3 Reasons Why iPhone Won’t Cripple Verizon’s Network

Verizon Wireless (s vz) is widely expected to announce a version of the Apple (s aapl) iPhone for Verizon customers tomorrow, ending more than three years of official U.S. iPhone exclusivity on AT&T (s t). We’ll be on-hand at the Verizon press conference to cover the phone and plan pricing details, but today the media is left to speculate on how Verizon’s network is expected to the handle the potential onslaught of iPhones on its CDMA wireless network. Three things tell me that Verizon is up to the challenge.

Unlike AT&T, Verizon Won’t Be Surprised By Data Demand

When the original iPhone launched on AT&T in 2007, the carrier wasn’t quite prepared for the data demand Apple’s handset would bring. As Stacey’s in-depth GigaOM Pro report (subscription required) on the topic suggests, AT&T witnessed a 5,000 percent increase in network data demand from 2007 to 2010, largely due to iPhone adoption. The carrier invested $19 billion in wireless network upgrades between the beginning of 2008 — just before the download-heavy iTunes App Store and 3G iPhone version launched — and the third quarter of 2009. But U.S. smartphone adoption is rising fast among consumers as are iPhone sales, which hit a record 14.1 million units last quarter. As a result, in some regions of the country, AT&T’s network capacity is still outpaced by such growing demand.

To say that AT&T was unprepared for the data demand brought by iPhone and other handsets is probably an understatement. In contrast, Verizon has had several years without an iPhone to prepare for life with an iPhone. Without an iPhone, Verizon turned to a portfolio filled with high-performance Android (s goog) devices such as the Motorola Droid (s mmi), Droid X, HTC Incredible and Samsung Fascinate, to name a few. And these Android handsets complement a large contingent of BlackBerry smartphones sold by Verizon as well; although the rate is declining, more than an estimated 20 percent of Verizon smartphone sales are still BlackBerry (s rimm). The network is already working just fine with millions of smartphones, so why would it be crushed with the addition of the iPhone?

Droid Does More Data

Research indicates that Android handset owners use much more data than iPhone owners. For example, a study published last month by Arieso shows a vast difference in data use between Android and iPhone handsets:

Android-powered smartphone users also score highest in both the ‘uplink data volume’ and the ‘downlink data’ categories. For example, Samsung Galaxy users typically upload 126 percent more data than iPhone3G users, and HTC Desire users download 41 percent more data than iPhone3G users.

AT&T even shared some iPhone data use statistics in a round about way when it moved from unlimited smartphone plans last year to buckets of data. Back in June, the carrier said the new plans were based on statistics showing that 65 percent of their smartphone users consume 250 MB or less of 3G data while 98 percent use less than 2 gigabytes. Compare that to T-Mobile, another Android-heavy portfolio, who said at CES last week that HSPA+ smartphones on its network — nearly all of which are Android devices — are eating up nearly one gigabyte of monthly data on average. Granted, these aren’t exact comparisons, especially when six months have passed (and more consumers bought smartphones) between AT&T’s data point and T-Mobile’s, but it illustrates a general trend on data use.

Android devices, which are among the top-sellers in Verizon stores, are shown to use more data than iPhones, yet the network is handling them. Heck, if current Verizon Android owners switch to an iPhone, Verizon could actually reduce overall data demand on a per handset basis. It may sound counter-intuitive, but for every Verizon customer switching from Android to iPhone, the trend so far shows potential that these customers are likely to use less data on their smartphone.

The Transition to LTE Has Begun

No, I don’t expect an iPhone capable of using Verizon’s speedy new LTE network tomorrow, but the LTE network will indirectly help Verizon handle iPhone data. Last week at CES, Verizon announced four new high-end handsets that are compatible with LTE; Morotola, LG, Samsung and HTC are the vendors for these devices. I spent time with each of them, and they’re all impressive with dual-core processors, 4.3-inch high-resolution displays and, of course, access to the fast LTE data network.

These handsets will all launch in the first half of this year, and based on my conversations with Verizon, the HTC Thunderbolt is likely to be the first. Pending the pricing, which isn’t yet set on any of these devices, I can easily see combined sales of several million in the first half of 2011, even as some consumers will opt for an iPhone. Sure there’s pent-up demand for a Verizon iPhone, but consumers that live in one of the 38 LTE markets may opt for a new Android device, and Verizon plans to add 140 additional LTE markets by the end of this year.

That means a fair number of LTE handsets will be sold where there’s LTE service in 2011. None of those LTE handsets will be hitting Verizon’s 3G network, except for when the handset moves out of an LTE coverage zone. In that case, the devices will fallback to Verizon’s 3G data network. Essentially, Verizon is adding the iPhone at a perfect time, because it will be reducing 3G data demand with its planned LTE rollout strategy. Indeed, I wonder if Verizon timed the LTE rollout to somewhat coincide with its iPhone plans for this very reason. Given Apple’s yearly refresh cycle for the iPhone, it’s possible that this summer brings an LTE-capable iPhone as well, although I put the odds at 50-50.

A Tale of Two Networks and Their Data Plans

To sum it up then, what was a perfect storm for Apple’s iPhone to wreak havoc on AT&T’s network for the last three years is now a potential recipe for success on Verizon. To its credit, AT&T has poured money into its network to keep iPhones from becoming bricks. But Verizon’s measured approach and demonstrated success in handling heavy smartphone users combined with a totally separate data network for the future means that a Verizon iPhone ought to work on the web just as well as any other Verizon smartphone today.

And depending on where you live, AT&T might be correct in saying that you’ll have slower iPhone web experience on Verizon’s 3G network. I suspect Verizon will counter that by keeping its smartphone plans unlimited on the iPhone, which AT&T had to eliminate earlier this year.

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