IDC reaction: An Apple iPhone for CDMA networks?

Ramon Llamas IDCDid you sense that brief gasp on Tuesday morning coming from the mouths of Sprint Nextel and Verizon Wireless customers? It was followed by another gasp coming from AT&T. On Tuesday, the Wall Street Journal published a story on Apple's forthcoming update to its iconic iPhone. In it, the authors cited people briefed by Apple saying the new iPhone would allow U.S. phone carriers other than AT&T to sell the device, and that it would run on CDMA networks. It was enough to put a smile on many faces of Verizon Wireless and Sprint users, with some contacting their local stores to learn exactly when the iPhone would become available. Meanwhile, an AT&T spokesperson was quoted as saying, "There has been lots of incorrect speculation on CDMA iPhones for a long time. We haven't seen one yet and only Apple knows when that might occur."

Neither Apple nor Verizon Wireless provided comment for the story. But the AT&T spokesperson was right; only Apple knows when that might occur. Apple is nothing if not a steadfast guardian of information about its upcoming products, leaving everyone to guess, speculate, conjecture and prognosticate. And in the end, most of those guesses end up wrong. Remember when the first pictures of the first generation iPhone came to light? They resembled an early generation iPod with a slightly larger color screen. The reality was something completely--and thankfully--different. Apple, and Verizon Wireless for that matter, release solid information when the product and service is ready for prime time, not earlier. So while this story may delight CDMA subscribers, Apple will not reveal the truth until the device is ready for launch. Back to waiting with bated breath.

But let's exhale, draw in a deep breath, and play "what-if" for just a moment or two. Let's assume that the Apple iPhone were to make its way to Sprint or Verizon Wireless. What would the U.S. smartphone market look like?

It's still all about the network

At first, be prepared to see more of the same: throngs of giddy iPhone buyers crowding in front of stores to be among the first owners, news cameras getting pictures of excited new owners exiting the store cheering with big smiles on their faces, waving their new iPhones in jubilant victory. But the true test still lay ahead: application and Internet usage over the iPhone. Not long after charging up the device and making a phone call or two, new iPhone owners will quickly make their way to the Apple App Store and download all the applications to their delight like a kid with free reign in a candy store. Once they have had their fill, many will launch Safari and surf the Internet. After all, their iPhone runs on either "the nation's most reliable network" (Verizon Wireless) or the "Now Network" (Sprint).

The problems stemming from massive data traffic that plagued AT&T in the past would inevitably come to Verizon Wireless and Sprint, especially if the new iPhones run only on current CDMA networks. But what sets Sprint and Verizon Wireless apart from AT&T is the current availability or imminent launch of 4G networks. Sprint's WiMAX network is running in select markets today while Verizon Wireless' LTE network is ahead of schedule for launch, and both will help free up capacity for data usage on CDMA networks. This will allow voice calls as well as data to go through the CDMA network. The potential problem, if not immediately solved at launch, will eventually find resolution as the respective carriers get their 4G networks up and running. However, the problem may only find itself delayed as more data-intensive applications come to market. Still, it is a solution that will enable owners full use of their iPhones.

Smartphone competition

The arrival of the Apple iPhone will draw comparisons to other smartphones available at Sprint and Verizon Wireless, much as it did at AT&T. Some users will most likely turn in their current smartphone for the iPhone, particularly among those who wanted an iPhone all along. However, it is unlikely that all current smartphone owners will switch over as they have already invested themselves either financially and/or mentally with their devices. At the same time, some users simply might not gravitate to the iPhone touchscreen interface, preferring instead the surety of a Qwerty keyboard or a combination touchscreen/Qwerty interface. Finally, the smartphone market still has plenty of room to grow in the United States, not just for Apple but for all vendors.

But while these points could give other smartphone vendors reason to believe in their future, these vendors should take a cue--or several--from Apple. Apple has brought a seamless and intuitive experience that has resonated with users, put marketing dollars behind it that shows the iPhone's capabilities, and continues to build its library of mobile applications. These speak to the iPhone's overall experience that customers at AT&T have enjoyed.  And, don't be surprised if Apple takes a page out of the playbook from other companies to improve the iPhone.

An opportunity for AT&T

AT&T will most likely lose some customers to Sprint or Verizon Wireless, particularly those who have been disappointed by the network's performance. However, it is unlikely that customers would leave en masse as they have also invested themselves financially and/or mentally with AT&T.  The broader availability of the Apple iPhone allows AT&T can focus on larger point: having the most smartphone users on its network. Moreover, AT&T can point to the fact that it features devices from most of the major platforms (Android, Apple, BlackBerry, Linux and Windows Mobile) and will soon have others (Palm's webOS and Symbian as AT&T is currently a member of the Symbian Foundation). None of the other carriers can claim that, and AT&T can leverage these points to cement itself as the leader in the smartphone market.

Final analysis: Keep holding your breath

Entertaining the idea of a CDMA-enabled Apple iPhone raises a number of questions and opportunities for customers, carriers, and smartphone vendors. In most cases, such a device would help spur innovation and competition, and in the end the user will benefit. But for now, it remains just that: an idea. Until Steve Jobs announces that this idea has become reality, I'll keep holding my breath.

Ramon Llamas is a senior research analyst with IDC's Mobile Devices Technology and Trends team. In his role, Llamas tracks the quarterly results of the leading and emerging mobile device vendors, and uses the data to forecast the short-term and long-term direction of the mobile device market, and how it affects handset vendors, carriers and customers. He recently released his worldwide mobile phone and smartphone 2010 - 2014 forecasts, as well as a worldwide forecast of the mobile phone touchscreen market. In addition to being featured in FierceWireless, Llamas has been featured on Bloomberg Radio, National Public Radio, and quoted in Investors Business Daily, the New York Times, and the Wall Street Journal. Llamas can be reached at [email protected].

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