Will Verzion Really Get the iPhone?

This week we saw the Wall Street Journal claiming that Verizon will get Apple’s iPhone sometime this year, regardless of the current exclusivity agreement with AT&T. The story does not name anyone as the source of this information and provides no further evidence, beyond the nameless people. This is not a new rumor, having surfaced since 2008 and continuing many times in 2009.

The CEO of Verizon stated last spring that Apple would not likely want to bring the iPhone to the company until its 4G network was in place, which is still relatively early in development. The carrier said it doesn't expect to reach even a 66-percent coverage level in America until sometime in 2012. An updated WSJ article suggests Apple “changed its mind as it realized Verizon’s upgrade would take longer than expected”. Apple’s exclusivity agreement with AT&T has long been shrouded in mystery. Some guess that the deal will expire sometime in 2010, but there has never been confirmation. Many analysts believe that the odds of this happening are low, especially with the launch of the iPad likely to extend the two company’s exclusivity pact.

There are other factors that may burst Verizon’s bubble. Although AT&T has been the exclusive carrier for over 2 ½ years, the iPhone has not done much for its stock price. Even if Verizon did get it, the company would not enjoy the monopoly status AT&T has used to build a significant lead over Verizon in U.S. smartphone market share. A research note from Morgan Keegan (a regional full-service investment banking, securities brokerage and wealth and asset management company) stated that Apple could choose to partner with Sprint, China Telecom and SK Telecom, instead of Verizon. Each one of them makes smart phones that use the Qualcomm CDMA chip that Apple will be using for the next iPhones.

Financially, if Verizon does partner with Apple, it will have to invest heavily in a new major capital project to build out its 4G network, even as it is completing its $23 Billion rollout of FIOS. As of now, the company would not fully reap the benefits of an iPhone deal, because it only owns 55% of Verizon Wireless. Vodaphone owns the rest, and it is unclear what will happen to that partnership in the long run.

Customers seem elated at the prospect of jumping on board with Verizon, because of the service complaints launched at AT&T. However, as I stated in a prior article, no one could have anticipated the load that the iPhone brought to existing network technology and Verizon or anyone else could not have done any better.

C. Cohn
The Cohn-Reilly Report

Sources: PC world, Barrons, The Wall Street Journal