Commentary

Verizon: Getting To 50% Smartphone Penetration

Iphone-VerizonLogo

During Verizon's earnings conference call Monday, the carrier shed more light on its expectations for the iPhone this year, in addition to providing more details about rolling out the Apple device, like the $30 unlimited plan. One interesting exchange during the Q&A with analysts focused on Verizon's expectation of doubling smartphone penetration among its customers from 26% to 50% this year.

Obviously, bringing on the iPhone will help Verizon achieve that goal. But it's still a big jump. Besides paying $200 for a smartphone, customers also face a monthly bump in service cost from about $40 to $80. And if the estimated 30% of U.S. mobile users that have smartphones are the early adopters and most affluent among us, isn't it going to be harder for that next 25% of Americans to get onboard?

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That's a question BofA/Merrill Lynch analyst put to Verizon CEO Ivan Seidenberg, COO Lowell McAdam and CFO Fran Shammo. McAdam suggested that the iPhone, like the Droid before it, will encourage customers to upgrade, and gain uptake from family phone plans. People can live with flip phones -- "but when they get those smartphones in their hands, the usage goes up, they get on the unlimited plans or they move up in tiers," said McAdam.

Seidenberg added that discretionary income for wireless isn't necessarily fixed. He said data use would increase as more and more companies cut overhead by having employees work at home, equipping them with smartphones to do business remotely. "So not only will those $40 customers become higher data users, but the $80 customers will go to $105 and $110," said Seidenberg.

The fact that users are increasingly carrying multiple devices -- smartphones, tablets, e-readers -- would also continue to drive up data use, and as a result, carrier revenue.

When it comes to the iPhone, Verizon is sticking with analysts' consensus estimate that it will sell 11 million units this year. Verizon's new phone trade-in program , offering $200 toward a smartphone, should also help drive up iPhone purchases.

Verizon's aim of converting half of its contract wireless customers to smartphone users isn't unrealistic. Nielsen has projected there will be more smartphones than feature phones in the U.S. market by the end of 2011. IDC forecasts smartphone shipments globally will increase 24.5% this year.

Verizon itself went from 15% smartphone penetration in 2009 to 26% in 2010. It will take a much bigger jump than that to get to 50% this year, so it really comes down to how well the iPhone will sell, without eating too much into Verizon's existing Android sales.

1 comment about "Verizon: Getting To 50% Smartphone Penetration".
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  1. Michael Kremin from NeoGen Digital, January 26, 2011 at 4:54 p.m.

    I am surprised there is little discussion about other smartphones helping Verizon to reach these goals. During the holiday season, there were Android phones available on other carriers for as little as $10 with a 2 year contract.

    Certainly with competition, Verizon will have similar lower end smartphones that will appeal to customers who cannot afford or who are not willing to pay the iPhone premium. Most likely, "feature phones" will disappear from US carriers by the end of 2011 with the competition between Motorola, LG, Samsung, HTC, Sony, etc. driving smartphone prices down.

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