Motorola 4G Phone Comes to Verizon - Will the iPhone be Next?

Verizon Communications Inc. (NYSE: VZ) last week struck a deal to make Motorola Inc. (NYSE: MOT) the first handset maker to enter the market using the carrier's new, fourth-generation (4G) high-speed network.

The network, which employs a technology called Long-Term Evolution (LTE), is designed to provide wireless Internet connections fast enough to compete with land-based cable modems or fiber optic technology.

"We've got LTE smartphones on the horizon," Stratton told The Wall Street Journal in an interview. "Motorola will be right there."

[mm-toolbar]Verizon Communications President Lowell McAdam said in October there will be half a dozen smartphones and tablets compatible with LTE on display at the Consumer Electronics Show in Las Vegas in January. The devices are expected to appear in stores in the first half of next year, he said.

The announcement marks the first time Verizon has identified a handset maker for the closely watched 4G launch and it represents an important vote of confidence for Motorola.

Motorola and Verizon Wireless have formed a close relationship over the past two years, based on their mutual support of Google Inc.'s (Nasdaq: GOOG) smartphone Android operating system. In fact, Motorola now produces only Android smartphones.

Verizon features several Motorola smartphones in its current Droid lineup, including most of the higher end devices it supports with extra marketing campaigns. That makes Motorola a very important partner, Verizon's Stratton told The Journal.

"Over last 13 months, they have done a very good job in supporting our business and have worked their way up into almost a preferred vendor," Stratton said. "They have been driving our Droid strategy."

Verizon Wireless, a joint venture of Verizon Communications and Vodaphone Group PLC (Nasdaq: VOD), launched its 4G network on Dec. 5, but had yet to introduce any mobile phones that use it. Verizon is pushing hard to complete an expensive rollout of the network.

The company also is pushing hard to roll out a Verizon iPhone later this year.

Analysts had speculated the release date for the Verizon iPhone would be January, but there have been no formal announcements or comments.

However, Apple Inc.'s (Nasdaq: AAPL) iPad2 also is scheduled for release in the next few months, and it is expected to join Verizon's network. Given that, it seems the earliest release date would be later this year, because it's not likely Apple would release two prominent products so closely together.

Also, initial plans called for Verizon to release its iPhone on the slower 3G network. But if Verizon scraps the 3G iPhone for the faster LTE network, it could delay the launch into the second quarter of 2011.

All this is important because Verizon investors and iPhone junkies are expecting the device to boost Verizon's bottom line, while at the same time providing relief to beleaguered AT&T iPhone users complaining about dropped calls and congestion on its network.

Based on customer surveys showing a significant number of users would switch to an iPhone if it were available on their carrier, and Verizon's own financial reports, estimates are that Verizon could expect to sell around 18 million iPhones in the first 24 months.

Indeed, the addition of the iPhone should reinforce Verizon's market share lead over AT&T, which has widened since the iPhone launched in mid-2007.

During that period, Verizon has out-gained AT&T in adding customers with handset contracts, signing 14.5 million customers, compared to 12.8 million for AT&T, The Journal reported.

However, any impact is unlikely to be immediate. The iPhone's subsidy costs will probably cut into Verizon's 2011 earnings, The Journal reported.

Still, with LTE's higher speeds, data use at Verizon is likely to eventually rise further. Assuming Verizon continues to tier pricing that reduces unlimited data plans, revenue per customer should increase.

And starting in 2012, the impact of subsidizing all those new iPhones at Verizon will be minimized. That's also when the full effect of increased data revenue from its LTE network should begin to filter through.

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