Will New Verizon 4G Phones Threaten iPhone Sales?

The availability of the iPhone 4 from Apple Inc. (NASDAQ: AAPL) on the Verizon Wireless network is expected to be be a big win for the carrier, a joint venture between Verizon Communications Inc. (NYSE: VZ) and Vodafone plc (NYSE: VOD). We put in our two cents yesterday, concluding the existing Verizon customers who own feature phones, not smartphones, are the likeliest buyers of Verizon’s iPhone.

But what effect will that have on smartphones that employ the Android operating system from Google Inc. (NASDAQ: GOOG)? Android-based phones have driven smartphone sales at Verizon, and Verizon won’t be in too big a hurry to cannibalize its Android sales for the sake of expected iPhone sales. In fact, Verizon plans to offer four new Android-based phones by mid-2011 that will work on the company’s 4G LTE network.

So what you might think? Verizon customers have clamored for an iPhone for three years, and they’re not going to wait any longer to plunk down their dollars for the 3G iPhone 4. Well, maybe — or maybe not.

The Verizon iPhone will not support simultaneous voice calling and app execution, as the iPhone does on the AT&T  (NYSE: T) network. Verizon’s CDMA network does not support multi-tasking, whereas AT&T’s GSM network does. The GSM technology also allows the AT&T iPhone to be used in other countries, while the CDMA technology only works in the US. A Verizon customer wanting to use a mobile phone in most European countries will need to buy a second phone.

While Apple hasn’t announced features for a new iPhone, it’s widely believed that AT&T will get a 4G-compatible iPhone later this year. No word yet from Verizon on whether it will also get one.  Only Sprint Nextel Corp. (NYSE: S) currently offers a 4G network that is widely available, but it uses a different technology, called WiMax, that is incompatible with LTE.

Verizon expects to launch its 4G service to 140 new markets by the end of 2011, adding to the 38 markets it already serves. If you were in the market for a new smartphone and lived in one of these 178 markets, would you buy a 3G iPhone or wait a few months for a 4G Android-based phone?

The 4G handset makers, HTC, Samsung, LG Electronics, and Motorola Mobility Inc. (NYSE: MMI), are betting that you’ll go for the speedier 4G phones and networks, rather than laying out $200 or more for outdated technology. That could just be wishful thinking. Apple’s iPhone is the smartphone gold standard and now that 93 million Verizon customers can get one, they might not be willing to wait.

Motorola has also announced a new 4G-ish phone exclusively for AT&T, the Atrix, which was a big hit at last week’s Consumer Electronics Show. Now AT&T does not technically have a 4G network, but it is pushing its 3G technology to be “as fast as 4G.” That’s not the same thing, but most consumers will judge the network by how fast it is, and the AT&T network is damned fast.

Just to muddy things up a bit more, a number of tech blogs and web sites are reporting that a new iPhone, dubbed the iPhone 5, will be released in the summer of 2011, and will be available for both AT&T and Verizon with support for 4G LTE networks. None of the principals is saying anything to confirm or deny the reports.

Absent an iPhone 5, Verizon’s other 4G handset makers think they’re in pretty good shape. However, their tune could change if an iPhone 5 is released this summer at about the same time as their Android-based phones.

How to handicap the players? If the iPhone 5 does appear this summer for both Verizon and AT&T, Apple and Verizon win, and AT&T loses. If the iPhone 5 comes out only on AT&T’s network, Apple still wins and AT&T doesn’t lose as much (remember, their true 4G network is still a work in progress), while Verizon probably doesn’t lose too much. Verizon’s other handset makers will really struggle if Apple kicks out an iPhone 5, and the handset makers could really prosper if Apple holds off.

Any way you look at it, Apple drives the smartphone handset business and the carrier business. Google and Android never really sought to compete there. Google’s goal with Android has always been to create the world’s largest mobile advertising platform. That will continue no matter what.

Paul Ausick