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Verizon Finds the Painful Side of Sudden iPhone Success

Verizon (VZ) has had a field day on getting the Apple (AAPL) iPhone: big sales and lots of attention. As my BNET colleague Jim Edwards notes, the carrier plans a new advertising campaign that will take shots at AT&T (T) about how now you can hear calls on an iPhone. Talk about kicking a competitor when it's down.

Few things offer an unalloyed benefit, and that's especially true of the Verizon iPhone. There are already some signs that combination of demand and network glut that turned AT&T into a telecom punch line might knock on Verizon's door and say, "So, can you hear us now?"

Yesterday was the first day that Verizon offering the iPhone, taking pre-orders from existing customers who wanted to switch from their current handsets to iPhones. The company said that it was the most successful first-day sales in its history -â€" and that happened between 3am and 5am.

All well and good. However, how many is in that record? According to one analyst, the total was probably fewer than 100,000 units. Maybe that's why some customers got an error message instead of an order screen. The company even had to ask its employees to delay their own iPhone purchases.

For comparison, AT&T also had to temporarily suspend pre-orders when the iPhone 4 first came out last year. The difference is that AT&T sold 600,000 the first day, with 13 million people checking for upgrade eligibility.


Keeping up with orders can be a lot harder than it looks. You know what else can be, as well? Network congestion. For all the talk of having a faster network, Verizon seems worried about the iPhone impact on its CDMA network (probably because of many feature phone users making the switch, as Android owners are heavy on network traffic as well). Walt Mossberg thought that Verizon beat AT&T at voice calls on iPhones. But he filed that report before the major sales started, let alone before the units landed in consumers' hands.

On the same day that it began selling the iPhone, Verizon pushed through a change in its data service policy. The 5 percent heaviest data users would find their download speeds reduced.

Trouble is, there's no way of telling if you're one of that top 5%. Verizon does not say it will inform users whose data stream gets throttled. And given that early reviews of the Verizon iPhone have noted its data service is significantly slower than the AT&T version, it may be hard for switchers to tell the difference between regular service and throttled service. Throw in the fact that Verizon iPhone users will not be able to use data services and make calls at the same time, and the carrier's launch of the phone starts to look a lot less enticing.

This could turn out to be a long-range expensive PR problem for Verizon, unless it can quickly beef up its network. The new 4G service won't do any good, as the iPhone 4 only works on 3G cellular networks.

Oh, and another long-term cost: money. At least one analyst estimated that getting the iPhone could cost Verizon $3 billion to $5 billion the first year. Well, you get what you pay for.

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