Why Verizon Doesn't Want You to Buy an iPhone

A pretty hot story is going around, stoked by CNNMoney, that Verizon Wireless sales reps are steering customers away from Apple's iPhones in favor of 4G LTE-enabled Android devices. I absolutely believe this, Verizon's official denials notwithstanding.

This has nothing to do with the Apple/Android war. It has little to do with the huge subsidies paid on Apple products, little to do with Apple's power in the market, and little to do with how much Android manufacturers kowtow to Verizon. Maybe those are minor factors, but they aren't the primary reason.

Verizon Needs LTE Subscribers
Here's the problem: Verizon has spent millions of dollars rolling out its massive LTE network to cover 200 million people so far. You could call it billions, if you include the $5 billion spent on the C Block 700-Mhz spectrum licenses. But according to its first-quarter earnings presentation it's only been able to convert 9.1 percent of its 93 million users to LTE.

Moving over "Internet device" customers on USB modems and iPads won't help, because according to Verizon's most recent quarterly report, that's only 8 percent of the carrier's postpaid subscriber base. Verizon needs to convert smartphone users, and 72 percent of its postpaid phone sales were smartphones, according to its earnings release.

Verizon customers' data demands are growing, because more and more are choosing smartphones. But the carrier can't easily add capacity on its old 3G network. We've seen average speeds on the Verizon 3G network creeping down for a while; we got average download speeds of 1.01Mbps in our Fastest Mobile Networks 2010 feature, but the carrier dropped to 700kbps in Fastest Mobile Networks 2011.

The carrier has done a very good job of preventing network crowding from ending up with blocked calls and dropped connections, but it still has a crowded network using a base technology (EVDO) that is slower than AT&T and T-Mobile's HSPA.

The 4G LTE network, on the other hand, is blazingly fast and has tons of capacity right now. It isn't overcrowded. There's plenty of room. And every 4G phone can fall back to 3G just in case.

You Can't Move an iPhone Customer to 4G
From Verizon's position, the solution looks simple: move heavy data users in crowded urban areas from 3G to 4G as fast as possible. That would help everyone. The new 4G users get much faster connections, and the 3G users would see better speeds and network quality, too, as that network becomes less crowded.

There's only one problem. The iPhone isn't a 4G phone. And according to Verizon CFO Fran Shammo, the carrier sold more iPhones over the last quarter (3.2 million) than it did LTE devices (2.9 million). That means more than half of Verizon's smartphone buyers are crowding onto the already busy 3G network, while the 4G network has plenty of space.

So you see why Verizon has a strong reason to push buyers away from the iPhone. The iPhone is a great device. But it's making a crowded network more crowded. Until the LTE iPhone comes along, to rebalance its network, Verizon may quietly push Android phones.