Communications of the ACM
Success of Verizon's Iphone Will Depend on Cdma Network Performance
Credit: Robert H. Smith School of Business, University of Maryland
P.K. Kannan says the impact of the iPhone 4 released by Verizon on the competitive landscape boils down to one word: "performance. That is, the performance of iPhone 4 on Verizon's CDMA wireless communications network."
Kannan is the Ralph J. Tyser Professor of Marketing Science at the Robert H. Smith School of Business at the University of Maryland, and Chair of the Department of Marketing. The University of Maryland released the following statement by Kannan:
"Verizon has been touting that its CDMA network's reliability will afford iPhone users to be 'on' all the time and continue interacting with usage-heavy iPhone applications without having the current problems they experience with AT&T's network, whose performance has been spotty. AT&T rolled out its usage tiered-pricing schemes for its iPhone 4 precisely to counter its network quality problems, some of which were partly due to the unlimited data usage plans for the previous versions of iPhone.
"Verizon could steal many of AT&T iPhone customers if its network holds up to the heavy iPhone usage and delivers the reliable service Verizon is known for. In addition, it could also sign up significant new iPhone customers. Analysts expect Verizon to sell 9 million to 12 million new iPhones, some of which could be converts from AT&T.
"AT&T boasts of better speed and functionality (one can use the iPhone for multi-tasking with their GSM phones, which is somewhat difficult in Verizon's CDMA versions), but it has been plagued by dropped service with heavy usage of iPhone. If Verizon performs well, it can have a significant impact on AT&T. The exclusive deal AT&T had with iPhone has been responsible for its increased retention rates of customers spurred by die-hard iPhone fans. Now these customers will have another option—a more reliable, all-you-can-eat model for their iPhones. In addition to losing some iPhone customers (who value reliability more than speed and functionality) immediately, AT&T's customer retention rates could fall over time. The better Verizon's performance is, the larger this retention rate decrease will be.
"If, on the other hand, Verizon is not able to keep its promise of more reliable network quality than AT&T, the downside impact on AT&T will be minimal. While Verizon is likely to pick up more customers following the immediate release of its iPhone version, their network quality performance over time will determine the long-run impact on the competitive landscape."
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