Why Verizon’s iPhone spells the end of the golden age for carriers

Jan 11, 2011

At Tuesday’s launch event for the Verizon iPhone, Verizon Wireless displayed an inadvertently ironic slogan: “Rule the air.”

What the actual news revealed was that Verizon — and other wireless carriers — can no longer make that claim. The Verizon iPhone is exactly the same as the AT&T iPhone, just on a different network — and not even on Verizon’s fastest, latest network, which could have showcased Verizon’s strengths.

In the U.S., carriers historically had enormous power over handset makers. Because they heavily subsidized the phones consumers bought, they negotiated wholesale pricing and then decided what to charge consumers. It’s a game that the old Palm, BlackBerry maker Research In Motion, Motorola, and others learned to play.

Then along came Apple with the iPhone. It signed up AT&T, then badly trailing Verizon, as its exclusive carrier, but kept both carriers mostly in the dark as to the iPhone’s workings. AT&T struggled to keep up with the load iPhone users placed on its data network, taking most of the PR hit for failings that may have had as much to do with the iPhone’s immature hardware and software as with AT&T’s network.



The most attractive thing about the iPhone, of course, is its apps. But those run the same on the Verizon iPhone as on AT&T, all things (like local coverage) being equal. If you’re on a Wi-Fi network, how would you even know what carrier you’re on?

Google hoped to shift the industry in this carrier-free direction, but it overreached with its unlocked Nexus One, discovering belatedly that wireless carriers’ subpar customer service was better than none at all and that consumers, not surprisingly, preferred the lower prices provided by subsidies.

Apple has found a smarter way to hack the carriers’ business models: with cold, hard, cash. While carriers pay top dollar for iPhones wholesale — $350 to $400, analysts estimate — they more than make it up with data charges, as the results for AT&T and other iPhone partners have shown. Those data profits, not to mention blockbuster sales numbers, have made it worth the compromises Apple has demanded — like a complete lack of input into the design of iPhone’s hardware and software.

So the Verizon iPhone points the way to the carriers’ sad if profitable future: They’ll be no more than dumb pipes for smartphones — phones that other people, who are far cleverer at the job of building hardware and software, design and build.

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