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Why iPhone on Verizon May No Longer Be a Rumor


Verizon's stock pushed into the black yesterday. When's the last time that happened on the expectation of an Android phone?

The Apple (AAPL) iPhone is going to Verizon Wireless (VZ)?

While rumors of this event hit the market fairly regularly, Bloomberg (yesterday's source) sounds convinced they've got the right people talking. Maybe it's true but I found two interesting aspects to the article.

First, there's been a fair amount of commentary in the media and the sell-side as to Android (GOOG) overtaking the iPhone as the platform of choice. Various market-research organizations have prognosticated on respective growth rates, increased in market share, and so forth, and that's frequently the ammunition in "mine's better than yours" arguments.

However, in the midst of a market sell-off yesterday, when this "rumor" hit the wires it managed to push Verizon's stock into the black for a most of the last hour. So ask yourself this: Just how frequently does the expectation of an Android phone push a carrier's stock up? Let's see if the new Droid from Motorola (MOT) has people lined up at the Verizon Wireless stores.

Look at it from a different perspective: How many advertisements have you seen/heard in which the company has added, "Download our iPhone app" at the end? Now how many have you heard suggesting you download their Android app?

My point is simple: Investors and advertisers appear to view iPhone as the de facto standard. That may change, but it's what the markets are telling you now.

The second issue relative to the Bloomberg article is timing, and it's why I believe this one (rumor) may in fact be true.

What if the device in question isn't going to be a CDMA phone for the existing Verizon Wireless network but an LTE (Long Term Evolution) device?

Apple doesn't have a history of moving backwards, and developing a CDMA phone would be just such a move. It represents about 10% of the worldwide subscribers and is shrinking. The technology has served Verizon Wireless well over its history but it's opted for LTE as their future. That technology is the next step for the overwhelming majority of the existing 3G (WCDMA) installed base.

Verizon Wireless expects to introduce LTE service by the end of 2010. And, as its noted on its conference calls this year, a big part of its marketing push will be to enhance the smartphone experience for subscribers. Obviously, the bulk of Verizon's early roll-out won't hit until 2011, so what better way to bolster the program than the introduction of the iPhone?

From Apple's perspective, it's investing in a device that will have legs. A CDMA phone would have a limited lifespan, and such development isn't a particularly wise use of scarce resources. Yes, it's true that Verizon Wireless' CDMA network will be around for some time, but those subscribers remaining on it are generally not iPhone-type customers to begin with.

Apple is obviously the type of company that pushes the envelope, and what better way to push it than on the next generation wireless network? More importantly, that development can be leveraged across LTE networks worldwide.

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No positions in stocks mentioned.
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