It's a Verizon Wireless iPhone, but it's not LTE

After three years of persistent rumors about a Verizon Wireless (NYSE:VZ, NYSE:VOD) iPhone, one of them finally proved true. Today, Apple (NASDAQ:APPL) abandoned its GSM-only device strategy to unveil a CDMA version of the iPhone 4 for VZW customers. But Apple also eschewed the latest version of its network technology, long-term evolution (LTE), to make a 3G only device. While every major U.S. operator is deploying new mobile broadband services under the banner of 4G, for now Apple is keeping its iconic smartphone locked in a 3G time capsule.

There’s precedence for such move. When Apple launched the original iPhone on AT&T’s (NYSE:T) network, it surprised everyone by designing a 2G only device. Apple CEO Steve Jobs reasoned that 3G technology wasn’t ready for primetime in 2007, and considering the state of UMTS-high-speed packet access (HSPA) networks in the U.S. at the time, he was probably right.AT&T was still building out its 3G network and T-Mobile hadn’t even broken ground on its HSPA deployment. By the same logic, Apple could be waiting for a more robust LTE networks and a mature LTE ecosystem to emerge before it commits to the technology.

At the end of 2010, Verizon Wireless had built an LTE footprint covering 110 million pops—roughly one-third of the U.S. population centered on 38 large metropolitan markets. Meanwhile VZW’s CDMA and EV-DO networks cover 98% of the population, extending far into the hinterlands where AT&T’s 3G network doesn’t offer coverage.

Verizon plans an aggressive nationwide rollout this year and next, but VZW faces a big limiting factor to a large-scale launch of mobile broadband services: chipset availability. Verizon is one of the earliest players in LTE and while it has managed to keep its network deployment timeline on track it must wait for the device vendors to catch up.

At CES last week, Verizon secured commitments from most of its major device vendors to supply it with nearly a dozen consumer and enterprise LTE handsets, tablets and broadband routers. But most of those devices won’t be ready until the second or third quarter as vendors wait for key LTE silicon from their chipset suppliers.

Apple chief operating officer Tim Cook addressed that issue at Verizon’s press conference today in New York. According to Cook, first-generation LTE chips would have necessitated design changes to the iPhone 4 that Apple couldn’t make. While Apple could have waited for second generation silicon, Cook said, VZW customers wanted the iPhone sooner rather than later. Apple isn’t waiting. It’s taking pre-orders for the new CDMA iPhone on Feb. 3 and will start selling the device across all of it and VZW’s channels on Feb. 10.

VZW will sell the 16 GB version for $200 and the 32 GB version for $300 with two year contracts, matching AT&T prices for the iPhone 4, though AT&T is now selling the older 3GS for $50. Verizon have a few advantages over its arch competitor in marketing the device, though. The first advantage is reputation: AT&T has been plagued with network problems since it launched the data-centric iPhone, while VZW has escaped the network wars relatively unscathed. While it’s entirely possible that millions of iPhones will wreak the same havoc on VZW’s network that they have on AT&T’s, VZW has in place extensive backhaul upgrades that would help mitigate capacity issues. VZW also has a much more extensive network with EV-DO running in almost all of their Tier II and Tier III markets AT&T doesn’t serve.

The second advantage is data pricing. Assuming VZW doesn’t change up its smartphone plans any time soon, it will offer its customers unlimited data access to the EV-DO network compared to AT&T’s tiered plans. VZW service will likely be more expensive than AT&T’s, but unlimited data could prove a huge draw to millions of data-greedy iPhone users. In addition, VZW is activating the mobile hotspot capabilities of the iPhone 4 to allow customers to extend their 3G connections through WiFi to other devices (for an additional subscription fee).

AT&T started reacting to the new before VZW and Apple made their announcement. AT&T Mobility CEO Ralph de la Vega told the Wall Street Journal that AT&T has been preparing to lose its exclusivity of the iPhone for some time, welcoming the competition with Verizon. “We are much bigger than this,” de la Vega told the Journal. AT&T has already done plenty of leg work to head off the VZW iPhone. Last year it signed up millions of current and new subscribers to long-term plans with the new iPhone 4, locking in a huge potential pool of defectors to VZW for at least another 16 months. AT&T also began setting the stage for life without iPhone exclusivity at CES, announcing a new line of innovative smartphones and tablets that tap into its HSPA+ mobile broadband network, which it is now calling 4G.

A big question remains over how long VZW will be the lone challenger to AT&T’s iPhone business in the U.S. The CDMA handset uses the same PCS and cellular frequencies used by Sprint (NYSE:S) and dozens of regional operators in the U.S. as well as some sizable international operators in Latin America and Asia. Apple stated that the deal with Verizon isn’t exclusive, paving the way for Apple to go truly global with the reconfigured device.