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Verizon iPhone: Will It Really Hurt AT&T? Maybe Not

Convention wisdom holds that when Verizon (VZ) begins to sell the iPhone -- an announcement expected today -- AT&T (T) will pay a heavy price. Many customers could walk away from the carrier to do business with Verizon.

However, this sounds overblown. Will AT&T lose some customers to Verizon? Probably, but not a huge number. In fact, given the dynamics of how the wireless industry works and how consumers respond, there probably won't be a huge downside.

The predictions of disaster rest upon a foundational assumption: that many people find that only the iPhone ties them to AT&T. I'm sure there are some consumers like that, but for the most part, regular people don't have the same fetishist relationships to electronics you find in the media and high tech industry. If you can get the device you want, fine. If you can't, then there's another one instead. And if you really don't like the service, you do business with another company, even if they don't support the whiz-bang marvel that you favor.

In its most recent quarterly results, released October 21, 2010, AT&T indicated that it activated 5.2 million iPhones, with a 2.6 million increase in total wireless subscribers. At most, 2.6 million of the iPhone activations were new customers.

Given that smartphone sales were going to hit an estimated 27 percent to 29 percent North American market share by the end of 2010, according to ABI Research, not all of those new customers bought iPhones. A more reasonable split might be that 40 percent went with smartphones of some sort. At least one estimate suggests that 80 percent of AT&T's smartphone sales were iPhones. So do the math: 80 percent of 40 percent is 32 percent. So, roughly a third of the new customers, or 858,000, bought iPhones. Just under 4.3 million of those iPhone sales were to existing AT&T customers.

These are people -- regular consumers -- who have remained AT&T customers. The carrier had churn in its last reported quarter of 1.32 percent. How much will it jump with a Verizon iPhone? Even double it, and you still have a huge number of people staying with AT&T. As the company has noted, many of its iPhone users are on family calling plans, making it difficult for them to change carriers without convincing the rest of the family.

In addition, at least one study has suggested that AT&T has a faster 3G network than Verizon. Even if Verizon can claim a larger network, it means additional areas, not necessarily better coverage in existing areas. Verizon is pushing its fast LTE network, but iPhones don't support that technology and would likely work only on the company's 3G network. Add the sudden increase in network traffic, and Verizon might find its network slowing even more than AT&T's. Also, Verizon doesn't support simultaneous smartphone talk and data use, even in the background.

At least in the short run, there are some significant hurdles to a mass exodus by AT&T customers to Verizon. Given the speed with which the market changes, accurate discussion of the extended prospects seems impossible.


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