Ever since Apple Inc.'s (NASDAQ.AAPL) iPhone 4 hit the market, the company has been dogged by rumors - the latest one being that the bestselling smartphone will run on Verizon Communications Inc.'s (NYSE.VZ) CDMA wireless network as early as January 2011. Despite many reputed media organizations carrying reports of a possible Apple-Verizon deal, market analysts feel they are unfounded.
Apple, iPhone's present network carrier AT&T (NYSE.T) and Verizon Wireless are maintaining a stoic silence on the issue, but reputed news organizations like Bloomberg, Fortune and others carried the reports nonetheless.
Bloomberg said, citing unnamed sources, that AT&T's exclusive agreement with Apple runs out at the end of the year, leaving Apple free to tap other network operators including Verizon to support the iPhone. If that's true, it means good news for iPhone fans, who till now, have been forced to accept AT&T's spotty network. UBS AG analyst John Hodulik also told Bloomberg that Verizon, which offers the best network service in the US, could sell as many as 12 million iPhones within the first year itself. "Not only would they sell lots to their own base, they would also be able to attract new gross adds from other carriers," Hodulik told Bloomberg.
According to Andy Hargreaves, an analyst at Pacific Crest Securities in Portland, Oregon, entering into a deal with Verizon means broadening customer-base for Apple. "For Apple it means a larger addressable market," Hargreaves told Bloomberg. "It's also good news for Apple in that it will spread the load on the wireless data networks, which will be good for their customers.”
Oppenheimer analyst Yair Reiner also said that if the reports are correct, at least 12 million iPhones would find new owners within the first year itself, fetching Apple more than $7 billion in incremental revenue and more than $3 a share in incremental earnings per share (EPS).
Barclays Capital analysts also said in a note to clients that an iPhone release at Verizon would help Apple increase its US sales to at least 15 million units in 2011 from 11 million in 2010.
However, market analysts are skeptical of the report because of many reasons. The primary reason being that most of the smartphones offered by Verizon are Android-powered, Google's answer to iPhone OS. And with Android-powered smartphone sales gaining ground every month, it's unlikely that Verizon will carry iPhone. Especially since Verizon recently announced that it would sell the new Android-based Motorola Droid X, which is being billed as the latest "iPhone killer." Also there's market rumors that Verizon will be selling the successor of the original Droid - Droid 2 from August. Of course, having a wide range of Android smartphones does not prevent Verizon from selling iPhone, but if Verizon has already got a great partnership going with Google, it's unlikely that it will enter into a courtship with Apple.
Secondly, AT&T's exclusivity contract with Apple runs out in 2012 and not 2011. True, that Apple is not particularly happy with AT&T's poor network and it could be mulling shortening the tenure of its contract with AT&T. "Apple is going to dramatically increase the number of devices it sells in the U.S. when exclusivity at AT&T end. It’s hard to ignore the quality issues that AT&T has faced," Hodulik told Bloomberg. But, if that's so, why did Apple enter into a new partnership with AT&T for its tablet computer, the iPad? If indeed, Apple is shopping elsewhere, it's a funny way of showing it.
Thirdly, Apple has no reason to shop elsewhere as its partnership with AT&T is doing just fine. Earlier this week, Apple said it has sold 1.7 million iPhone 4s within 3 days of going on debut (June 24), smashing previous sale records. Jobs has also called iPhone 4, which boasts of a gyroscope, HD resolution display, front-facing camera, multi-tasking capability and a horde of other features, "the most successful product launch in Apple's history." So, if AT&T is bringing in enough money for Apple, is there a need for Apple to look elsewhere?
Fourthly, the reports that iPhone is going to Verizon is not new. Earlier this month, people speculated that Apple CEO Steve Jobs would be announcing a CDMA-based iPhone at the annual Worldwide Developers Conference. However, on June 4, when Jobs unveiled iPhone 4, he didn't say a single word about the possibility of Verizon carrying the smartphone.
Meanwhile, the market reports hurt AT&T's stock price. The company's shares were trading 0.78 percent down at $24.27 on the New York Stock Exchange at 1.20PM (EDT). Not surprising because a Verizon iPhone would mean a decline in growth of AT&T's subscriber base. In the first quarter of 2010, AT&T had added 1.9 million subscribers, reaching 87 million total subscribers, up 11.2 percent year-on-year, driven primarily by iPhone subscribers.
The report however, did not help Apple's shares that were trading flat in midday session. The reports also did not help Verizon's shares. They were trading 0.98 percent down at $28.34 at 1.20PM (EDT) on the New York Stock Exchange. Verizon currently has 92.8 million subscribers and a CDMA iPhone would help it expand its subscriber base.
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