Verizon iPhone: What, AT&T Worry?

Another question to ponder on the eve of the iPhone’s debut on Verizon: Now that its archrival has the device on which it once had an exclusive, a device that has done so much for its bottom line, how will AT&T respond?

Or, rather, how has it been responding? Because it’s clear the company has been preparing for this moment for some time. Last year, it accelerated upgrade eligibility for iPhone customers, making it easier for them to get the iPhone 4 when Apple released it. And it locked them all into two-year contracts in the process. And then, last week, it drastically reduced the price of the iPhone 3GS, halving it to $49 from $99.

Presumably, AT&T could follow this with additional pricing promotions that could further limit iPhone subscriber defections to Verizon, though at this point one could argue that it’s as well prepared for its loss of iPhone exclusivity as it will ever be.

Why? Two big reasons:

1. According to Piper Jaffray analyst Christopher Larsen, nearly 80 percent of AT&T iPhone users are currently on family or corporate plans, which makes switching to a new carrier a difficult proposition.
2. Approximately 75 percent of them still have at least a year left on their contracts.

And there’s a third wild-card reason as well: How Verizon’s network fares after a big influx of data-heavy iPhone subscribers. That’s tough to predict, but two analysts I’ve spoken with said they expect Verizon to suffer some network growing pains, though not as bad as the ones suffered by AT&T. Ultimately, Verizon is starting off with a better network, and CDMA is said to be a more spectrally efficient standard than UMTS.

So will there be some AT&T subscribers who switch to Verizon when it begins selling the iPhone? Certainly. But they may not be nearly as large in number as you might think.

“AT&T has done everything it can,” Needham and Co. analyst Charlie Wolf told me this morning. “The company locked in a lot of iPhone owners by waiving early termination fees last summer. It’s moved aggressively to add a bunch of BlackBerrys and Android phones. And it should be remembered that AT&T will continue to sell the iPhone. So I doubt that the loss of subscribers to Verizon will be that large. But it could be material as it pertains to the bragging rights between AT&T and Verizon. “

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• Why Verizon’s iPhone Won’t Be So Bad for RIM
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• Verizon Event Set for Tuesday–iPhone Time