has changed. What they have done, is add more accessories in which they lacked way back in my day. But essentially, they remain proprietary to themselves. Steve Jobs doesn't like Flash so his followers don't get flash. Steve doesn't like standard charging adapters, so his people are forced to purchase indigenous pieces. It all boils down to quelling true interests of individuals by successfully marketing a product to consumers making them feel there is no other choice. I'm not so sure that the iPhone is the Jesus phone or the anti-christ. Apple felt it was in better interest to sacrifice the integrity of the iPhone4 and get this product to VZW now rather than wait a few more months for the new one. Why? Because everyday Android is present without the iPhone on another carrier, Android gains marketshare. Now millions will probably jump on this, not realizing it is outdated. This further validates my point that Steve and his company care nothing about you or anyone else under his incubated shelter. His company profits huge by offering the least amount possible yet charge the same or more. The iPhone is the number one jailbroken device in the industry. For a product that supposedly does everything, it is only obtained by modifying? Most devices will now do what the iPhone does without rooting. I find this far more attractive than jumping out of a great price plan or well met network just to acquire a device everyone else wants only to jailbreak it. I actually deal with hundreds of people on a daily basis. I can literally count on my fingers and toes the individuals that legitimately bought an iPhone strictly because they felt it best suit their needs. The rest bought simply because friends, family, constituents and colleages own one. This becomes the quintessential definition of trend. Nothing more. So far, it is a long trend that feeds off of inadequate knowledge of what other products are out there. John B.

23. Trey unregistered

Come on. Must we sling nerd and super nerd around. I think we all know about the iPhone by now. You can call Apple "cool" all you want and in a way it is. But really their products are of good quality at times. Looking at them at a biased/fanboy point makes many of your complaints numb though the other half valid. Many people have taken an iPhone or other apple products because they work for them and are at many times good for their uses. Fact is the first generation iPhone for AT&T did many things in way of how cell carriers force things onto manufacturer phones along with the smartphones/cellphones themselves. Even in need of a refresh now the UI the first iPhone had was refreshing, new, and easy to use that did great with the sum of its parts. It just worked and had a vastly great multimedia experience along with Safari mobile and later on the App Store. While the App store can be seen as good or bad as its basically free internet applications being wrapped into small packages and sold at times its still something thats hooked all Smartphone users whether Apple, Google, or Blackberry. The iPhone did make manufacturers change up their game as the Razr made them seek stylish and slim phones to compete with it, But just as the Razr soon fell after too many same rehashes the iPhones going to the same point. The iPhone 4's hardware if top notch but the UI is growing boring for those that've used it iconic or not and features from Android need to be implemented. Of coarse I think we can also give some credit for some features that should of been there but fact is it was done better than the competition. This can account for copy&paste which is done the best of all platforms as one. Anyways there's no reason to flame Apple/iPhone fans. Every platform and phone has its flaws and fortes. The iPhone has its place and if you deny that your only fooling yourself. Android itself has far to go other than great hardware, and vice versa to Apple. And both platforms can learn a thing or two from Palm with its WebOS too.

26. rstar unregistered

my husband had iphone 2g, and i had 3g. I also have owned dumb phones, blackberries and even sprints htc evo. I was happy with them all until we had to switch to verizon where we live where signal was an issue with gsm carriers (tmobile, at&t) and I switched jobs so i had to give up my evo. My current car has a iphone/ipod connectivity, I was afraid to switch over to verizon's androids options due to car compatibility. Well I got hold on a droid x, and Im completely blown away of the features of the phone. 16 gigs, flash for fav websites i visit, Apps such as free swype, free doubletwist, free google maps navi, bump app for business cards, bar code app, hdmi out, 8mp camera, customize my home screens, etc, I can go on things that I use everyday and not forget vzw unbeatable stable cdma network (while outdated, it still works where gsm doesnt in my town). I would like to have a verizon iphone but at this point you would have to give me a very good reason to spend $199 for the iphone when I have a phone that has the similar hardware and os features. I recently looked at nexus S 2.3 and It looked incredible. I hope android 2.3 advances. I truly need a reason from verizon to spend another $199. Maybe when Im due for an upgrade, i may compare where android and ios in the future. I think of it this way, iphone is seamless with less issues, and available support so nontechies dont have to search for their own solutions. Android is for techies people who can figure out rooting, customize, and manipulate how the phone works for you. Android is not for you if you dont know the basics of mobile technology or dont care to spend time figuring and customizing your phone. In the end, its still a phone and the features are just a bonus to make your life easier.

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