Why Verizon won't let Apple announce iPhone
Verizon isn't taking any shit from Apple.
Late yesterday, the wireless carrier set Wall Street and the Web abuzz with invitations to a mysterious January 11 event in New York. Several Apple journalists reported receiving the invites, including veteran Mac reporter Jim Dalrymple (disclosure: we're friends, and I hope will still be after this post). The timing fits with other rumors about the imminent launch of iPhone 4 -- let's call it iPhone 4.5 for this post -- on Verizon Wireless. I say iPhone 4.5, because this isn't your daddy's GSM handset. Verizon's network is CDMA, and it's moving to LTE.
Not surprisingly, Apple journalists and Macheads speculated about why Verizon sent the invitation. Surely it should have come from Apple. In a TechCrunch post, "Why Apple will let Verizon announce iPhone," Dalrymple offers explanation (The headline to this post play's off his headline). "The most important reason Apple would let Verizon make this announcement is that Apple is managing expectations," he writes. "If Apple sent out its typical invitation to join them in California for an event, the speculation would be that Apple was going to release the iPhone 5 or perhaps the iPad 2. I believe when the Verizon-compatible iPhone does come, it will simply be a CDMA version of the iPhone 4."
We can Agree to Disagree
I'm with him regarding a CDMA device but disagree with the rest. Dalrymple has reported about Apple for more than 15 years, and he is remarkably astute in his observations and he is careful about story sourcing. But for once -- in the rarest of instances -- Apple Kool-aid poisoned his judgement. Dalrymple wrongly assumes Apple is driving the announcement -- that Verizon needs iPhone. Machead John Gruber expressed similar sentiments. Gruber and I rarely agree on anything. This is a rare instance where Dalrymple and I disagree. Sorry, Jim.
Make no mistake, Apple has no problem sending out event invitations that generate rumors. Every Apple event generates broader rumors about what's coming than what actually does. More significantly, Apple had good reasons to churn up some speculation and rumors this week, drawing attention away from the Consumer Electronics Show. Apple CES oneupmanship is a seemingly annual activity.
It makes more sense that Verizon had reasons to hold back any invitation and also to be the one sending it. One Betanews commenter almost gets it right. Bay Area CA Male writes: "Anything that Verizon could possibly want to announce and was allowed to would have been done at CES that started yesterday and ends Sunday. Now to most people out there, it's pretty obvious what this means. The only thing Verizon was not allowed to announce at CES is the iPhone." It's not that Verizon wasn't allowed, the carrier didn't want to take away from other new handsets on its network before they were announced -- that the more sensible conclusion. This week Verizon announced some of the hottest Android handsets available on any US carrier -- from HTC, Motorola and Samsung.
Verizon isn't AT&T. The United States' largest cellular carrier isn't accustomed to taking crap from handset manufacturers. Verizon controls everything on its network and is quick to customize handsets with its software and services. AT&T is different, or was when Apple launched the original iPhone in June 2007. AT&T made lots of concessions to get iPhone, such as granting Apple control over the software and updates. The company then known as Cingular was relaunching as AT&T; iPhone would anchor the brand change. But Apple made concessions, too, as a handset manufacturing newcomer, granting AT&T exclusive US iPhone distribution rights for what was then reported to be five years.
Perhaps 18 months ago, Verizon would have ceded more to Apple. After all, AT&T was stealing away customers who wanted iPhone, and Verizon had nothing even remotely comparable to offer. But then in autumn 2009, Verizon launched the Droid -- a cool, Android 2.0 handset supported by a $100-million marketing campaign. Other hot-in-demand Droids followed. The Verizon that once desperately needed iPhone could continue on without the handset, even if painfully.
What Sales and Subscriber Numbers Reveal
The numbers tell the story, but it requires digging deep to get the ending. During third quarter 2010, Verizon Wireless added 997,000 net customers for a total 93.2 million. A year earlier, the carrier added 1.2 million net customers for a total of 89 million. Both quarters followed new iPhone launches, 4 and 3GS, respectively. Not surprisingly, AT&T hugely benefitted from new iPhone launches. In third quarter 2010, during which Apple launched iPhone 4, the carrier added 2.6 million net customers, for a total 92.8 million. A year earlier, AT&T added 2 million subscribers, for a total 81.6 million. So in a year, with iPhone available, AT&T grew by 11.2 million net subscribers, while without Apple's handset Verizon grew by net 4.2 million. During Q3 2010, AT&T activated 5.2 million iPhones and 3.2 million a year earlier. Those numbers would certainly suggest Verizon desperately needs iPhone, but let's look at them from another perspective.
For the first three quarters of 2010, AT&T's net subscribers increased from 87 million to 92.2 million, for a 5.2 million subscriber gain. During the same time period, AT&T activated 11.1 million iPhones, or more than twice the number of net subscriber gains. Carrier switching, or what the industry calls churn, is one reason for the difference; existing subscribers purchasing iPhone is another. By comparison, Verizon's wireless subscribers grew from 92.8 million to 93.2 million, for a gain of only 400,000. That would again suggest that Verizon desperately needs iPhone.
But Verizon's bargaining positon is stronger than it seems because of bigger trends and the large number of successful Android phones the carrier and others sell. Apple claims to have sold 14.1 million iPhone during third calendar quarter, but the company measures sales into the channel. Gartner, which measures actual sales to users, put the number sold at 13.5 million. Assuming AT&T Q3 iPhone activations were for devices sold during the quarter, the one carrier in one market accounted for about 38.4 percent of global iPhone sales in Q3. The United States' second largest carrier is hugely important to Apple, but adding the nation's largest would be even more important, particularly when looking at larger trends related to Android device sales.
Google claims it is activating 300,000 Android handsets a day, which works out to 27 million per quarter or more than the most generous Wall Street analyst projections for Q4 iPhone shipments. Every major US carrier offers Android handsets, but only one sells iPhone -- and, again, in the market accounting for more than one-third of global sales.
More troublesome, despite AT&T's subscriber gains, iPhone is losing sales to Android. This week, ComScore and Nielsen both announced new data on US cell phone sales. There is one consistent trend: iPhone market share is flat, which is surprising considering iPhone 4's June launch. ComScore's data compares two separate three-month periods, ending in August and November. Android's share of smartphone subscribers rose from 19.6 percent to 26 percent, while iPhone's nudged up from 24.2 percent to 25 percent, according to ComScore.
Nielsen used a different measure -- smartphone OS share -- which puts iOS ahead (28.6 percent share) of Android (25.8 percent share). However, iOS isn't really gaining, while Android experiences dramatic growth. From June to November, with some fluctuations, iOS smartphone operating system market share rose from 27.9 percent to 28.6 percent. Meanwhile Android's share leaped from 15 percent to 25.8 percent. More revealing: November, 40.8 percent of new acquirers bought an Android smartphone -- that's up from 27.3 percent in July. By comparison, iOS share among new purchasers was flat, going from 26.2 percent to 26.9 percent during the same time period.
Verizon takes No Crap from Suppliers
Is the point obvious enough? In iPhone's home -- and arguably still most important -- market, iPhone is stalling against the Android onslaught, which is everywhere. That makes Apple's need for the nation's larget carrier hugely important, perhaps more so than Verizon's need for iPhone. At the least Verizon is on fairly equal footing negotiating terms and selecting launch venue. Dalrymple's mistake is the same as many other people watching Apple -- assuming the company will set the terms of the deal and lead the launch. No way, Jose.
Apple CEO Steve Jobs is worshipped by many people. He's a cult leader, an iconic CEO. Some analysts, bloggers and journalists have called Apple's handset the Jesus phone. Maybe, but Jobs isn't the Almighty, and he has met his match before. For example he backed down before record labels and their demands for fluid rather than static music prices at iTunes Store. Verizon is a hugely successful and aggressive company. Verizon Wireless CEO Daniel Mead worked his way from within Verizon to assume the leadership position. He is a tactical and loyal operator. Verizon CEO Ivan Seidenberg is a formidable figure in American business. His cunning acquisitions brought together Bell Atlantic, GTE and (and earlier NYNEX) to form Verizon in 2000. He didn't need an iPhone to relaunch or rebrand. Seidenberg isn't the type to cow before Jobs, no matter how revered.
So, I'm not surprised the invitations came from Verizon, and, again that's assuming all the rumors and speculation are right about the iPhone 4.5 launch. The venue is hugely sensible. Apple knows something about influencing Wall Street through rumors. Verizon knows perhaps even more about influencing through execution. The New York venue is well chosen for that. Verizon has something it wants to communicate to Wall Street analysts and to investors. Microsoft also typically launches major new products from New York -- that is when holding special events. It's the right place.
No one should expect Verizon to take a backseat to Apple, the way AT&T has. Verizon will be ruthless promoting the benefits of its network over AT&T's for iPhone. But Verizon also sells many other smartphones, Androids among them, and announced many new handsets during this week's Consumer Electronics Show. Verizon won't depend on iPhone the way AT&T has. Apple is just another phone supplier, albeit a hugely successful one. Verizon proved its mettle in its competitive marketing campaign against AT&T reliability and when launching Droids. If Verizon does announce iPhone 4.5 next week, the event won't be about Apple but Verizon and its customers.