Is Verizon Getting the iPhone?

It cannot have escaped Verizon's notice that AT&T proclaimed in a widely circulated memo that the recent launch of the iPhone 3GS was the "largest order day in history" and the "best ever sales day in our retail stores." AT&T sold a million of the new iPhones in 3 days. It took 74 days to sell a million iPhones when they were first launched in 2007.

With AT&T's exclusivity agreement due to expire in the next year, pressure is mounting amongst Verizon customers and shareholders for Verizon to come to some sort of agreement with Apple to offer the iPhone on their network.

Pressure is also coming from current AT&T iPhone users for Verizon to offer the device, as dissatisfaction with AT&T's coverage, and especially their DaVinci Code-ish billing practices continues to grow.

About 25% of AT&T's iPhone customers came from Verizon. Verizon is regarded as having the nation's best coverage, and a speedier new LTE data network is coming in the next year. I think Verizon would get most, if not all of their prodigal customers back from AT&T if they offered the iPhone.

I gave a talk near Albany, NY last week and a discussion started on the iPhone. More than a few people said that AT&T coverage is so bad in that area, they won't buy an iPhone until it is on the Verizon network. Of course that's anecdotal, but it would appear Apple is losing potential sales also.

Since the introduction of the iPhone, AT&T's stock has declined 39%. Notably Verizon's stock has declined 29%. So even with the hottest phone in the planet AT&T is failing to deliver. Apple's recent crypto-dissing of AT&T at the developer's conference spoke volumes about Apple's frustration with the company.

One quick way for Verizon to enter the fray would be to offer an iPhone "lite" device, something like the Blackberry Flip. Or Verizon could get rights to the upcoming iPhone tablet device, rumored to be rolled out as early as September, but in all probability in January.

An engineering problem may exist in that, according to a discussion on Mac Break Weekly, Apple would have to find a new chipset provider because Infineon (in the current iPhone) doesn't make a CDMA version (Verizon is a CDMA network, AT&T is GSM). So Apple would have to re-engineer any new phone. Expanding their market to Verizon may make that worth the effort.

In a recent interview on Charlie Rose, Verizon CEO Ivan Seidenberg was evasive about carrying the iPhone,saying it was "Apple's decision," which implies Verizon has made up their mind in the affirmative.

Getting as many customers as possible is vital for wireless carriers now, and not just because of the annuity-like service fees. Cel phones are morphing into wallets, with the accompanying transaction fees that occur in a payment system.

In Japan, one of the fastest growing banks is Jibun Bank. Jibun is interesting in that it is a bank with no physical branches. It has a barely functional website. Customers open their account with Jibun on their cel phones, and transact all their normal banking functions on the phone. If a customer needs cash, he uses his cel to obtain it through the 7-Eleven ATM network.

Guess who owns Jibun Bank? It's a co-venture between the Bank of Toyko-Mitsubishi and, drum roll please, KDDI, a major phone company.

Why wouldn't the phone company get into banking? They have the I.T., and the more customers they have, the more distribution they have, which is why wireless customers are worth more than their monthly fees alone.

If PayPal, Amazon, and Google can leverage their way into the payments business though I.T. and distribution, which they are doing as we speak, so can Verizon.

Distribution, as Wal-Mart has shown us in retail, is the key. You add phone customers, you get more distribution for other goods and services to sell. The number of wireless customers is essentially fixed by this point, so if you want to grow you have to get new customers from someone else, and offer them new products to buy. Banking and payments are a natural fit for mobile devices.

The day is coming when you'll be able to walk into a movie theatre and pay for your tickets via your mobile device, from a balance aggregated in real time from your bank balance, frequent flier miles, World of Warcraft gold, and other virtual currencies, which will all "live" on your phone and be freely convertible into dollars. Or Chinese renminbi at the rate we are going.

So will Verizon get the iPhone, in some form? Given the increasing profit potential of each customer, the only way they won't is if AT&T writes Apple a really big check to keep their exclusive.

Another factor that could steer the iPhone Verizon's way is the fact that, according to Silicon Alley Insider "Obama's anti-trust cop Christine Varney is dusting off the Sherman Act and reviewing wireless companies' exclusive handset deals--most notably AT&T's monopoly control over Apple's iPhone."

Either way, Steve Jobs wins.

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