As a believer in the Nokia (NOK) turnaround play, I'm constantly monitoring the newswire for any material news - positive or negative - surrounding the stock. It was recently announced that the company's very hotly anticipated Lumia 820 and 920 phones would be exclusive to AT&T (T). As a Verizon (VZ) user who was looking forward to purchasing the Lumia 920 to upgrade my current phone, this is is disappointing. As a Nokia shareholder, this makes me incredibly uncomfortable. Here's why:
Verizon's LTE Coverage Is Superior
When it comes to wireless and mobile devices, data transfer speeds are important, and availability of said transfer speeds is even more important. The speed of a phone's wireless connection affects the fundamental usage of the phone. Want to stream a high bit-rate video? How about access media-rich websites? What about downloading large apps like games?
The user experience when dealing with these fundamental phone tasks is directly influenced by the wireless connection speed - and that's why the introduction of 4G: LTE was such a huge deal.
When it comes to LTE coverage, Verizon has AT&T beaten by a country mile. At present, the former has LTE in 371, covering 75% of the USA. AT&T only has LTE in 65 major markets. AT&T is expecting to finish out the year covering 100 markets while Verizon expects to nab 400.
With Verizon's LTE coverage superior to AT&T's, it is likely that, at least until AT&T gets up to speed, customers outside of AT&T's LTE coverage range will opt to go with Verizon.
The Competition Is Relentless - Why Restrict TAM?
The competition in the smartphone space is absolutely fierce and relentless. With powerful players such as Samsung (SSNLF.PK) and HTC preparing to launch competing Windows Phone 8 based devices, as well as the general strength of the Google (GOOG) Android and Apple (AAPL) iOS platforms, Nokia cannot afford to blink.
With the phone available only on AT&T, the fairly large pool of users that use Verizon, Sprint (S), and T-Mobile providers will have no choice but to move along and purchase other phones. Sure, these people could switch carriers, but that seems like an incredible hassle for one particular phone in a sea of excellent devices.
As Nokia, CEO Stephen Elop, and shareholders run out of time waiting for the company to turn around, it seems nonsensical to put an artificial cap on number of people who can buy a new Lumia. Nokia needs to sell every last phone to everybody and anybody who wants one. Nokia is not Apple and potential customers on competing networks will not twiddle their thumbs hoping for the phone to arrive on their carrier - they'll buy something else.
Case in point: I was planning to buy a Lumia 920. I'll now be purchasing a Samsung Galaxy S III.
A Variant View - AT&T Marketing Muscle Could Go To Work
While I still think that this is likely a net negative for Nokia's investors, I do see a potential bright spot. If the exclusivity deal was something that AT&T was extremely anxious to get, then that means AT&T will be really pushing the phone to customers. While technology geeks like me foam at the mouth over the new phone, it is likely that most people still don't know all that much about Nokia's new phone. An aggressive, targeted marketing campaign surrounding this "new, awesome, and exclusive to AT&T" phone could be just what Nokia needs to drum up potential interest.
After the initial interest is there and many folks want one, then AT&T will likely draw in a fair number of folks who will switch (even though this will not likely be any sort of mass exodus from the other carriers). Once that happens, Nokia will likely make the phone available at other carriers.
Of course, given how lackluster the sales of the Lumia 800 and 900 were - and yes, AT&T was the exclusive partner there, too - I remain very skeptical.
This seems like a bad decision. Nokia needs to sell as many phones as possible in order to stay afloat. Despite the company's fairly large net cash position of just under $6B, the cash burn needs to stop and the company needs to get back on the profitability track. Many believe that the company has the "right stuff" to do so, but will the company succeed? The product is there. It's awesome. At this point, it's all about execution and making the right decisions - and that's why I'm starting to feel a little nervous.
Additional disclosure: I may initiate a long position in AAPL over the next 72 hours.