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Verizon: Who needs the iPhone?

By Spencer Ante (BusinessWeek)
October 30, 2009

Can Verizon Wireless keep its spot as the leading wireless company in the U.S. if it doesn't have the industry's hottest phone?

Lowell McAdam, the company's chief executive, is trying to make the case that it can. Two years ago, Verizon Wireless passed on the chance to become the exclusive U.S. distributor of the Apple (AAPL) iPhone and pushed Apple into the arms of rival AT&T.; Since then the iPhone has become a megahit, helping AT&T; close the gap with Verizon. In the most recent quarter, AT&T; added 2 million wireless subscribers, bringing its total to 81.6 million, while Verizon Wireless added 1.2 million, for a total of 89 million.

Now, McAdam is launching a slew of products designed to keep Verizon ahead. In the fourth quarter the company is rolling out its largest new-product lineup ever: 14 devices, vs. half that number a year ago. Among those will be two netbooks and five smartphones, including the Droid phone from Motorola (MOT), a sleek device with a touchscreen and keyboard that runs on Google's (GOOG) Android operating system. The new products are backed by an unusually aggressive marketing campaign. In one TV spot, Verizon takes direct aim at Apple with a series of "iDon't" quips that explain all the things an iPhone can't do. "The Droid can compete head to head" with the iPhone, says John Stratton, chief marketing officer of Verizon Wireless.

Too Many New Offerings?
Verizon's strategy is bold but risky. With the Droid and another phone from HTC, Verizon is placing a big bet on the unproven Android. The software is popular with techies and has attracted enough support from developers that 10,000 apps are available for download to Android phones, but it hasn't yet caught on with consumers. In addition, Verizon risks confusing customers with the sheer number of devices it's introducing. "Greater choice is not a guarantee of a greater quarter," says Richard Doherty, research director at Envisioneering Group.

McAdam and Stratton are firing up Verizon's marketing machinery to win over consumers. The Droid will be backed by Verizon's biggest marketing campaign ever for a single device, and total marketing spending will increase five percent to 10 percent in the current quarter from last year. Stratton says the anti-Apple vibe will be toned down in favor of ads that underscore the features of its phones and the reliability of its network compared with AT&T;'s. Verizon has said it is still interested in selling the iPhone if Apple is amenable.

Verizon is experimenting with new marketing approaches. For several weeks in November, the company has rented time on two huge electronic billboards in New York's Times Square that will show real-time results of searches people make on their Android phones. Verizon is also planning to transform Droid, the moniker for the Motorola phone, into a brand name for a whole lineup of Android devices.

Google Could Be the Key
Verizon's success may ultimately depend on how the partnership with Google works out. As cell phones become more sophisticated computing devices, wireless companies need Silicon Valley firepower to compete. Google has helped boost the number of wireless applications available on Android phones, but analysts say it has to step up its marketing of Android to gain ground on Apple. "When the iPhone was associated with Apple iTunes, that really meant a lot to consumers," says Ken Dulaney, an analyst at researcher Gartner (IT). "You want to know that the [Android] app store is being run by Google."

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