Why Apple Needs Verizon

Last time, I argued that Verizon (NYSE: VZ  ) has three good reasons to book a deal with Apple (Nasdaq: AAPL  ) to carry the iPhone. Today, I'm here to offer you three reasons why Apple should approach Verizon.

But before we get to the details, let's talk about what a sacrifice it would be for Apple to ditch AT&T (NYSE: T  ) . Going by both the math and external sources, we've reason to believe that Ma Bell pays the Mac maker $450 per handset in subsidies, a 50% premium to the $300 typically paid to Research In Motion (Nasdaq: RIMM  ) , Palm (Nasdaq: PALM  ) , and their peers. Neither Verizon nor AT&T would be likely to pay as much as Apple gets now for a non-exclusive distribution deal.

So why break up with Ma Bell? Here are my three reasons.

First, the iPhone is testing the limits of AT&T's network, and the network often comes up short. Users are at least partly to blame; the iPhone is responsible for more than 50% of U.S. smartphone traffic, researcher AdMob reports. Of course AT&T is having problems; no single network is capable of handling as much data traffic as the iPhone generates. Why not share the wealth and improve the customer experience, Apple?

Second, the iPhone has more relevant competition today than it had when it was introduced. Consider Motorola's (NYSE: MOT  ) new Droid handset. Reviewers are already praising the device for its sleek design. Mix in the fast-growing Android market, and you've got a smartphone with the smarts to be an iPhone alternative. (Notice I didn't say "iPhone killer.")

Third, consumers may be less willing to commit to a two-year contract with anyone now that Deutsche Telekom's (NYSE: DT  ) T-Mobile is offering customers an unlimited, no-contract plan for $79 per month. Call it a desperate move if you want, but it's one that will make it harder to sell iPhones through AT&T.

Which means it's time to open up, Apple. Start talking with Verizon about a deal.

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Fool contributor Tim Beyers had stock and options positions in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is tired of waiting by the phone. When will you call, Mr. Market?


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  • Report this Comment On October 30, 2009, at 12:15 PM, dblrph wrote:

    Also, the new Verizon commercials showing the 3G network difference with ATT is highly effective. I currently have Verizon, and had been planning on going to ATT. However, I am having second thoughts, especially after the local ATT salesperson had no comment to this commercial.

    I may just wait to see what happens....

  • Report this Comment On October 30, 2009, at 12:24 PM, BadCopNoDonuts wrote:

    It's almost certain to happen, and at that point Verizon will emerge as the dominant force in the industry. VZ's stock price has held steady throughout 2009. It's a safe buy with a nice dividend, and when the dust settles it will probably double rather quickly.

  • Report this Comment On October 30, 2009, at 12:46 PM, DefunctAcct wrote:

    There are several issues worth addressing in detail.

    iPhone is currently a WCDMA and GSM device. Verizon's current network uses CDMA. They are incompatible and Apple has no reason to make a special device for Verizon. Where is the incentive?

    Verizon has plans to switch to LTE (commonly known as 4G) and when that happens, Apple may be willing.

    Verizon comes across as a shop that wants to dictate its own terms and its own branding. It wants to protect its "pipe service" and make device makers subservient. It also likes to nickel and dime wherever it can. This is contrary to Apple's user-centric approach. It is possible to reach a deal, but Verizon will have to allow AppStore and iTune services and Skype and other applications.

    As for network load, no one knows if Verizon is capable of handling it any better than ATT until Verizon users ramp up to match ATT's iPhone users. ATT is also upgrading its service for better speed and higher throughput. The ATT rollout has already begun and is expected to complete by end of 2010. IF all goes well, all iPhone users will be experiencing significant and noticeable speed increase. By then, we will see how this whole network overload problem shapes up. It is folly to assume Verizon can somehow do better until we have clear data to support that expectation.

    T-Mobile reminds me of Sprint. When Palm announced Pre, there was a lot of buzz and when Pre was tied to Sprint, many were writing how Sprint offered the "best" network and "fastest" network and how Pre was going to revive Sprint and conquer the world. What happened to the horde that was supposed to materialize?

    T-Mobile is not offering anything "free" with devices that can match those by Palm, Apple and Motorola's Droids. Why is that even a relevant consideration? I would keep an eye on T-Mobile but it would not be something of importance for now.

    As for the competition between Android and iPhone OS, it is good and necessary competition but they are different. Android addresses a certain set of problems, usable by a certain number of manufacturers but has many associated challenges as well. I am glad you did not claim it to be a "killer". iPhone OS has early adoption momentum, has the backing of a full-fledge OS underneath and can easily be turn loose when hardware becomes even more powerful in terms of more RAM and higher CPU speed and performance.

    In an ideal situation, a capable OS enables a capable UI that can better serve a user. In the end, the OS matters only if the UI matters. Users do not care what OS is underneath as long as the UI addresses their daily needs reliably and efficiently. There is the ease of integration and number of useful applications to consider.

    Now we can look back at the three reasons posed by this article.

    T-Mobile is a non-factor at this time.

    Verizon network is incompatible with iPhone at this time.

    Verizon's LTE roll-out is vague at this time.

    Android is the only player worth watching but going to Verizon over Android is neither here nor there.

    So should Apple sell iPhones through Verizon? Sure, when LTE is in place, when Verizon agrees to not limit user experience, when Verizon is able to agree to a deal that makes good business sense for Apple. Then it makes sense to have another distributor for iPhone.

    Just my three cents.

  • Report this Comment On October 30, 2009, at 2:51 PM, TwayneN wrote:

    After Verizon told Apple to go screw themselves (rejected the iPhone and Apples Terms). AT&T took the risk, invested billions (upgrades, promotions, subsidies) all contributing to the iPhones success.

    Thank you AT&T!!!

  • Report this Comment On October 30, 2009, at 3:30 PM, OrangeCrema wrote:

    "As for network load, no one knows if Verizon is capable of handling it any better than ATT until Verizon users ramp up to match ATT's iPhone users. ATT is also upgrading its service for better speed and higher throughput. The ATT rollout has already begun and is expected to complete by end of 2010. IF all goes well, all iPhone users will be experiencing significant and noticeable speed increase. By then, we will see how this whole network overload problem shapes up. It is folly to assume Verizon can somehow do better until we have clear data to support that expectation."

    That is a great point, one that is often overlooked. iphones use waaaay more network than any other smartphone (sometimes 10x as much) source(http://www.nytimes.com/2009/09/03/technology/companies/03att... and while they are popular, at&t has to pay apple a huge subsidy for each sold, on top of a huge exclusivity contract. I'm sure verizon understands how awesome the iphone is, but unfortunately apple does too. Trust me, there is a reason why verizon declined to carry it initially, and I have no doubt as to their reasons.

  • Report this Comment On November 02, 2009, at 12:04 PM, ziq wrote:

    Speaking as a Verizon customer and an Apple stock owner but not an iPhone owner, that's what it would take to lure me. To the best of my knowledge, Verizon still has superior coverage of areas I frequent.

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