Why Verizon's iPhone spells the end of the golden age for carriers

January 11, 2011 11:02 AM
Owen Thomas
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Verizon rules the air? HardlyAt Tuesday’s launch event for the Verizon iPhone, Verizon Wireless displayed an inadvertently ironic slogan: “Rule the air.”

What the actual news revealed was that Verizon — and other wireless carriers — can no longer make that claim. The Verizon iPhone is exactly the same as the AT&T iPhone, just on a different network — and not even on Verizon’s fastest, latest network, which could have showcased Verizon’s strengths.

In the U.S., carriers historically had enormous power over handset makers. Because they heavily subsidized the phones consumers bought, they negotiated wholesale pricing and then decided what to charge consumers. It’s a game that the old Palm, BlackBerry maker Research In Motion, Motorola, and others learned to play.

Then along came Apple with the iPhone. It signed up AT&T, then badly trailing Verizon, as its exclusive carrier, but kept both carriers mostly in the dark as to the iPhone’s workings. AT&T struggled to keep up with the load iPhone users placed on its data network, taking most of the PR hit for failings that may have had as much to do with the iPhone’s immature hardware and software as with AT&T’s network.

The most attractive thing about the iPhone, of course, is its apps. But those run the same on the Verizon iPhone as on AT&T, all things (like local coverage) being equal. If you’re on a Wi-Fi network, how would you even know what carrier you’re on?

Google hoped to shift the industry in this carrier-free direction, but it overreached with its unlocked Nexus One, discovering belatedly that wireless carriers’ subpar customer service was better than none at all and that consumers, not surprisingly, preferred the lower prices provided by subsidies.

Apple has found a smarter way to hack the carriers’ business models: with cold, hard, cash. While carriers pay top dollar for iPhones wholesale — $350 to $400, analysts estimate — they more than make it up with data charges, as the results for AT&T and other iPhone partners have shown. Those data profits, not to mention blockbuster sales numbers, have made it worth the compromises Apple has demanded — like a complete lack of input into the design of iPhone’s hardware and software.

So the Verizon iPhone points the way to the carriers’ sad if profitable future: They’ll be no more than dumb pipes for smartphones — phones that other people, who are far cleverer at the job of building hardware and software, design and build.

  • http://smidg.in/ Jim

    “that may have had as much to do with the iPhone’s immature hardware and software as with AT&T’s network” [citation needed]

  • http://brenthobbs.com/ Brent Hobbs

    I agree with Jim. I'm not aware of any claims that more advanced software or hardware could have reduced strain on AT&Ts network. The rest of the article is right on target. No more VZW turning off phone hardware features and adding puke-like interfaces.

  • TheYeasayer

    Wow, did we forget last summer already? And that would just be one isolated incident in the trainwreck of problems that came along with the 3G and (less so) with the 3GS. The very fact of the matter is that while yes, AT&T's network is absolute crap, it's stupid to claim that it was all their fault for dropouts and heavy data consumption. The average iPhone user consumed 350mb of data a moonth last year… on AT&T alone. Android had a 25% higher average, but they were on all 4 carriers. This is not a dig on Apple directly, as it speaks to the enormous popularity of their phone. But it also speaks to how unfair accusations to Apple's carrier partners are (yes, that's right, it's not just AT&T, look at their European partners).Do also make sure that you avoid the other point that Owen points out: “Those data profits, not to mention blockbuster sales numbers, have made it worth the compromises Apple has demanded — like a complete lack of input into the design of iPhone’s hardware and software.”In other words, Apple, which is NOT a phonemaker, deliberately placed aesthetic design over utility. You can't expect there not to be tradeoffs when you do that, fanboy. And if the rest is any indication, “data profits” and overage charges will soon be coming to Big Red as well. I mean, look at their new renewal policies. They're planning to rape their customers big time. But please, deny these facts all you want. Your knee-jerk reaction here is so predictable.

  • TheYeasayer

    That doesn't exactly bode very well for Verizon does it, when almost half of their entire customer base, when polled, asked if eligible, would switch to the iPhone. (Also, if Jim wants to know, these numbers were reported exactly in last week's WSJ article…)In all likelihood, I wouldn't be surprised if it's a mixed bag more than anything, and some of the negative PR both companies get is balanced a bit more when customers see the load put on Verizon's network in the future. If we had had this situation to start, there wouldn't be any doubt or obfuscation of the fact that Apple doesn't know how to make a phone.

  • http://brenthobbs.com/ Brent Hobbs

    talk about a predictable knee-jerk reaction…All he did was ask for a citation.

  • http://mobilesyncbrowser.com VaughnSC

    “The average iPhone user consumed 350mb of data a moonth last year… on AT&T alone. Android had a 25% higher average, but they were on all 4 carriers.”If those are 'averages' as you state, then whether it's from 1 carrier, 25 (or 6 to 4) is, by extension, irrelevant. It does make me wonder if the 'app' model removes some overhead vs the web-app model, since most of the UI/graphics are 'baked in' and don't have to be sent repeatedly. Just a thought.

  • http://mobilesyncbrowser.com VaughnSC

    “The average iPhone user consumed 350mb of data a moonth last year… on AT&T alone. Android had a 25% higher average, but they were on all 4 carriers.”If those are 'averages' as you state, then whether it's from 1 carrier, 25 (or 6 to 4) is, by extension, irrelevant. It does make me wonder if the 'app' model removes some overhead vs the web-app model, since most of the UI/graphics are 'baked in' and don't have to be sent repeatedly. Just a thought.

  • http://mobilesyncbrowser.com VaughnSC

    “The average iPhone user consumed 350mb of data a moonth last year… on AT&T alone. Android had a 25% higher average, but they were on all 4 carriers.”If those are 'averages' as you state, then whether it's from 1 carrier, 25 (or 6 to 4) is, by extension, irrelevant. It does make me wonder if the 'app' model removes some overhead vs the web-app model, since most of the UI/graphics are 'baked in' and don't have to be sent repeatedly. Just a thought.

  • http://twitter.com/laird laird popkin

    This isn't the end of the “golden age of carriers”, but if we are lucky it might be the the beginning of the US wireless market restoring the balance between carriers, consumers and handset manufacturers that is normal everywhere else on the planet. Luckily Apple has enough leverage to force US wireless carriers not to abuse the iPhone customers the way carriers abuse the customers using most other phones (e.g. blocking camera-phones from sending photos over Bluetooth to force customers to pay for MMS, blocking ringtones from independent stores to force customers to buy ringtones only from the carrier, blocking access to content unless the content provider pays for placement, etc.). On the rest of the planet, customers choose a phone, and independently they choose a carrier, and they can switch carriers whenever they like, so the marketplace is competitive. If carriers everywhere else on the planet can find a way to compete successfully for customers in an open marketplace, I'm sure that they can in the US as well. And who knows, perhaps the US wireless companies could be successful innovating and competing, rather than focusing on customer lock-in.

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