Verizon Wants iPhone, But Makes Backup Plans with Google

When Apple's chief executive Steve Jobs concluded his presentation of the new iPhone 4 without a mention of Verizon, the carrier had already been busy talking to Google about a backup plan
Verizon executives, who had been speaking regularly with Apple about getting their hands on the iPhone, had also been working hard on a secondary strategy involving Google and handset makers HTC and Motorola.
While rival AT&T still holds exclusive rights to the iPhone in the U.S., Verizon has been working on a backup plan by teaming up with Google to develop a slew of new devices, ranging from a tablet device to several additional Android-based phones, for launch later this year.
In October, the companies collaborated to design two successful Android devices -- the Motorola Droid and the HTC Droid Incredible -- pushing Verizon's smartphone share up a percentage point to 24.1 percent, while AT&T's share dropped four points to 41.9 percent.
We are going to do as well as if we had the iPhone, said John Killian, Verizon's chief financial officer.
Four years ago, Verizon passed up the chance to carry the iPhone. Consequently, the carrier fell far behind AT&T in smartphone sales and data services -- Internet surfing and application downloads that have quickly replaced traditional calling as the growth engine for operator revenue.
While increasing numbers of Verizon's customers have been smartphones, just 16 percent of their subscribers currently own them. By comparison, a commanding 33 percent of AT&T's customers use smartphones. AT&T also generates 18 percent more data revenue a month for each customer than Verizon.
Adding pressure, earlier last week, AT&T changed its data pricing, capping unlimited data usage for new customers but lowering its minimum data package.
Still, Verizon's chief executive Lowell McAdam is hopeful of carrying the iPhone and said that senior executives at his company still speak with Apple heads at least once a quarter.
Apple, meanwhile, has been designing a version of the iPhone that could work on Verizon's network, which analysts think the carrier could get starting in 2011.
There are a lot of interesting things we can do with Apple," McAdam said. "And I am confident that eventually we will.
But until then, the alliance with Google and several key handset makers gives Verizon a safety net against Apple, and helped the company's aim of not being reliant on one flagship phone.
Verizon, which is now the largest U.S. seller of Android phones, has driven the adoption of Google's mobile operating system more than any other carrier by using its marketing power, customer service experience, and 2,300 retail stores. But what seems like an obvious partnership today began with a degree of suspicion.
Google, which until a few months ago was still skeptical about the major telecoms, choosing to sell its Nexus One phone directly through the Web rather than through wireless operators.
Then in early 2008, McAdam went to Google's campus and told chief executive Eric Schmidt that he was ready to let handset makers develop smartphones and software on his network.
Yeah, right, Schmidt replied.
But after Verizon held a conference to help develop those devices, "Eric called me up and said, 'You guys were telling the truth. Let's sit down and talk,'" McAdam recalled.
The two companies quickly teamed up in 2009 and developed the Motorola Droid, the first Android-based device to sell over a million units.
Now, Verizon executives have visited Google's headquarters every three months for high-level planning sessions. McAdam, chief marketing officer John Stratton and senior vice president John Harrobin often talk to Schmidt, head of Android Andy Rubin and vice president of engineering Vic Gundotra about the latest Android software and match it up with upcoming smartphones in development.
We talk about the experience we want, McAdam said. We literally call it the GX, or the Google experience
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