Verizon’s Data Business Benefits From Android Overtaking iPhone

by: Trefis

Verizon (NYSE:VZ) will benefit as Google’s (NASDAQ:GOOG) Android mobile OS continues to win smartphone share at the expense of Apple’s (NASDAQ:AAPL) iPhone, Research in Motion’s (RIMM) BlackBerry and other smartphones made by Nokia (NYSE:NOK) and HP (NYSE:HPQ), which now owns Palm.

According to a report from market research firm NPD, Android had US market share of 28 % in Q1 2010, behind RIM’s BlackBerry (36%) and ahead of Apple’s iPhone (21%). The success of Android in the US is disproportionately benefiting Verizon which offers multiple Android-based phones. Specifically, a higher mix of smartphones on Verizon’s network is expected to give the company’s data revenues a boost.

Verizon-Android versus AT&T-iPhone

Popular Android-based smartphones offered by Verizon include the Motorola (MOT) Droid, Motorola Devour, HTC Hero and HTC Incredible. In comparison, AT&T (NYSE:T) only offers the Motorola Backflip and will be introducing Dell’s (NASDAQ:DELL) Aero smartphone. AT&T has also limited the functionality of the Android operating system on the Motorola Backflip.

The cash cow for AT&T remains the iPhone and, despite speculation that the iPhone will be available on Verizon in the not too distant future, Verizon’s focus is on the Android which is driving a higher mix of smartphone subscribers.

Smartphones Enable Higher Internet Usage

Compared to feature phones, smartphones make it easier to surf the internet, respond to e-mails, watch videos and play music. All of these functions require higher data usage which helps mobile carriers like Verizon by increasing the average data (internet, SMS) revenue per user that it earns.

Average revenue per user (ARPU) from data for Verizon has increased from around $7 in 2006 to $15 in 2009. We believe that this number will continue to increase to around $25 by the end of the Trefis forecast period.

However, with Verizon increasingly selling more Android smartphones, there could be an upside of 5% to the $33 Trefis price estimate for Verizon’s stock if data ARPU were to increase at a fast rate to reach around $30 by the end of Trefis forecast period.

You can modify our forecast for Verizon’s data ARPU to see how its stock could be impacted if data ARPU were to increase at a faster rate than what we forecast.

Disclosure: No positions