Verizon Unwraps iPhone

January 13,2011 WSJ.com

By SHAYNDI RAICE And YUKARI IWATANI KANE

Verizon Wireless finally told the world Tuesday that it will start selling the iPhone, but the carrier toiled in secret with Apple Inc. for two years to make it happen.

Stacey Delo takes a look at what a Verizon iPhone is likely to cost you when phone and data plans as well as possible fees are factored into the equation and which carrier looks to be the cheaper option, Verizon or AT&T?

The move will give Apple an important new source of sales in its biggest market for the iPhone and help it compete with rival Google Inc., which had made inroads for its Android operating system by teaming up with Verizon to develop high-end smartphones.

It also will shake up the U.S. wireless market, ending a deal that has driven much of AT&T’s subscriber growth and forcing smaller carriers like Sprint Nextel Corp. and T-Mobile USA to compete against bigger rivals armed with an immensely popular phone.

Verizon executives revealed Tuesday that the iPhone was just over a year old when negotiations with Apple became serious in late 2008. Apple started to work with Verizon because it realized it needed to add another carrier to keep its strong U.S. sales momentum, said one person familiar with the matter. The company decided to design for Verizon’s CDMA network after realizing the carrier’s faster 4G network wasn’t available across its subscriber base and was still being refined to work well with phones, another person said.

After enduring months of rumors about competition for the iPhone, AT&T executives are finally about to face their moment of truth as Verizon today announces plans to sell the popular smartphone. Shayndi Raice has the story.

AT&T U.S. iPhone sales account for about 30% of iPhone sales, according to Piper Jaffray & Co. Analysts think Verizon could sell 7 million to 13 million this year, owing to pent-up demand among would-be buyers who don’t want to use AT&T’s network. Apple has sold 75.6 million iPhones so far world-wide on a cumulative basis, according to Kaufman Bros.

“The number one question I get is when will Verizon get the iPhone,” said Apple Chief Operating Officer Tim Cook, who showed up for the launch. He said his own mother wanted to know, but he wouldn’t tell her.

“My wife and I have both been waiting for the iPhone,” said Terence Leung, a San Francisco marketing professional. Mr. Leung said he didn’t want to switch to AT&T because of its reputation for dropped calls and bandwidth issues. He has looked at Motorola Mobility Holdings Inc.’s Droid phone, but also didn’t buy it because of its relative lack of applications and insufficient battery life. He is currently a BlackBerry user.

At a press event in New York Tuesday, Verizon Wireless CEO Dan Mead provided details about when the iPhone 4 will available on his company’s network and how much it will cost.

Some AT&T customers say they have no plans to switch. Maximilian Sylvia, 16, of Holden, Mass., said he’s happy with his service and won’t be switching to Verizon. “My iPhone works perfectly,” he said.

Apple first started seriously working on the iPhone around 2005. It knew it didn’t have the ability to support two different wireless technologies so it chose GSM, which was more globally prevalent and could be sold around the world.

People familiar with the situation said that while Apple met early on with Verizon, the talks were never serious because its network was based on a different technology.

Apple also began serious conversations with Cingular, a predecessor of AT&T’s wireless unit. To keep the project secret, it gave codenames, a person familiar with the matter said. The iPhone was P2, Apple was Acme and Cingular was Cypress — named after the hotel down the street from Apple headquarters where they stayed.

Change became possible with the expiration of AT&T’s exclusive deal to carry the iPhone, which ended “recently,” Mr. Cook said. Verizon Communications President Lowell McAdam traveled to Apple headquarters in the first half of 2010 to seal the deal. Verizon’s arrangement isn’t exclusive, meaning other U.S. carriers could in theory eventually carry the iPhone as well.

AT&T has acknowledged it was unprepared for the deluge of data traffic the iPhone brought to its network. The stress led to reports of high numbers of dropped calls and slow service. A Consumer Reports survey last year ranked Verizon first and AT&T last in terms of network quality for major carriers.

Verizon worked closely with Apple to avoid a similar embarrassment in creating a phone for its CDMA network. Verizon more than any other major carrier has built its reputation on network quality.

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ReutersApple’s operating chief, Tim Cook, left, and Verizon Wireless CEO Dan Mead shake hands Tuesday during a news conference. Verizon executives said negotiations to carry the iPhone became serious in late 2008.

 ”If we screw that up, it’s a bigger deal for us than for the other guys,” said Verizon Wireless Chief Operating Officer John Stratton.

The two companies collaborated closely on design and testing. Verizon installed a number of cell towers on the Apple campus in Cupertino, Calif., so the company could test the phone in their own backyard. The two companies also traded teams of employees more than a year ago.

Verizon has also been shoring up its ability to handle data traffic, particularly in big cities. In the second half of last year, the carrier began lighting up unused 3G spectrum in selected markets and installing the equipment to make it run. Tony Melone, chief technology officer for Verizon, says it will continue to add more capacity in the first half of this year.

“We have built up a very big data cushion,” said David Small, chief technology officer of Verizon Wireless.

Some questions about the Verizon iPhone weren’t answered Tuesday. Verizon wouldn’t discuss service plans, promising more details before taking preorders online on Feb. 3.

Despite an introduction from Mr. McAdam that included touting the benefits of the carrier’s fourth-generation network, the company also didn’t have a date for an iPhone that will work on Verizon’s new 4G network.

At the end of the press event in New York City, Mr. McAdam walked past a few Verizon salesmen and asked. “You guys gonna sell some phones now?” The salesmen smiled and kept walking.

“I told John Stratton, ‘It’s all in your hands now’,” recalled Mr. McAdam. As executive vice president and chief operating officer of Verizon Wireless, Mr. Stratton is responsible for the company’s national operations. “I’ve done all I can do.”

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