Apple-Verizon Political Calculus, 2010 Edition

Wednesday, 12 May 2010

Regarding Verizon’s announcement of a supposed forthcoming Android iPad-alike tablet, MG Siegler wrote:

The big question is: will it get ugly enough that Apple will re-up with AT&T and forget about a Verizon iPhone? Or maybe they have already, which is why McAdam would make such a pro-Google statement? The next few weeks leading up to Apple’s WWDC event in June should be interesting.

There’s a lot to unpack here. First, I’ll state up front that I know very little, one way or the other, regarding whether the iPhone is coming to Verizon this year.

The very little I know is that Apple has a skunkworks CDMA iPhone project. I don’t think it’s anything new — I think they’ve always had a skunkworks CDMA iPhone project, very much like the skunkworks Intel version of Mac OS X they kept alive during the PowerPC era. It’s just obvious common sense: be prepared.

So, technically, yes, Apple could offer a CDMA iPhone HD (or whatever they’re going to call the next-generation iPhone — I’m truly just guessing that it’ll be called “HD”) this year. If they do — if — I don’t think it’d be ready alongside the GSM iPhone HD for AT&T this June or July; I’d guess that it’d be announced in September at the annual iPod event. (If Apple has a CDMA iPhone HD ready to unveil in June, they’ve kept it under far, far tighter wraps than any previous new iPhone.)

As for whether Verizon’s vaporous pre-announcement of an Android tablet might squelch such a deal with Apple, count me in with Dan Frommer — if anything, Verizon’s early talk of such a tablet makes more sense as a negotiating tactic regarding the iPhone and iPad. Frommer writes:

Think about it. There is ZERO reason for Google and Verizon to pre-announce a tablet collaboration, likely several months before anything is available for purchase. There is only downside from something like that — delays, other disappointments, etc. (Who’s going to make it, anyway? HTC? JooJoo?) Look what happened to Microsoft when everyone found out its “Courier” tablet was just a design mockup.

Meanwhile, there is EVERY reason for Verizon to make it look like it’s doing something threatening to Apple.

Strategically, the Apple-Verizon relationship is fascinating.

Verizon wants the iPhone. It’s a popular and profitable phone; iPhone users pay high monthly service fees. AT&T’s current iPhone exclusivity is its biggest, maybe even only, advantage against Verizon. AT&T’s plans aren’t cheaper, and their service quality is infamously worse. If Verizon had the iPhone, surely many current AT&T customers would switch. And, some number of existing Verizon customers who would have switched to AT&T just to get the iPhone would instead stay with Verizon. Simply put, a Verizon iPhone would be terrible for AT&T. That’s reason enough for Verizon to want it.

Apple wants Verizon. They have a better network, especially in major markets like New York and San Francisco. Yes, with CDMA, there’s a technical limitation where you can’t use 3G data while you’re on a voice call, and Apple and AT&T have run ads pointing this out. That’s unfortunate, but I don’t see it as a big deal. I can’t recall ever hearing anyone with a Verizon smartphone complaining about this; contrast that with the zillions of complaints from iPhone users about AT&T’s network quality. More importantly, Verizon has the most customers. The simple truth is that many people, when shopping for a new phone, choose a model from their current service provider. There are some number of people who would buy an iPhone on Verizon who will not ever buy one on AT&T — and that “some number” is, I think, very high. In short, Verizon offers Apple significantly higher U.S. market share.

Really, we’re right back where we were a year ago with Apple-Verizon rumors. I could pretty much just re-run today this piece I wrote a year ago. (I’d change my prediction that we’ll see a Verizon iPhone “before the end of 2010” to “before the end of 2011”, though. But I still think it’s a question of when, not if, the iPhone will be available through Verizon.)

One difference today from a year ago, though, is that Android has blossomed into a popular platform — and in the U.S., that’s largely attributable to Verizon. You can see why Verizon wants Android phones — and now tablets — whichever way it goes with Apple. If Verizon is not soon getting the iPhone, they want a good rival. If they are (or even just may be) getting the iPhone, they want to be in the best possible negotiating position.

AT&T is in a weak position — they need the iPhone to remain theirs exclusively. Verizon and Apple are both in strong positions — they might want each other, but neither yet needs the other. That’s what makes this so interesting.

But imagine a hypothetical world where there was no Android, or where Android was utterly unsuccessful in the market. In that world, Apple would be in a much stronger position against Verizon — in that world, Verizon would need the iPhone.

Lastly, even if Verizon already had the iPhone, they’d still want a strong Android platform. A strong Apple does Verizon no good, regardless of whether they’re carrying the iPhone. Verizon’s interests are best served in a market where there are many phone makers — Apple, RIM, HTC, Motorola, Samsung, HP — none of which are in a dominant position.