Is Verizon attempting an end run around AT&T with iPhone-like devices?

Competition intensifies between the two giant wireless carriers

Verizon Wireless, which is reported to be in talks with Apple Inc. over two iPhone-like devices, could be attempting to make an end run around the exclusive deal that AT&T Inc. has with Apple to sell the iPhone.

It shouldn't be surprising that Verizon would do anything to get its hands on a product that has a small letter "i" in its name and that's made by Apple. The drive at Verizon to compete with AT&T is robust and even dogged, said industry observers.

BusinessWeek, citing an unnamed source, reported that Apple has two prototypes in the works for Verizon to sell -- an "iPhone lite" calling device and a media pad for listening to music, viewing photos and watching high-definition videos, as well as making Wi-Fi voice calls. One of the devices could go on sale this summer.

Verizon and AT&T, the nation's two largest wireless carriers, may be the most recent example of tough competition among U.S. capitalists, analysts said today. As such, it is easy to see why Verizon would like to sell the iPhone, and if not the actual iPhone, because of AT&T's exclusive deal with Apple, then something like the iPhone. Meanwhile, AT&T is trying to extend its deal as the sole U.S. wireless carrier of the device beyond 2010.

Some observers have speculated that the reports of Verizon's talks with Apple are simply Apple's attempt to manipulate AT&T into paying more for an extension of its exclusive deal.

Gartner Inc. analyst Phillip Redman said he questioned why Apple would be working with Verizon on iPhone-like devices because Verizon hasn't been active in promoting Wi-Fi, or at least as active as AT&T, which has 20,000 Wi-Fi hot spots that certain customers of AT&T data plans can use for free.

"I would be surprised [if Apple is working with Verizon on iPhone-like prototypes], since Verizon Wireless hasn't been a big supporter of Wi-Fi," Redman said. "I don't see how those products would fit in their strategy, since they are not actively selling Wi-Fi services, and Wi-Fi services for handhelds really make the most sense when combined with cellular services."

Still, it is easy to see why Verizon would not want to give even an iota of competitive advantage to AT&T, said Jack Gold, an analyst at J.Gold Associates LLC.

"Verizon clearly has to do something to compete on the iPhone," Gold said. "AT&T has done a good job of selling the iPhone and has taken advantage of all the iPhone is and Apple's marketing."

Gold pointed to the large number of subscribers that AT&T has gained just by offering the iPhone. "Those subscribers had to come from somewhere, and maybe some came from Verizon," he noted.

But Verizon doesn't have a device with the same cachet as the iPhone, he noted. "The BlackBerry Storm at Verizon just doesn't get the same level of interest as the iPhone and probably doesn't make them nearly as much money as the iPhone would," Gold said. "Plus, iPhone junkies are data junkies, which is where the money is."

If the prototype of the media pad becomes reality, it would also help Verizon sell data plans. The media device seems similar to Apple's iPod Touch, with the potential benefit that it would offer voice over Wi-Fi. Skype, software that allows users to make phone calls over the Internet, recently became available for the iPhone and the iPod Touch as a download from Apple's App Store to offer voice over Wi-Fi, so interest is growing in what a purported media pad prototype would offer for voice users.

If iPhone-like devices pan out for Verizon as reported, then market watchers can are sure that AT&T will respond in kind. The two companies together practically control the U.S. mobile market, considering how tightly networks are tied to devices, and one company can't afford to let the other outpace it.

"Anything either company can do to compete is considered a plus," Gold said. "Companies like these two travel in packs."

Copyright © 2009 IDG Communications, Inc.

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