CES Round-up: How the Biggest Announcement was the one Verizon Wireless Didn’t Make

Verizon Wireless certainly wasn’t silent at last week’s Consumer Electronics Show, unveiling a broad portfolio of new 4G devices and proudly proclaiming the superiority of its LTE strategy to the 4G alternatives from AT&T, Sprint and T-Mobile. But Verizon Wireless’ biggest and brashest announcement was the one the company didn’t make: that, after years of speculation, there would finally be a VZW iPhone. The silence last week on this matter was at the behest of CES-phobic Apple, but by calling a press conference in New York just days after CES – “wink-wink” – Verizon Wireless acknowledged what was surely one of the worst kept secrets in the industry.

Since the iPhone is largely responsible for AT&T’s industry-leading smartphone subscriber totals, there has been a lot of speculation about how many new smartphone subscribers– net adds in industry parlance – VZW will be able to lure with the iPhone. Over time this number may well be significant, but in the short term the number of net-new smartphone subscribers is likely to be minimal due to existing subscriber contract lock-in. (And we can expect AT&T to pull out the stops – including offering larger phone subsidies – to try to retain those subscribers with expiring 2-year contracts.)

But where the VZW iPhone will make an immediate and significant impact, however, is on 2011 wireless revenues. In a recent Compete study of Verizon Wireless subscribers, 8.7 percent of current cell phone owners indicated they have not yet purchased a smartphone because they were waiting for VZW to “offer a specific smartphone”. (Source: Compete Q3 2010 Smartphone Intelligence Survey, November 2010.)  The overwhelming majority of those respondents, not surprisingly, indicated their preference for the iPhone.

Why is it that you do not own a smartphone (a phone with advanced PC/email/Internet functionality)?

Though this percentage may not seem that high, consider the number in this context: according to VZW’s Q3 2010 financial statement, only 23 percent of Verizon’s 82 million post-paid subscribers currently had a smartphone. This means that there is a potential pool of some 63 million post-paid cellphone owners that Verizon can convert to the iPhone, without ‘stealing away’ a single new net add. If we apply our 8.7 percentage to this segment, we see how Verizon could enjoy a spike of more than 5.4 million new iPhone customers in 2011. Even with a much more conservative projection – if just 3 million existing non-smartphone VZW subscribers upgrade to the iPhone – today’s announcement will help the operator recognize more than a billion dollars in additional data revenue. (We assume a data plan price of at least 15$ a month, for a standard 24 month contract, for each of those 3 million iPhone subscribers; or $15 * 24 * 3 million = $1.1 billion.)

In the big picture, Verizon’s 4G announcements at CES – the company promised a LTE roll-out covering more than half of the country by the end of 2012 – will do more to disrupt the US smartphone market than the end of iPhone exclusivity. But it is hard for the average consumer to get excited about, let alone understand, Verizon’s long-term network strategy. (eNodeB? Fiber Backhaul?) This weeks’ iPhone announcement is significant then, because Verizon Wireless no longer has to apologize for not offering the worlds’ most iconic phone. The extra billion dollars isn’t bad either.

About Christopher Collins:
Chris Collins leads the Technology & Entertainment Practice for Millward Brown Digital. In this role, Chris provides data-driven insights and strategic guidance to leading retailers, telecommunications carriers, consumer electronics manufacturers, and their marketing partners. Prior to Compete, Chris was a senior member of the Consumer Wireless team at Yankee Group Research and worked as a management consultant for Monitor Group and IBM Business Services. Connect with Chris on LinkedIn.