The unexpected winner in the Verizon Wireless-Apple deal: Google
In essence, Apple is giving Google almost exclusive ownership of the term 4G for the next 12 months.
Before I delve into my central premise, I will be the first to point I was dead wrong. I have long stated—‘pontificated’ might be the better word—that Apple (NASDAQ:AAPL) would never build a CDMA-only device. My belief was long-term evolution (LTE) would be Apple’s first big leap to a new technology (some might call that hedging my bets).Today Apple and Verizon Wireless (NYSE:VZ, NYSE:VOD) proved me wrong on both counts. Strategically the decision still makes no sense to me, if you’ll allow me to explain…
It’s easy to see Google (NYSE:GOOG) as the big loser now that Verizon has the iPhone. Verizon has been one of Android’s biggest champions, pitting its Droid smartphones against the iPhone while AT&T (NYSE:T) enjoyed exclusive operator rights to the iconic Apple handset. It’s a setback for Google, which is sure to see Android handset sales on the VZW network drop as the iPhone comes online (an effect that will be amplified if Apple extends the iPhone 4 to Sprint (NYSE:S) and other operators). But it may have won a key victory in the larger war. By keeping the iPhone firmly grounded in 3G, just as we’re entering into a mobile broadband revolution, Apple has handed the so-called 4G market over to Google—at least for the time being.
Just look at the news at CES. Verizon announced 10 LTE consumer devices and a Cisco enterprise tablet to boot. Every single one of the smartphones and tablets in that portfolio used an Android operating system. Looking beyond Verizon, there were dozens of other handsets and tablets unveiled at CES all with 4G in their branding, whether they were high-speed packet access plus (HSPA+) devices for AT&T and T-Mobile (NYSE:DT) or WiMax for Sprint. With the notable exception of Research in Motion’s (NASDAQ:RIMM) WiMax-embedded BlackBerry Playbook, those devices were uniformly Android.
You can say this is all just marketing, and you’d be right. Operators are calling three different technologies 4G these days, but unfortunately for Apple its iPhones and iPads don’t link to any of them. I suppose Verizon could start calling its CDMA EV-DO network a 4G network, but I doubt it will. That would contradict its 4G LTE message, and Verizon has almost been prudish with its terminology in the past (unlike other CDMA operators it refused to call CDMA 1X a 3G technology).
The thing about marketing, though, as marketers will be the first to tell, is that marketing works. You need look no further than Verizon’s “Map for That” campaign of 2009. VZW slaughtered AT&T’s network on TV by superimposing coverage maps. Consumers may not understand many of the nuances of cellular technology. But they DO understand coverage and they understand speed. It doesn’t matter that VZW’s EV-DO network can support almost any smartphone application you throw at it (it supports 300 kb/s streaming video for heaven’s sake), just like it doesn’t matter that your typical AT&T customer in New York would never go to Dubuque. If your competitor is offering a capability you don’t have, your customers are going to want it--even if they’ll never, ever use it.
I believe the performance of the iPhone on VZW’s network will be good, if not stellar (real-time video chat via FaceTime likely will be iffy over the higher-latency EV-DO network. But I also believe that operators will be merciless in attacking the iPhone’s mobile broadband faults. Comparing a 5 Mb/s Android devices versus a sub-1 Mb/s iPhones is not a comparison Apple wants to hear. The really messed up thing about this situation is that Verizon will be leading the assault Apple will be facing, at least indirectly. Verizon is going to market the hell out of its LTE network this year, pointing out how it kicks the pants off any other network in the U.S. today. Of course, it won’t mention its own network or the iPhone in that 4G marketing onslaught, but its competitors most certainly will.
Don’t get me wrong. I believe VZW is going to sell millions of iPhones. Sprint will do the same if it can get its hands on them. But given a device life-cycle of a year, there won’t be a new CDMA iPhone on the market for year (if Apple’s chipset issues are what they claim them to be it might have to more than a year, that means there won’t be an LTE iPhone market for a year. This summer Apple might launch an HSPA+ iPhone 5 for the AT&T network, allowing it to stake a claim in the 4G wars, but otherwise its giving Google almost exclusive ownership of the term 4G for the next 12 months.
If Apple and Verizon made this announcement six months ago—or even three—it wouldn’t have mattered so much. The CDMA iPhone would have been the last in long line of innovative 3G devices before new technologies came to prominence. Sure, the term 4G was already out there, but Apple could have shouted down Sprint and T-Mobile. Since then, VZW has launched its LTE network, AT&T jumped on the 4G bandwagon and the next generation of mobile broadband devices have debuted at CES. Apple’s timing is terrible. The idea of 4G is starting to take hold and Apple is not part of that mind share.
Before I sign off, I have to admit I’m slightly in awe of Verizon Wireless and its CTO Tony Melone for accomplishing exactly what they set out to do. This is the telecom industry. NOTHING meets deadlines. The fact that VZW built its LTE network in the timeframe it set for itself—tossing on 10 million extra pops of coverage to boot, completed its backhaul upgrade, integrated its two packet data cores AND got device and chipset vendors to meet its launch schedule, is quite frankly astonishing. There are so many different players, so many different factors outside of VZW’s direct control—one of which is getting AT&T to feed your out-of-territory cellsites with fiber—I would assume an on-time launch of a new network would be impossible.
How do you explain it? Maybe it’s sheer tenacity, early commitment of capital or maybe even blackmail. It’s almost too perfect. There must be some hang-up somewhere. My guess is Melone left his wrist watch in a random aggregation router which will lead to all kinds of network problems a few months down the road.
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