Are AT&T and Verizon in a smartphone war or is something bigger at stake?
Tom Nolle: The Verizon-AT&T dynamic is what's really important here. The popular press has played this as the as-yet-unidentified Droid against the entrenched, powerful iPhone. The underlying issue is the approach these two providers might take.
AT&T has had all of the benefits of being the first in the market, and it's now about to suffer all the disadvantages. AT&T set the bar for smartphones and proved a handset could pull through data services for wireless. That was an important piece of knowledge. But the latest Apple numbers further validate that from the consumer's perspective, all of the services of the network are represented by the phone.
You would like to have your network thought of as something other than the pipe that connects the iPhone to a website in a manner similar to that in which plastic plumbing connects a leopard-skin toilet seat to the public sewer system. I think Verizon is trying to create incentives for broadband wireless data services without surrendering as much of the service visibility to the handset as AT&T has.
But the iPhone changed the game for AT&T. Isn't that what Verizon wants too?
Nolle: The issue for Verizon -- and for the industry -- that was created by the iPhone is that if we are looking for world-changing events as a precedent, the one that comes to mind is the internet as a driver for consumer broadband. Network operators gained a lot less from internet empowerment than newcomer players like Google. AT&T may have created the same kind of game-changing event with the iPhone in terms of creating demand.
The iPhone has created the consumerization of wireless data services. And in the case of the internet, consumerization was accompanied by a catastrophic decline in revenue per bit for the service provider. That's what wireless operators have to try to fix. Otherwise, wireless investment slows down because carriers can't earn a reasonable return on their investment. If that happens, no one will be able to fund LTE.
How can Verizon change the game as it promotes the Droid smartphone?
Nolle: Verizon's advertising gives some indication of what it plans to do. Every problem in a marketing sense is like a problem in a military sense. It has a strategic and a tactical solution. The tactical thing for Verizon is to understand that the iPhone has stressed AT&T's 3G network. So Verizon hits back at AT&T on network coverage. That's a big issue AT&T has right now -- the more iPhones are sold, the more unhappy 3G users could be because of network congestion.
Everybody agrees that Verizon is going to have the edge on the network side. That's important, because if Verizon can make this into a "my network is better than your network" fight, it's putting the argument into the right perspective for network operators.