One More Verizon Casualty

Lost in the hype behind Verizon's (NYSE: VZ  ) move to begin selling its own network's version of Apple's (Nasdaq: AAPL  ) iPhone 4 next month, the "Can you hear me now?" carrier also revealed that it would soon begin selling iPads with internal connectivity.

Verizon's CFO didn't give Bloomberg details on when the new iPads would hit the market. He also didn't reveal whether the tablet would be surfing on 3G or the wireless giant's nascent 4G LTE platform. Either way, this is bad news for Novatel Wireless (Nasdaq: NVTL  ) .

Shares of Novatel plunged 19% yesterday, as investors absorbed the news.

For now, Verizon's workaround to counter Apple's 3G iPads running exclusively on AT&T (NYSE: T  ) is to bundle Wi-Fi iPads with Novatel's MiFi mobile hot spots. The ability to tether several devices is a winner for Verizon, but it also means that customers need to lug around the pocket-sized MiFi. The moment Verizon can market iPads with internal connectivity, the MiFi bundle is going to take a hit.

In theory, this shouldn't be a big deal for Novatel. Verizon only began offering these bundles three months ago. MiFi portable hot spots are popular as stand-alone gadgets that power several surfing sessions at the same time. Who cares if Verizon will eventually be offering a self-contained iPad connectivity solution?

Well, the trend is more damaging than the news. Remember yesterday's Verizon iPhone 4 announcement? One feature of the smartphone on Verizon's network is that it will be able to serve as a mobile hot spot for customers upgrading to a tethering plan. We'll have to wait until we get official data plan pricing to weigh the value proposition, but at the very least it will become more convenient to just carry a smartphone that does it all.

This is the nugget that is apparently lost on Sierra Wireless (Nasdaq: SWIR  ) . Shares of the mobile broadband specialist actually inched higher yesterday, even though its Overdrive is the only other major mobile hot spot device competing with MiFi. As more smartphones offer tethering at realistic price points, both Novatel and Sierra will be challenged to move mobile hot spots and wireless USB modem sticks.

Novatel's drop may have been extreme in the near term, but Sierra's immunity from the malaise is downright puzzling.

Do you have a mobile broadband subscription? What are you using, and what do you think about the MiFi, Overdrive, or smartphone tethering? Share your opinions in the comment box below.

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Longtime Fool contributor Rick Munarriz really has been a mobile broadband customer since 2005, with the worthless PCMIA broadband card to show for it. He does not own shares in any of the companies 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.


Read/Post Comments (3) | Recommend This Article (2)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 12, 2011, at 3:07 PM, MakingaLiving wrote:

    RE: Novatel & Hot Spot products. A 3G iPad is great if you want to use an iPAD. It's not great if you want to surf on any other device (MacBook, Netbook, iPod, Desktop, etc) or if you want to have a few friends surf with you.

    It's also important to note that when using your 3G enabled VZ iPhone in tethered mode (As a Hot Spot) you will lose your ability to make or receive voice calls. Serious phone & data users may be reluctant to surrender one communication method for another. I also suspect that many of the iPhone users will be uncomfortable allowing their iPhone to be held hostage (In Hot spot mode) while their friends are surfing the web for any extended period. iPhone & iPad will no doubt be a big hit in the VZ network, but for serious data usage, a data specific device is the only way to go.

  • Report this Comment On January 12, 2011, at 3:45 PM, aymanm wrote:

    As a consumer I prefer a MiFi over a tethered phone because battery life is much better on the mifi over a phone used this way. You pay more to tethered your phone ($20 more on AT&T) while your data limit is not increased. When I bought an iPad I got a wifi capable iPad coupled with a mifi from sprint.

  • Report this Comment On January 19, 2011, at 12:22 PM, MovinOn99 wrote:

    Nvtl was 1st to market with a hotspot type device. Kudos to them, they've had a good ride but it's coming to an end like most of their initiatives. Their MO is to be 1st in to a country or out with a poduct which generates a short spike in sales that whithers as alternatives and better performing companies/devices come along.

    Totally unclear why you'd say the concept of Smartphones acting as hotspots is lost on SWIR. If you haven't noticed they've been taking huge initiatives to diversify the product portfolio in the past couple of years because the traditional business is under attack by commoditization and Smartphone type alternatives. It's because of this diversification that it's being rewarded with a sustained stock price for a change.

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