Verizon Promotes LTE Over iPhone With Good Reason

Verizon (NYSE:VZ) seems to be pushing Android devices over the Apple iPhone, according to many reports out in the media. ^[1] While this has many surprised and wondering if the higher subsidy costs on the iPhone is driving Verizon to do so, we believe that the true reason may lie elsewhere – the iPhone’s lack of LTE support in the current models.

Verizon’s CFO, Fran Shammo, has made it clear in many statements this year that he is focusing on driving LTE adoption rates this year. Having started building out an LTE network earlier than rivals AT&T (NYSE:T) and Sprint (NYSE:S) in late 2010, Verizon now boasts of a coverage that far exceeds theirs. It is therefore understandable that the largest wireless carrier in the U.S. is pushing Android LTE devices over the iPhone and trying to leverage its first mover advantage in order to make the billions it has spent on the network so far count.

See our complete analysis for Verizon here

Why LTE is being widely promoted

Verizon has been aggressively spending on its LTE infrastructure, rapidly rolling it out in new markets to maintain its lead over rivals AT&T and Sprint as well as making sure outages do not recur. Its capital expenditures have been rising over the last few years, owing to the rapid deployment of LTE as well as 3G network upgrades, and we do not see it coming down anytime soon. It will therefore be looking forward to an increased adoption of its LTE network as a way of recovering at least a part of the huge capital expenses it has incurred.

Moreover, an increased adoption of 4G will reduce dependence on its 3G networks, which are under great strain due to the heavy data usage of smartphones such as the iPhone. Also, LTE as a network technology not only supports higher speeds but is also more efficient than current 3G networks at handling data, reducing maintenance and handling costs.

LTE to come of age in 2012…

However, the adoption rate for LTE has been sluggish so far. LTE subscribers account for only 9% of Verizon’s postpaid base currently.

There are many reasons for this. Firstly, LTE networks have not been widely deployed yet. Secondly, LTE handsets are not only bulky and highly power-inefficient but also much pricier than their 3G counterparts. This is because the current handsets use separate app processors and baseband chipsets since the technology wasn’t mature enough to provide an integrated low-cost solution. Thirdly, being based on a nascent technology, LTE networks are also more prone to outages, as we have come to see with Verizon’s in recent times.

Verizon says that it plans to cover 400 markets across the U.S. with LTE by the end 2012, so widespread availability of LTE should not be a concern then. Mobile semiconductor leader, Qualcomm recently announced the availability of a 28 nm Snapdragon processor with integrated LTE capabilities that will ensure sleeker and cheaper handsets that do not consume huge amounts of power. (see Qualcomm Gives The Wireless Industry A Reason To Celebrate)

Helping Verizon increase ARPU levels

The carrier is also planning to promote LTE widely by launching only LTE capable devices this year. Further, it is slowly bringing down the prices of its LTE smartphones. The latest Droid 4 offering from Verizon is available for only $199. Verizon also launched the cheapest LTE smartphone yet  recently, the mid-range LG Lucid smartphone for $79.99. In addition, the wireless carrier is currently promoting an LTE data plan that offers twice the usual monthly data allotment for the same price.

As for the outages, we see them as initial hiccups inherent in any early stage adoption of a nascent technology that will be overcome as customers increasingly use LTE.

As for the iPhone, it will be back in favor with the Verizon reps when the iPhone 5 is launched. Having already launched the iPad with LTE, Apple will in all likelihood release the iPhone 5 with LTE capabilities. Popular smartphone as it is, it should help Verizon further drive 4G adoption. Although the iPhone 5 may be available on competing LTE networks as well, Verizon’s greater LTE coverage will give it a competitive advantage. Higher LTE speeds will see subscribers increasingly using data-intensive applications on their smartphones. This will drive data revenues, thereby increasing ARPU levels for Verizon over the coming years.

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1. Further Proof Verizon Is Pushing Potential iPhone Customers To Other Devices, Appadvice, May 6th, 2012 [↩]