iPhone’s Carrier Competitors: Verizon

In this post, I will look at Verizon with respect to the iPhone and AT&T. An earlier related post on Verizon is available here.

Verizon Communications Inc. (NYSE:VZ) is one of the world’s leading providers of communications services with operating revenue of $88.14 billion in 2006. Its business is organized into two segments: Wireline and Domestic Wireless. The wireless business, operating as Verizon Wireless, is a joint venture formed in April 2000 between Verizon and Vodafone Group Plc with Verizon owning a controlling 55% interest.

For Q2 2007, for its Domestic Wireless segment, Verizon reported revenues of $10.8 billion. Its customer base increased to approximately 62.1 million, a 13.2% increase over last year. Verizon is the largest US wireless carrier in terms of revenue and in terms of customers, it is No.2 after AT&T which has 63.7 million customers. In the quarter, Verizon added 1.3 million wireless customers, less than AT&T’s 1.5 million. The main reason behind this is that Verizon lost about 300,000 wholesale subscribers due to the bankruptcy of its reseller Amp’d Mobile. This is the first time since early 2006 that AT&T has outpaced Verizon.

The one advantage Verizon has over AT&T is its 3G network. Most of its customers would rather wait for an iPhone rival version that is 3G capable rather than shift to the slow EDGE network of AT&T. Verizon is a CDMA shop and there is no chance at least for five years that an iPhone version will hit its network. Verizon has some 3G products in the pipeline and it is taking steps to minimize the effect of the ban on the import of Qualcomm 3G chips. It is reportedly paying Broadcom $6 for every handset, smart phone or data card affected. The deal is subject to a maximum payment of $40 million per calendar quarter and a lifetime maximum fee of $200 million. Verizon’s stock is fluctuating between $40 and $44. [For more color on Qualcomm and the GSM-CDMA debate, here are 2 prior pieces: the highly controversial iPhone and the Future of Qualcomm and its addendum.]

With the lowest churn rate in the industry at 1.08%, Verizon would probably not lose a lot of its existing customers. It has not lost me, even though I am a strong iPhone prospect. However, AT&T would surely sign up many new customers for the iPhone and widen the gap between them. On its part, Verizon is trying to decrease the gap by acquiring Rural Cellular Corporation and thereby its 700,000 customers in 15 states.

However, Verizon would need to come with an answer to the iPhone in the near future, as the convergence device movement gains ground. So far, I have not seen a compelling story on that from the Verizon camp, and that is worrisome. The low-end market segment, including rural, is likely to be significantly less profitable than a strong high-end, iPhone equivalent strategy.

This segment is a part in the series : iPhone’s Carrier Competitors