Will Verizon’s iPhone Shake Up the Mobile Market? Not So Much.

Verizon (s vz) today announced the long-awaited iPhone for its network, and short of the first iPhone in 2007, I can’t remember such hysteria over a single handset. Does this one phone have the potential cause disruption to all other carriers in the U.S. market now that iPhone (s aapl) is on the carrier with the largest geographic coverage and with the most current subscribers? The iPhone hardware with its slight redesign and new mobile hotspot feature is nice, but the impact of a Verizon iPhone on the U.S. mobile market isn’t nearly as big as it would have been a year or two ago.

What Happens to Android?

To me, this is the most interesting question when it comes to the Verizon iPhone. Without an iPhone to offer, Verizon turned to Google Android (s goog) handsets, starting with the popular Motorola Droid in October 2009. Droid was followed up again and again with top-notch Android phones, and Verizon spent millions of advertising dollars to make the Droid brand synonymous with Google Android. As a result, the carrier isn’t likely to let that investment fade away. At the same time, in anticipation of losing iPhone exclusivity, AT&T (s t) has been beefing up its handset portfolio with new Android devices. One of the most impressive ones at CES, the Motorola Atrix 4G (s mmi), is an AT&T exclusive.

Horace Dediu’s Asymco blog took a unique approach to the Android vs iPhone battle based on the ratio of Android phones to iOS phones on AT&T, pointing out:

  • As of November, the ratio of iOS to Android users was more than 15 to 1 at AT&T.
  • iOS at AT&T has twice the users as Android at Verizon
  • Although T-Mobile had the Android franchise to itself for all of 2009, it was overtaken by Verizon within four months

All are valid points, but need some perspective. For example, it’s not surprising that iOS users outnumber those with Android on AT&T considering the iPhone has been on AT&T for 3.5 years. In contrast, the first comparable Android handset even available to AT&T customers in my opinion was the Samsung Captivate, which only arrived this past August, just five months ago. A similar concept applies to Dediu’s second point: AT&T has offered the iPhone for twice as long as Verizon has offered Android devices, which helps explain to a certain degree why the number of iOS users on AT&T are double the Android users at Verizon.

In that light, Android is holding its own and has been growing faster than iOS handsets, even surpassing them earlier this year. Verizon customers are surely going to evaluate the iPhone against Android offerings, and those who have waited for an iPhone will surely get it. But four new very high-end LTE handsets with dual-core processors and 1080p playback running Android are coming soon to Verizon’s network, and that should help propel Android handsets forward. Will there be a decrease in overall Android activations? Here I agree with Dediu, who expects Android sales at Verizon to flatline, at least in the short term. But I also expect AT&T to put marketing muscle behind the exclusive Atrix 4G  and other Android phones as a differentiator from Verizon’s line up.

How Many Switchers from AT&T and Others?

After 3.5 years of exclusively grabbing iPhone customers, AT&T is surely keeping a close eye on how many people leave for a Verizon iPhone. Some potential defectors may be held back due to AT&T’s Early Termination Fee, which was raised in May to $325 from $175, but those that have faced coverage issues in their particular areas could bolt to Verizon. Jan Dawson, Ovum’s chief telecoms analyst, suggested to me via email Tuesday that one to two million fit this profile in the short term, which is far less than the mass defection some expect.

I tend to agree with Dawson and think that unless customers have had extremely poor iPhone experiences on AT&T’s network, the majority of current iPhone owners will stay put. There’s also a potential loss of customers on T-Mobile, Sprint (s s) and smaller networks that don’t have an iPhone available. But many in this profile could have moved to AT&T for the iPhone prior to now if they really wanted it. I expect these folks to wait and see how Verizon’s voice and data plans compare with their current cellular bill, and again, most will stay put. Besides, AT&T no longer has the iPhone exclusive, so the handset could appear on any U.S. carrier going forward. Why switch to Verizon if you’re happy with your current carrier, which may offer an iPhone at some point in the future?

Summertime Will See Even Greater Demand

February is likely to be a big month for Verizon iPhone sales, but as we approach the summer, that number should flatten out, or even decrease on a month-to-month basis. Why? Because Apple has consistently followed an annual summer refresh cycle for its iPhone, and there’s no reason to think it will stop now simply because it has one more carrier in the U.S. As a result, customers on the fence about the current Verizon iPhone may hold off as we approach the anticipated new iPhone announcement in five short months. Traditionally, summer iPhone sales jump due to new model availability, and this year is likely to be no exception.

Although it’s purely speculative, with some educated guesswork on my part, I expect a summer announcement of iPhone 4G, not iPhone 5. Verizon’s LTE network already covers one-third of the U.S. population in 38 markets, and it will add 140 more markets in 2011. AT&T’s HSPA+ network upgrades started last year and the carrier plans to begin rolling out LTE service later this year. Even if LTE isn’t ready, an iPhone 4G for AT&T could include a faster HSPA+ radio. Both networks have a 3G network to fall back on, so it’s not impossible that a 4G iPhone will surface in 2011, although Apple prizes battery life: something we don’t have data on for LTE handsets. But as I pointed out Monday, the more phones Verizon can get on its 4G network, the less its 3G network will be impacted by a flood of new iPhones, and the better it handles the traffic.

Everybody Wins

I’d be surprised if Verizon moves less than 10 million iPhones by the end of this year. But AT&T has wisely built up its handset portfolio over the past six months and has promising products for the future. More U.S. consumers are adopting smartphones too; by the end of this year, 1 in 2 will have one, and not all want an iPhone. With more compelling alternatives to Apple’s handset, new 4G networks and the fact that iPhone could appear on any U.S. carrier now, the impact of a Verizon iPhone is far less now than it would have been one or two years ago. It’s a win for consumers who have more handset choices now that the relationship between the iPhone and AT&T is “friends with benefits” and not an exclusive marriage.

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