Lessons from AT&T might help Verizon survive iPhone

If Verizon Wireless introduces its own version of the Apple iPhone on Tuesday, users of its network might begin to face some of the same performance problems that plagued AT&T subscribers in some areas since the rollout of the popular iPhone 3G.

Verizon is widely expected to unveil an iPhone on Tuesday in New York, ending AT&T’s approximately four-year exclusive access to the iPhone in the U.S. After widely publicized problems with AT&T iPhone performance in some areas of the country, especially San Francisco and New York, the idea of a Verizon iPhone has raised hopes in some consumers for a more reliable subscriber experience.

Follow Macworld’s live coverage of Verizon’s announcement at 8 a.m. PT on Tuesday.

The iPhone, introduced in 2007, continues to gain popularity in the U.S. AT&T says it activated a record 5.2 million iPhones in the third quarter of last year, the most recent quarter for which it has stated results. Pent-up demand might push Verizon’s early sales even higher.

However, the sheer popularity of the Apple device, and heavy average data use by those who own one, may also haunt Verizon despite its highly rated 3G network, analysts said Monday.

Some of the issues AT&T has faced were particular to its network and the timing of the iPhone 3G’s introduction in 2008, and perception may have lagged reality as that carrier has improved its infrastructure, said Tolaga Research analyst Phil Marshall. In fact, AT&T has steadily increased the maximum speed of the networks available to the iPhone, and the current iPhone 4 uses an HSPA (High-Speed Packet Access) network that many reviewers have said can achieve a downstream speed of 3M bps (bits per second). That compares with between 600K bps and 1.4M bps for Verizon's 3G network, though Verizon’s is often perceived as the more reliable of the two. In December, Consumer Reports magazine reported survey results that showed consumers rated AT&T the worst national mobile network.

But even if Verizon is better prepared for the onslaught than AT&T was, it might face similar problems in some places, Marshall said.

“Verizon benefits from the experience that AT&T’s had ... but we can't assume they are in a significantly different position relative to AT&T,” Marshall said. “Traffic is going to be a big issue for everyone.”

The danger for a mobile operator introducing any blockbuster device is that it will sell faster and inspire more network use than was expected. AT&T has acknowledged it was caught off guard by the popularity of the iPhone, which was the first of a new generation of smartphones and triggered the mass-market embrace of mobile data in the U.S. In some areas, including places with many early adopters of the iPhone, AT&T gained a reputation for dropped calls and sometimes sluggish data speeds. Marshall believes AT&T is still suffering in public opinion for those early experiences even though its network has improved.

A key advantage Verizon would have with an iPhone introduction now is the benefit of time, Marshall and others said.

When the first iPhone was released, it wasn’t even equipped for 3G, partly because that network wasn’t available in enough areas. If Verizon introduces its first iPhone on Tuesday, it will do so with a 3G network already deployed across the country. The carrier’s current expansion effort is focused on LTE (Long-Term Evolution), which the first Verizon iPhone is not expected to use.

“Verizon has much more coverage with 3G than anybody else,” said ABI Research analyst Philip Solis. Geographic coverage helps with vertical applications such as telematics and boosts users’ perceptions of network quality, he said.

“It helps that AT&T ran into these problems first,” Solis said. Among the lessons Verizon might learn from its rival’s experience is to be prepared to divide cells in densely populated areas, putting up more base stations, though not necessarily more towers, he said.

Verizon can even take a geography lesson from AT&T, knowing that places such as New York and San Francisco are home to early adopters, so the networks there should probably be reinforced, said analyst Roger Entner of Recon Analytics.

Beyond that, Verizon should be able to simply estimate its iPhone sales, look at the network impact of its existing Android smartphones, and do the math, Entner said.

One way Verizon might not follow AT&T is in relying heavily on Wi-Fi to bolster coverage, analysts said. AT&T bought hotspot operator WayPort in 2008 and now has about 20,000 hotspots in locations such as McDonald’s and Starbucks. Last year the carrier began to deploy “hot zones” around larger areas such as Times Square in New York and part of the waterfront Embarcadero in San Francisco—not coincidentally, two cities where network complaints have been most common. AT&T says its network handled more than 100 million Wi-Fi connections in the third quarter of last year, more than in the whole year of 2009.

Tolaga’s Marshall estimated that 20 percent of the data traffic from AT&T’s mobile network goes through Wi-Fi hotspots.

Verizon has been much less aggressive with Wi-Fi, though it does offer some hotspots. So Verizon will probably rely more on its cellular network to meet any surge in demand from the iPhone, Marshall believes.

AT&T’s use of Wi-Fi presents some trade-offs, Marshall said. Wi-Fi can be easier to deploy and doesn’t require licensed spectrum, but it gives the carrier less control, he said. Wi-Fi networks have fewer mechanisms for capacity management by a carrier. As a result, when AT&T shifts a user from cellular to public Wi-Fi, the iPhone user’s connection may be more susceptible to slowdowns when more users jump on the Wi-Fi network, Marshall said. On the other hand, Verizon may have more work to do if it wants to keep building up its cellular network to keep up with demand.

Over the long term, a few factors could help Verizon do that job, analysts said. As users buy LTE devices, the burden of their data traffic bypasses the 3G network. Small base stations such as femtocells, in homes and other places with high demand, could pick up the slack. And the FCC has shown an interest in freeing up more spectrum for expanding the capacity of cellular networks.

Entner, of Recon Analytics, said Verizon’s network should be fine in the short run.

“In the long run, it all depends on how much money they put behind it,” Entner said.

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