The Verizon iPhone: Distant Dream or Near Term Reality?

If you live fifty miles from the nearest cell phone tower but love your iPhone, AT&T has good news for you. Soon you'll be able to pick up a femtocell that will route your calls over your high speed internet connection for a mere one hundred and fifty bucks.

Sharp-eyed readers will be wondering who in the world lives so far away from civilization, that they can't get cell service, but still close enough that they can get high speed internet access. It's a good question, and while there are probably a few exceptions (geographical oddities no doubt), if I live close enough to a population center that the cable or phone company can profitably run a high-speed cable to my house, then I should also live close enough for AT&T to support my wireless needs. However, "Should" isn't the same as "will" so I may actually find myself paying AT&T $150 for something the company should be doing anyway.

Admittedly, a one-time investment of $150 for reliable phone service isn't a huge deal when I consider how much an iPhone costs you per month. Yet the notion rankles. Why should I pay extra for a service that AT&T is supposed to be providing to begin with? Ah, it doesn't really matter, I'll pay the price and learn to like it because you won't be getting your iPhone from anyone but AT&T. Three months after the $150 has flown from my pocket to AT&T I'll be back to bitching about gas prices.

Maybe it won't always be this way, perhaps at some yet undetermined point I'll be able to pay some other company for providing the connection between my iPhone and the wider world. Apple's exclusive contract with AT&T runs out in 2010, so the wait might be relatively short, or maybe not. Perhaps Apple doesn't have an incentive to break exclusivity, maybe Apple doesn't think there will be any more iPhone customers if the company starts selling iPhones everywhere. Apple is smarter than that, the company knows that there are a raft of customers out there salivating for an iPhone on a network that isn't symbolized by the Deathstar.

How can you spot new iPhone customers? First, look for someone with a Blackberry Storm then ask them why they have a Storm. Don't bother listening to the answer, they've spent a crapload of dough on the thing so they'll come up with a non iPhone justification but the entire time they are verbalizing their choice pretend they're saying "because the iPhone wasn't on Verizon" because that is actually what they mean. You can do the same trick with an iPod touch, you'll get blah de blah answers about storage and monthly fees but what you should be hearing is "because the iPhone isn't an option on my network."

With that in mind, it is pure folly to imagine Apple extending exclusivity with AT&T, right? Not everyone agrees. While there are obvious reasons for Apple to scuttle the notion of exclusivity some argue that there are reasons Apple will keep the Apple+AT&T=BFF going even after the contract expires.

One proponent of this idea is analyst Francis Sideco. Mr. Sideco believes that Apple will extend exclusivity with AT&T and Mr. Sideco explains:

"The main reason Apple is likely to stick with AT&T beyond 2010 is the relatively wide usage and growth expected for the HSPA air standard used by the carrier for 3G data."

Daniel Eran Dilger examines the issue more closely, and comes to the same conclusion, but for different reasons. Roughly Drafted isn't convinced that Apple is all about the market size for the various networks, Mr. Dilger is convinced that Apple will stick with AT&T because the network is better.

Mr. Dilger argues:

"There is no chance of an iPhone for Verizon. Apple is having enough difficulty delivering optimized UMTS 3G support; rolling out a 3G EVDO version of the iPhone would result in 80 million Americans having the option of switching to the iPhone without changing to AT&T, but that would also ground the high voltage differential that is streaming premium data users to AT&T, a flow that is both sparking free press and higher profits around the iPhone."

Should I be skeptical of those arguments? Taking a look at Mr. Sideco's argument it seems that he thinks the exclusivity will stick around because opening up the market is too much trouble and there's not much in it for Apple. This is an interesting notion, while Mr. Sideco is undoubtably correct that growth in the HSPA market is the future, it seems doubtful that making an iPhone that uses a different standard would be insurmountable. For example, before the iPhone came along the last great cell phone was the RAZR. You could get and use the RAZR anywhere and if Motorola could pull off that trick it seems like Apple could do it as well.

Mr. Dilger's argument revolves around Apple ensuring that the company is sending out the best iPhone experience possible. Apple eschewing easy profits to keep the brand strong is something the company has done with aplomb since Steve Jobs has been CEO. With that in mind, one could envision a world wherein Apple sticks with AT&T.

On the other hand Mr. Dilger's argument suffers because users tend not to blame the iPhone for data problems. For data problems users blame the network. If I get zero bars in my basement, which is indeed the case, while my wife gets a full signal on her Blackberry Storm, also the case, my inclination is to blame AT&T for holding back a great product.

It is easy to reject the idea that Apple will keep AT&T exclusivity because of the network, the sheer number of new customers makes a Verizon enabled cell phone seem like a near certainty. But don't take it to the bank just yet.

While Apple would love to have access to all the Verizon customers, those customers will use the App store and further cement the iPhone as the standard smart phone, there are reasons to think Apple might not go for the deal. Apple is in a position of power and will expect Verizon to make considerable concessions. Verizon likes to make demands from manufacturers and when other companies make demands of Apple. Apple's general response is to suggest that the company as a whole go perform an anatomical impossibility.

It isn't clear if the iPhone will end up on Verizon soon or at all. Still, you can be certain of one thing. If the iPhone comes to Verizon it won't be the full coverage nirvana you were expecting. After you switch you'll find plenty of reasons to loathe Verizon, it is a cell phone company after all.