So the long-speculated CDMA version of the iPhone has arrived. Lets see what its potential is.
I have been monitoring the iPhone from long before it was even launched, and I gave the world's first international market opportunity analysis for the iPhone three days after it was announced and 5 months before the first model was sold, here on this blog in January 2007. That is so long ago, that AT&T was still known as Cingular at that time haha. Funny to see that I had the international footprint for the iPhone very accurately forecasted, haha, which is still very close to how Apple sells iPhones in 2010. In the blog analysis I clearly stated that Apple had to evolve the iPhone, and that a 3G/GSM version had to be offered first, before a CDMA version - exactly as Apple did in 2008. And now we have the CDMA version, which Verizon starts to sell in early February of 2011.
There are some differences in the iPhone 4 sold on Verizon. Technically it is a CDMA device, so it is not compatible with GSM networks and the Verizon iPhone users cannot use their iPhone in Europe and most of the rest of the world, for example. While CDMA forms a little over half of all mobile phones used in North America, GSM forms 90% of all mobile phones used worldwide, so outside of the USA, about 93% of the rest of the world uses GSM (and is compatible with the iPhone GSM variant, as sold by AT&T). The PR people of Verizon have said that the most accessories of current iPhone 4 owners should work but warned that some cases will not - suggesting that the casing of the CDMA version of the iPhone 4 will have some cosmetic differences, very likely related to the antenna, as Verizon does not want to experience a return of antennagate with its launch.
There may be some other differences, but for all practical purposes, for most buyers and normal customers, the outwardly appearance, the main specifications and the Apple look-and-feel will all be the same, that unless they put them side-by-side and carefully study the two, the iPhone 4 at Verizon will seem identical to the iPhone at AT&T.
USA MARKET IMPACT
The US market will definitely see a boost in iPhone sales as Verizon is one of the three big mobile networks with AT&T (and Sprint). T-Mobile the fourth biggest network is significantly smaller than these three. There are also many regional networks, so AT&T and Verizon together very roughly speaking account for half of all US mobile customers. Because AT&T and Verizon are on the two rival standards that most American phones use, it is easy to think that once Verizon releases the iPhone, it would double the sales in the USA. That will not happen. There will be significant growth yes, and Verizon will gain plenty of disgruntled AT&T iPhone users yes, and some Verizon users who had gotten an AT&T account just to have the iPhone will return to Verizon yes. But the total US market for the iPhone after Verizon will not be double that what it is today.
Lets take some known metrics to understand. First, the latest TNS survey of US consumers tells us that the current iPhone owners are the wealthiest segment of smartphone owners in the USA, with an average income of over 100,000 dollars. This means that for the typical existing iPhone owner, there is no financial burden whatsoever to consider a second phone and second account on a rival network. If the US consumer had wanted an iPhone, and earned more than 100,000 dollars annually, they could easily walk into an AT&T store, sign the two year contract and get a new, second phone, no matter what network their other phone was on. As my TomiAhonen Phone Book 2010 tells us, a fifth of US mobile phone accounts are multiple accounts meaning that one in four US cellphone owners today has two accounts (and in most of those cases, has also two phones). And these tend to be smartphone owners. So for example, a white collar worker in a well-paid job may have a Blackberry from work as the company phone, and then bought an iPhone as the personal phone. About one in four US mobile phone owners will actually have two active accounts. The iPhone has been around in the US market for 3.5 years already, so for most who 'really wanted it' (and could afford it) they had had the chance to get the iPhone. Even for those who were locked in long-term contracts (usually 2 year contracts) who had just signed a new contract a little before the original iPhone launched, has had now time to get a new contract, and would this year get another new contract, giving ample time to get the iPhone if they wanted it.
Note this is different from France or to a lesser extent Britain. I would not be surprised to find many analysts celebrate how greatly the iPhone sales and market share grew in France after the iPhone went from one carrier/operator to all three in France. France got the iPhone six months after it launched in the USA and only a year after Orange of France started selling the iPhone on an exclusive deal, the rival networks SFR and Bouygues both received the iPhone. So the ability for the rival networks to capitalize on 'virgin' iPhone users was far greater than it now is in the USA.
When I did my very deep regional analysis and preview just before the iPhone launched in 2007, in my Crunching the Numbers blog, I explained that AT&T could use the iPhone as a weapon to steal valuable premium customers from the rival networks. And we've heard repeatedly from AT&T that many of its iPhone buyers were new customers to AT&T, not just existing AT&T customers upgrading from featurephones to the iPhone. For example when AT&T reported on Q1 numbers for 2010, it said 33% of iPhone activations were new accounts, not upgrades of existing accounts. The strategy has worked very well for AT&T.
What is the US market in size? The US market is about a quarter of the world's smartphones, so it will end up at about 75 million smartphones sold for the full year 2010. Google's Android family of devices are currently the best-selling smartphones in the US market. Apple has passed Blackberry during 2010 and are now the biggest selling single smartphone brand in smartphones in North America. For Q3 Apple had 26% market share. For the latest 12 months (from Q4 of 2009 to Q3 of 2010) Apple has sold 14.5 million iPhones in the USA. Apple's total iPhones sold in the same period was 40 million. (Note that this is not the final of iPhones that Apple will sell during calendar year 2010, they will sell roughly 45-48 million iPhones which we will know when we hear the official Q4 numbers soon).
So, the existing market was roughly 14.5 million for the latest 12 months. If we project that for full calendar year 2010, lets call it 17 million. That is up from 10.3 million for calendar year 2009 so the iPhone showed growth of 65% in the past year. Note this is slower growth than the iPhone did globally (85%).
Is there a market segment in the USA, which has customers on Verizon today, who want an iPhone and can afford it, and have not gone to AT&T. Of course there is. But note, of those customers who once were on Verizon (whether they are still there or not) who have over the past 3.5 years gone to AT&T to get the iPhone - I would argue this is by far the bigger part of Verizon's true iPhone-hungry customer base. They have already gone to AT&T, and a Verizon iPhone for those customerrs is at best a chance to win them back. Note, some will not shift, even if they would prefer the Verizon network (see below).
Will Verizon be able to steal customers from rivals with the iPhone, perhaps a bit, more from Sprint and Alltel (CDMA providers) than GSM providers AT&T and T-Mobile, but there is some potential for that. Again, AT&T has had plenty of time to do that, and securing those customers on long-term AT&T contracts, so it is not likely to be a big segment that Verizon can even hope to target. If AT&T has been capturing a third of iPhone users as new customers - mostly stealing from rival networks, that market was roughly 5.6 milllion US consumers. I would argue, that Verizon will not be able to match this level out of all customers taking an iPhone, Verizon will cut into AT&T's customer acquition yes, but its rate will be less. There will be early buzz about Verizon and an early spike yes, but if we look at the full year 2011, no, it will not be that big. There will be some who explicitly want a CDMA standard phone - for those the Verizon iPhone is the only choice. There will be some customers who are very 'loyal' to Verizon either in a real loyalty sense, or perhaps because of their phone number or Verizon is the telecoms provider at their employer, or in NorthEastern USA, the customer may be on a Verizon family telecoms plan with the fixed landline phones, etc. For those existing Verizon customers, there will be some segment of totally new iPhone customers who were not valid candidates to buy one from AT&T. I would argue this is far less than 10% of all new iPhone customers in 2011.
There will be some customers who hate AT&T and they will of course take the first chance to abandon AT&T and jump (often back to) Verizon. These are not new iPhone customers. This is for Apple moving money from one pocket to another. For the carriers in the USA, it will be typical churn and loyalty war between the networks. There will be offers AT&T will make to existing iPhone customers, to try to entice them to stay, and there will be penalties for leaving before the contract is completed. Most customers who want to abandon AT&T will wait until their contract period is done. So even for this total market, note that almost exactly half of them will not even be able to shift to Verizon during calendar 2011, half will do so in 2012 (of customers on 2 year contracts).
But lets not forget the iPhone owner. At more than 100,000 dollars in annual income, the iPhone customer is the most affluent of any smartphone owners by their income level. These will more often than not, be in well-paying jobs, often jobs that involve international travel - or are wealthy American consumers who also like to take (and can afford annually) holidays abroad. The only one dramatic difference between the Verizon iPhone on CDMA and AT&T iPhone on GSM, is international roaming. The Verizon iPhone uses a standard that will work in many Asian countries and many Latin American countries (and Canada). It will not work in Western Europe, the Middle East, in Africa and Australia. Meanwhile the AT&T iPhone on GSM will work in every country in the world. So for most who do meaningful international travel - who have already used their existing AT&T iPhone abroad on GSM roaming - will know to inquire about the roaming, and in most cases (unless all travel is in Asia and Latin America) will not want to 'downgrade' to the CDMA version. Even if they hate the AT&T service, they will tolerate the iPhone on it, rather than go without the iPhone on most of their international travel trips.
So how much can we expect Verizon to take of the iPhone market in the USA? I think in the long run, the relative market shares should end up roughly mimicking their market shares of all cellular customers in the USA, so if these two similar-sized carriers offer the iPhone only (not T-Mobile, not Sprint) then they shold split the US iPhone market 50/50 - well after the contractual delays are overcome, so this would be much after two years from now. And I say only roughly, though, because AT&T has the first-mover advantage, and because AT&T offers GSM roaming. But lets say around year 2013-2014 we could expect Verizon to have perhaps 40% of all iPhone users in the USA, and AT&T to have 60%. Or maybe 45/55, something like that.
Meanwhile, how much can we expect the iPhone to keep growing in the USA? They grew 65% last year, slower than Apple did globally and slower than the global growth in smartphones and slower than the US market growth in smartphones. I think the high price of the iPhone (US readers, please remember the listed price of say 199 dollars on AT&T is not the real price you pay, the rest of the 600 dollar full price of the iPhone 4 is hidden in the 2 year contract, because of 'handset subsidy' you are actually buying a forced installment payment plan - with interest - and the 199 dollars you paid is only the upfront down payment) is starting to reach the market ceiling. Its obviously not there yet, but is nearing it. Meanwhile we now see very popular similar-design smartphones from HTC, Motorola, Sony, LG etc which mostly use the more popular Android operating system, and even RIM has introduced touch-screen versions of its popular Blackberry. The competition for the iPhone is much greater today, so its prospects for dramatic growth in the US market are not strong. Yes, there will be growth definitely, and it helps that the iPhone is now sold on two networks, but I do not see the iPhone growing strongly.
This launch is obviously bad news for AT&T. It has had a very long run in being the sole provider of the iPhone, but now that run is done. I think it is inevitable that AT&T will see more of a loss of customers to Verizon than any new customers it might attract to the iPhone. Some will be normal churn and loyalty, some will be aggressive marketing by Verizon, some will be 'customer revenge' for bad consumer marketings actions that AT&T has done in the past, etc. So I do believe that AT&T's total sales of iPhones will stall and start to decline. Almost all of the sales at AT&T of new iPhones in the next two quarters will be contract renewals, ie sales to existing customers, not new sales. Almost all new customers will sign up to Verizon now - many of those customers are of the type who explicitly did not want to sign with AT&T and waited for Verizon. So for AT&T I am modelling flat sales and gradual decline.
Recently we have seen AT&T activities to embrace new smartphones and this would mean that in AT&T stores, the emphasis of the iPhone would diminish, helping the Android based phones gain more sales in AT&T stores.
With all that, I model the US market to run about 50% growth in total iPhone sales for calendar year 2011, so about 24 - 26 million iPhone units sold. I would split the full calendar year 2011 to go about 15 million for AT&T and 10 million for Verizon. Nice sales yes, but remember, most of those 10 million that Verizon would be activating, would be former Verizon customers coming back from AT&T. (One caveat - I have separately been arguing that Apple must soon release an 'iPhone Nano' cheaper simpler version of the iPhone and release two new phone models per year. If Apple were to release the Nano model in 2011, then the total iPhone market globally would grow dramatically. This analysis of the CDMA iPhone with Verizon, is not considering the separate Apple option to release a Nano iPhone in this year).
Is this really good news for Apple? I don't think so. I think they could easily have sold 33% or 45% more iPhones this year with AT&T alone, without all the expense of the design and approval and support of a CDMA version. And it would have been far cheaper to release the same GSM version of the iPhone 4 with T-Mobile. Why not, if the exclusive contract with AT&T has run out? Is it really true, that T-Mobile doesn't particularly 'want' the iPhone? What do they know (from T-Mobile's vast European empire) that we don't? And why only Verizon on the CDMA standard? Why not both Verizon and Sprint? Again, doesn't Sprint want the iPhone? It seems a bit strange. At least in Europe like Italy, France, UK etc, and Australia, it was clear that all carriers/operators wanted the iPhone. I do think its a bit weird that only two of the four biggest US carriers sell the iPhone, in Apple's home market, its best-selling market after all. We have to monitor this space and try to find out why if AT&T's exclusive contract is out, why not all four (or five, or six) of the biggest US carriers are not launching iPhones. Or maybe we'll hear more deals when Apple announces its quarterly results later this month.
Clearly the US investors of Apple have been desiring to see the exclusive AT&T deal ended and have wanted to see the iPhone on Verizon. This is good news for Verizon, its clearly bad news for AT&T - but both of these were anticipated. But for Apple, in the US market, I don't see a meaningful bump in sales. Yes for one quarter or two, but even for the full year 2011, I don't see much impact. Not out of the US market. But maybe the gold is abroad..
I did an analysis of the regional markets of major smartphone platforms here on this blog a few weeks ago. Taking only the iPhone numbers, for the latest quarter for which we have global numbers, ie Q3 of 2010, I found that 39% of all iPhones were sold in the USA, 33% were sold in Europe and 28% were sold in the rest of the world. To understand the market sizes, the TomiAhonen Phone Book 2010 tells us that out of all smartphones sold, the USA and Europe both account for about a quarter, and the rest of the world accounts for half. If we use that split of markets, and use the rough estiamate of 47 million iPhones sold for full calendar year 2010, then it would be 18 million sold in North America, 16 million sold in Europe, and 13 million sold in the rest of the world.
EUROPE HAS NO CDMA
A CDMA version will not add any sales in Europe. So Apple's 16 million sales in Europe will not receive any boost out of this new variant to the iPhone 4. But Apple is seeing both growing competition from Android devices, the same effect as they saw in North America last year, Android is poised to grow bigger than Apple in Europe, led by Samsung's Galaxy class - Samsung is Europe's second-best-selling 'dumbphone' so every carrier/operator offers a vast array of Samsung phones including many Samsung cheaper touch screen featurephones. Meanwhile Europe is Nokia's home market and 'back yard' and Europeans have been eagerly snapping up Nokia's new N8, seen by the consumers as Nokia's answer to the iPhone - and are now awaiting the E7, which looks like the 'iPhone anyone would really want' ie it has a 4 inch touch screen but also the slider full QWERTY keyboard, that costs about the same as the iPhone 4 and Nokia is set to release the E7 this quarter. Apple's dramatic growth in global market share of smartphones stalled in 2010 as I first predicted on this blog and most major analysts have since confirmed. That was in early 2010, before the Galaxy S, before the Nokia N8, before the latest Blackberries, HTCs, LGs, Motorolas etc. The iPhone 4 was the hot phone in the summer of 2010. It is now looking increasingly tired and old in the European market. Expect Apple's sales in Europe to decline in the first half of 2010 and only show new growth with the next iPhone 4G expected in June of 2011. For the full year, I would expect Europe only to produce something like 30% growth and this CDMA and any future CDMA versions obviously does nothing to help there, in Apple's second biggest market. So for the full year we could see something like 20 million iPhones sold in Europe, and Apple's iPhone market share to decline there.
REST OF WORLD HAS SOME CDMA
So the rest of the world. The world's biggest mobile telecoms market is China. The good news is that China does have CDMA. The bad news is that China's biggest mobile operator, China Mobile, does not support CDMA. China's second largest operator, China Unicom, is the official iPhone provider on GSM, and its only the newest and by far smallest Chinese operator, China Telecom who operates a CDMA network. Apple has been struggling to sell iPhones in China, it is perceived as very expensive in the market where they have no handset subsidies and customers pay the full price for handsets (like over 80% of all customers in the world). So adding the smallest carrier in China will not do magical things for Apple.
What of Japan, Apple's best market in Asia? Well, there is some good news, some bad news. The good news is yes, there is also one CDMA operator in Japan, KDDI, which is slightly bigger than the current iPhone provider, Softbank, which runs obviously on the GSM evolution of 3G (Japan has no 2G networks left, they became the first country to go 100% 3G or faster last year). But Japan's biggest carrier/operator is NTT DoCoMo, as big as Softbank and KDDI combined. NTT DoCoMo runs the GSM evolution to 3G, so they could use the current GSM style iPhones, and NTT DoCoMo has expressed many times their desire to do so. It is not because the Japanese don't want to sell the iPhone, its the same problem Verizon had in the USA - its a contractual situation with the rival. Softbank has an exclusive deal in Japan. We do not know how long that lasts, but its very unlikely that the CDMA version of the iPhone 4 now, will help in any way in Japan.
What other markets have significant CDMA operations? India, South Korea, Indonesia, Taiwan, some Latin American countries and Canada. In most cases the CDMA carriers have already started their migration away from CDMA to GSM - like two of the three carriers in South Korea - so often the CDMA network is run by a carrier who already operates a parallel GSM network - and could have launched the original GSM standard iPhone already. And then, in the markets where CDMA carriers still operate, in most cases they are one of the smallest carriers and have a tiny slice of the domestic market, like in India, Indonesia, Taiwan etc. The total 'new' market opportunity for the CDMA variant of the iPhone is very small in the world.
PRICE PYRAMID BECOMES THE DECISIVE FACTOR
I have calculated the price pyramid for phones sold worldwide in 2009, for the TomiAhonen Phone Book 2010 and it tells us that in 2009, only 5% of all phones sold worldwide were in the price bracket of the iPhone 4. Even if we take next lower price bracket and assume we can 'upsell' current mid-priced smartphone owners in the roughly 300 dollar smartphone price bracket, and upsell them to the iPhone in the 600 dollar (unsubsidised) price range, the combined market size of these two premium phone segments is only 14%. What was Apple's total global market share of all mobile phones sold in 2010? We dont' have the final numbers, but in rough terms, the iPhone sold 4%. The Samsung Galaxy alone in Q4 is selling about 3%. Nokia's N8 as just one smartphone model from Nokia's range of several dozen, sold about 1% in Q4. Both are in the same price range as the iPhone 4. Then we have Blackberries whose average price is near 300 dollars and they sell another about 4% of smartphones. That price bracket is very tightly contested by several dozen global brands from SonyEricsson and LG and Motorola to Lenovo and Dell and ZTE. The competition is getting ever tougher for Apple as today every rival offers some touch screen based smartphones that are significantly cheaper than the iPhone, and in many cases offer at least some features now in early 2011, that are better than the iPhone 4 (bigger screen size, better camera, in-built slider QWERTY screen etc). The battle gets brutal at the top of the pyramid. In the US market it is not as clear-cut because American consumers are so wealthy, and the phones are subsidised. Apple itself admits, its easiest markets are those where phones are heavily subsidised (like the USA and Japan) and Apple struggles most in markets where there are no subsidies like in China and Italy for example.
With this, I do think there is a natural limit which Apple is already approaching. In 27 years of selling the inconic Macintosh PC, which has a magnificent history of technological innovations, the Mac has always been a premium priced PC, and its global market share has settled very close to the 4% market share of all personal computers sold. Now the iPhone is approaching that point in handsets (3.7% actually for calendar year 2010). All major markets have now launched the iPhone, so there are no major countries left that would still be 'virgin' territory for Apple to launch in.
Its CDMA version will help sell more in North America yes, but mostly it means return customers from AT&T back to Verizon, and because of the vast prevalence of multiple handsets in America, the impact will be modest, further dampened by the 2 year contracts, and Verizon further hurt by a poor international roaming footprint, in the wealthy customer segment. This is a good move by Apple to sell more in North America, and yes, they will sell more in the USA with both Verizon and AT&T than they would have done with only AT&T. This is a move that will be liked by its investors but it will more help Verizon than Apple.
For the rest of the world, looking at where most smartphones are sold, the CDMA version can only help in some major Asian markets. Europe, Middle East, Australia and Africa are not CDMA and Latin America is way too small as a smartphone market to really matter in the big picture. But in Asia the CDMA carriers are mostly the small ones in their home markets, always in countries where the iPhone GSM version has already been leaunched. If the iPhone is not selling well on several GSM networks after several years of sales in India for example, then a new CDMA version in 2011 will not move that needle at all in that market, for example. Same for Indonesia, Taiwan etc. Some markets may see a jump (China, South Korea, Japan) but in these cases, the exclusive contract situation is likely to be similar to what Verizon faced in the USA against AT&T.
So for the full year 2011, I am tentatively modelling in very round numbers that Apple will sell 70 million iPhones (plus minus 5 million) and would have roughly speaking 15% market share of smartphones and 4% of all mobile phones, very similar to their market share for 2010, ie their market share growth has indeed stalled from what it was still in 2009. This does assume that the next iPhone 4G has to be a very successful new phone again in June of 2011, similar to how successful the iPhone 3GS was in 2009 and the iPhone 4 in 2010. At that level the iPhone would be the second-best-selling smartphone (Nokia will sell in the range of 140 million smartphones this year, totally out of reach for Apple) but I will be revising my preliminary model for 2011 sales later in February, when we have the final numbers for all manufacturers and the total industry (including Apple's Q4 numbers) for the full year 2010. Does the CDMA version add iPhone sales, yes. Will it change the picture? Not much. What is the rough ratio of CDMA to GSM versions? About one in seven iPhones sold in 2011 will be a CDMA version.
Thats how I see it now, on January 12 in 2011. I will be monitoring the smartphones market on this blog in the continuing 'Bloodbath' series of smartphone market analysis blogs articles, and separately I will be doing a full analysis of Apple's iPhone performance for the full year 2010, when we get the final numbers from Apple soon.
For those who want more numbers and facts about the global mobile phones industry including smartphones, dumbphones, featurephones, installed bases, average sales prices, regional performances, operating systems, market shares etc - I have released my TomiAhonen Phone Book 2010, a 180 page statistical review of the handset industry just two weeks ago, with all end-of-year 2010 numbers and facts, including over 90 tables and charts. The eBook is available for immediate download and only costs 9.99 Euros. To see more (this is the only place to buy it) - see TomiAhonen Phone Book 2010.