Verizon's iPhone decision six years ago is looking better and better.

Commentary about business and finance.
Jan. 10 2011 7:26 PM

Insanely Savvy

Why Verizon's decision to pass on the iPhone six years ago is looking better and better.

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Moreover, by waiting, Verizon has had a chance to learn from AT&T's mistakes. The most prominent mistake, of course, is its purported failure to develop a network that could fully handle all of the iPhone traffic. Ever since the debut of the iPhone in 2007, users have complained loudly and persistently about AT&T's spotty service, dropped calls, and insufficient bandwidth. Those complaints have been particularly loud in tech-savvy cities such as New York. And they have been downright raucous at major technology conferences—where the all-important gadget press has repeatedly trashed AT&T for failing to provide decent coverage. People, frankly, hate AT&T's service.According to Consumer Reports, the company gets lower cell-phone customer satisfaction scores than any other U.S. carrier.

That reputation for poor service bodes well for Verizon's plans to woo some iPhone fans from AT&T. Investment bank Credit Suisse, for instance, found that about one in five AT&T iPhone users would consider switching to Verizon. Davenport & Co. reportedly estimates that as many as 40 percent of AT&T's subscribers might jump ship when offered the chance. And presumably Verizon will attract a healthy number of new iPhone customers as well.

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The 61.5-million-subscriber question, of course—that's the size of the U.S. smartphone market—is whether Verizon can learn from AT&T's mistakes. But it is certainly trying. Verizon has worked to complete development on its fourth-generation LTE network, now available in 38 U.S. cities, before the iPhone announcement, while AT&T has been playing catch-up with its upgrades. Verizon also is reportedly going to offer popular, loss-leading unlimited data plans when it brings the new product on.

So even though it has lost out on the iPhone boom for the past few years, Verizon may be well positioned to compete for smartphone customers in the future. This is not to say that Verizon will start trouncing AT&T immediately. For one, AT&T has raised exit costs for its iPhone customers, upping the early termination clauses on many contracts from $175 to $325. It has also worked to lock customers into longer deals—meaning defections, when they happen, will happen slowly. And it has encouraged many users to sign up for business or family contracts, ones with lower churn.

But nevertheless, after almost four years of an iPhone monopoly, AT&T will have to deal with a bigger, more diverse competitor. So maybe Verizon did the right thing by passing on that hotshot CEO's pitch in the 2005 cell phone draft.

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Annie Lowrey is a contributing editor for New York magazine. She can be reached at annie.lowrey@gmail.com.

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