You're Wrong About Verizon and the iPhone

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Motorola's (NYSE: MOT  ) Droid X hits the market today, giving Verizon Wireless one more snazzy soldier in the leading wireless carrier's battle against AT&T (NYSE: T  ) with its iPhone exclusivity.

It won't matter -- but don't tell that to The New York Times.

"Verizon could decide that it does not actually need the iPhone, thanks to its deepening ties with Google (Nasdaq: GOOG  ) ," wrote Brad Stone and Jenna Wortham yesterday.

I'm sorry, New York Times. Verizon does need the iPhone.

There's nothing wrong with Google's Android platform. It's slick. It's open. It's also wildly popular. Market watcher NPD Research reported that Android smartphones outsold iPhones in this country during the first three months of the year.

However, the problem with Android also rests with its open-source appeal. Droid X may prove to be the hot smartphone, but surely there will be an even cooler Android-peppered handset hitting the market in a few weeks.

Android plays the field. Just as Sprint Nextel (NYSE: S  ) generated all of the buzz during last month's debut of the HTC Evo -- the first 4G smartphone -- the parade simply moves on to the next shiny Android device, regardless of the carrier. This is great for Google's mobile operating system, but not a game-changer for the carrier.

Verizon Wireless -- a joint venture between Verizon (NYSE: VZ  ) and Vodafone (NYSE: VOD  ) -- needs the iPhone. It may be the top dog in wireless, but AT&T is the top dog in smartphones. Despite AT&T's lousy rep for spotty reception, dropped calls, and incomplete coverage, the carrier remains relevant because of its exclusivity with Apple (Nasdaq: AAPL  ) .

Don't be surprised if the day that AT&T's deal with Apple ends, AT&T begins a sharp descent in subscribers as customers bolt. Assuming Verizon Wireless carries the iPhone at that time, it will be the primary beneficiary.

The audacity to claim that Verizon Wireless will be OK with Droid X and whatever other Android phones may come is just not realistic. Pssst. AT&T has Android phones, too, you know.

Carriers need differentiators. Sprint has that, for now, in some markets with its 4G coverage. AT&T has it with the iPhone. Verizon Wireless has the network coverage map, but it could do so much more if it eliminated the iPhone from AT&T's one-trick army.

Can Verizon Wireless or Sprint compete without iPhone? Share your thoughts in the comment box below.

Sprint is a Motley Fool Inside Value pick. Google is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor selection. The Fool owns shares of Google. Try any of our Foolish newsletters today, free for 30 days

Longtime Fool contributor Rick Munarriz is mildly intrigued by Android smartphones, but not enough to loosen his iPhone grip. He does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy, and it knows that roaming charges weren't billed in one day.

Read/Post Comments (5) | Recommend This Article (14)

Comments from our Foolish Readers

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  • Report this Comment On July 15, 2010, at 3:29 PM, Aryabod wrote:

    In actuality Verizon, and for that matter Sprint and TMobile can do pretty well without an iPhone. If the Android operating system continues to perform in accordance with expectations and the current trends, it will in itself be a differentiating factor. Android based phones have already broken the technology yoke and made the iPhone the laggard. The HTC Evo 4G is by far the best phone to date and it will be followed by the Samsung Epic 4g in August. Both these phones are to be upgraded with Froyo (Android 2.2) sometime this summer, distancing themselves further from the iPhone 4. I will even go futher to say that by the end of the first quarter 2011 there will be at least a dozen phones that will have surpassed the iPhone in technology. While the iPhone will remain on a 3G network Sprint and Verizon will have their phones on a their respective 4G networks. At this time the networks will have been built out to cover most of the important metro areas in the US. Sprint is expected to have LA, San Fran., Boston, NY, DC, Denver and Miami covered with 4G sometime before the end of next quarter. If this is not a game changer I don't know what else can be, especially when you consider the leaps it has made in its 4G phone line up. With its expanded 4G coverage, upgrades to Froyo and competitive monthly plans Sprint should have little difficulty putting a halt to its loss of customers.

    The iPhone no doubt has momentum on its side, however momentum on its own doesn't last for long in the face of ever improving competitive forces and technology. Unless Apple can continue innovating its product will eventually become just another commodity. Unfortunately for Apple, the signs are already there; their latest iteration has improvements but lacks anything innovative. On the other hand the competition is innovating.

    Does anyone honestly believe that Apple's iPhone has a chance of being the lead phone provider in 2012? If the iPhone 4 is the best they can do in their latest iteration then I would happily make a wager that the iPhone will lose relative market share by 2012. On the other hand Android based phones will be on the rage.

  • Report this Comment On July 15, 2010, at 4:15 PM, kitikatism wrote:

    Apple is the communist state, telling me what i can and can not do. Android is the free and open states of a new born country.

  • Report this Comment On July 16, 2010, at 2:33 AM, baldheadeddork wrote:

    I think you're looking at this from the wrong end of the telescope, Rick. If Verizon needs the iPhone is irrelevant, because Apple has no incentive in selling it to them.

    It doesn't make sense, right? Verizon has all of those millions of subscribers who would love to get an iPhone. But do they? If they wanted the iPhone badly enough to give up their existing phone, wouldn't most of them switched to AT&T at some point in the last three years? Every single one has had at least one opportunity to choose between the two companies and they didn't, even though VZ's smartphones sucked for all but the last six months. The idea that there is a huge pent up demand for the iPhone among VZ customers is based more in hope than any realistic analysis.

    Adding another carrier would, however, destroy the value of the iPhone for AT&T. If customers no longer have to choose AT&T, what leverage does Apple have to demand $288 a phone at signup and $18 a month for the following two years? And the same would apply to the new carrier, too. Open the iPhone to multiple carriers and Apple becomes just another smartphone manufacturer and their margins would soon be in line with Nokia and Motorola.

    You won't see Verizon - or anyone else - getting the iPhone for the same reason you haven't been able to buy Mac computers at more than one non-Apple national retailer for decades. Allowing retail competition opens Apple products to price competition at the retail level, which would quickly erode the price retailers were willing to pay Apple for its products.

    (The only exception Apple has made to this policy is the iPod. But the iPod business model was to make a small profit on the retail and steer the customer to iTunes no matter where they bought the device. The huge (and inevitable) amount of freeware in the App Store makes that an impossible model for the iPhone.)

  • Report this Comment On July 16, 2010, at 9:09 AM, landoncz wrote:

    I agree that iPhone would be a plus for Verizon, but Verizon does NOT need the iPhone to be successful. Your article is only focused on the past success of the iPhone; however, forward trends suggest that Android is catching up and in all likely-hood will someday outpace Apple. [...Remember how AOL once domintated ISPs? Everyone knew they were inferior, but many got caught up in their past success and failed to correctly price-in their future opportunities for growth, which were very slim...] Assuming most iPhone lovers have already switched to inferior AT&T just for the iPhone, how will the market differentiate the carriers going forward? -- maybe on actual (gasp) -- value for the customers --, and sorry, Verizon has a huge lead over AT&T with it's network and infrastructure (neither of which are mentioned once in this article about cell phone carriers!).

    Also, we know that consumers, and the Internet model in general tend to (eventually) harshly punish companies that engage in these kinds of exclusivity deals. What consumer -- even if they love the iPhone -- is happy that the iPhone doesn't allow them a choice of carriers? None. And they don't easily forget.

    Rick, this article sounds a little too emotional / personal to me (let me guess, you have an iPhone / own AAPL?), and I've heard a few of these before from you (Jamba Juice)...

  • Report this Comment On July 16, 2010, at 5:26 PM, gregorypierce wrote:

    The question is not one of whether or not Verizon NEEDS the iPhone - that's stupid fanboy banter. The question is whether or not Verizon will gain substantially by carrying the iPhone and by most account of attrition from AT&T to Verizon, a Verizon iPhone will be a substantial improvement to the Verizon marketshare and revenue upside potential.

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