Update: Analysts predict higher prices for Verizon iPhone

Size of hike depends on whether the smartphone supports Verizon's LTE network

Analysts say Verizon may sell its long-anticipated iPhone at a higher price than customers are used to paying for Apple's iconic smartphone, but split on how much more one could cost.

Verizon is expected to announce Tuesday morning that it will soon start selling an iPhone that runs on its network.

On Monday, analysts couldn't agree on whether the announcement will be accompanied by a price hike.

"I wouldn't be surprised if the iPhone [on Verizon] doesn't cost $50 more," said Brian Marshall, an analyst with Gleacher & Co., referring to the $199 entry-level price that U.S. customers now pay for a subsidized iPhone 4.

But Francis Sideco, a principal analyst in the wireless group at iSuppli, an El Segundo, Calif.-based research firm that specializes in calculating hardware "bill of materials" (BOM) costs, disagreed with Marshall.

"I don't perceive any material differences in BOM, IP [intellectual property] costs, or the retail price of an iPhone on Verizon if it's a CDMA-only device," said Sideco, taking the side of the $199 argument.

Unlike other analysts, Marshall said that the iPhone for Verizon will support only CDMA (code division multiples access) -- the wireless standard across the carrier's network -- rather than function in both CDMA and the faster next-generation LTE (long term evolution) network that Verizon launched in 38 markets last month.

He attributed the higher price of a CDMA-only iPhone to a bigger patent licensing bill. "There's more patent expense with a CDMA iPhone," said Marshall, "particularly with all the Qualcomm patents."

Technology from San Diego, Calif.-based Qualcomm is the foundation of the CDMA standards that Verizon supports on its network.

Marshall said the customer price of a CDMA-only iPhone could be as high as $250. Additional patent licensing fees will raise Apple's costs by a "low single digit" amount, he claimed, but the end user hike would be higher.

Sideco dismissed the idea of a price increase, saying that Apple's already paying patent fees to Qualcomm. "There's no way that with the volume that the iPhone has put up, that Qualcomm would not have asserted their IP rights, even though we haven't heard of that publicly," said Sideco.

The current iPhone operates on W-CDMA (wideband code division multiples access) networks, which are typically marketed as UMTS (universal mobile telecommunications system). AT&T's 3G network, for instance, relies on W-CDMA/UMTS.

Qualcomm also has a large patent W-CDMA portfolio, Sideco noted.

Sideco would not bet on either option -- CDMA-only or dual mode -- because credible arguments could be made for both. His take: a 50-50 chance for each.

"A CDMA-only iPhone would go against Apple's mantra to be the premier producer of smartphones," Sideco point out. "LTE is the thing that people are talking about this year."

On the CDMA-only side, Sideco pointed out that the anticipated announcement is coming from Verizon, not Apple, a factor that also drove Marshall to bet on a single-mode iPhone.

Calling the move "uncharacteristic of Apple," Marshall said the company may have ceded the stage to Verizon because it doesn't consider the carrier's iPhone as a new device, but essentially the current iPhone 4 "just on another provider."

Apple typically hosts its own events that star CEO Steve Jobs when it introduces major new products.

If Apple has created a dual-mode iPhone for Verizon that supports both CDMA and LTE, Sideco agreed with Marshall that the price would be higher than $199.

"That's a whole other ballgame," Sideco said of a dual-mode iPhone. "It would open up a third tier that's higher priced; $100 to $200 extra would not be unreasonable." That would put the least expensive model at $299 to $399.

Sideco credited higher component costs for the price jump.

Marshall has projected that Apple will sell an additional 12 million iPhones during 2011 if Verizon joins AT&T as a U.S. carrier. In his estimate, the Verizon-caused bump would represent about half of the 37% increase in unit sales he expects in 2011.

Other sales could come from carriers, such as China Mobile, which also rely on CDMA, added Sideco. China Mobile is the world's largest mobile carrier, with an estimated 560 million subscribers. Currently, only China Unicom, with more than 150 million subscribers, supports the iPhone in China.

If Verizon says tomorrow that it has landed the iPhone, customers should be able to buy one this month or next, said Marshall, echoing other reports of a January or February on-sale date. Previously, Marshall had pegged March 2011 for the iPhone's availability on the network.

But the mid-season launch of an iPhone for Verizon won't disturb the annual summer refresh by Apple, he argued. "This won't change the annual cycle," he said. "I still expect a new iPhone in June or July."

If Apple doesn't launch an LTE-capable iPhone tomorrow, said Sideco, it would have to soon, perhaps this summer as part of its usual line revamp. "They'll have to [move] pretty darn quickly, if not this year, then certainly in 2012," he said.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer or subscribe to Gregg's RSS feed . His e-mail address is gkeizer@computerworld.com.


Copyright © 2011 IDG Communications, Inc.

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