AT&T vs. Verizon: Cellular Smackdown

Includes: T, VZ
by: Joel West

Visiting the CTIA Wireless IT conference here in San Diego has called into focus the direct rivalry between the two largest carriers that account for two thirds of all US cellular subscribers. AT&T (NYSE:T) is the innovative device company and Verizon Wireless (NYSE:VZ) is the network quality company.

Neither was present at the MobileFocus press party Wednesday night, which featured the other two major carriers and four of the world’s five largest handset makers (plus RIM (RIMM) but not Apple (NASDAQ:AAPL)). However, one of the keynotes Thursday morning (after the former and current Qualcomm (NASDAQ:QCOM) CEOs) was by John Donovan, CTO for AT&T.

Donovan presented five principles for a mobile network operator:

  • Growth happens. Eyeballing the graph, it looks like mobile data on AT&T mobile is about 15-20,000 terabytes/day. Wireless data has grown 4932% (50-fold) over the past 12 quarters, and not just because of the 8.3 million iPhones activated in the last year.
  • Law of the jungle. AT&T is spending heavily on 3G rollout to provide HSPA 7.2 in cities like LA and Chicago this quarter, everywhere by Q2 2011. (To me there was an implication that smaller carriers would be unable to keep up.)
  • Innovate or Die. There's 85% penetration, so innovation in services and business models (like renting rather than buying music) will drive growth.
  • Customers Demand Open. It’s not clear if AT&T is more open than VZW, but they say they are.
  • Invest for the Future. AT&T plans to trial 4G LTE in 2010 and rollout beginning in 2011.

Interestingly — in contrast to Verizon’s reputation (deserved or not) for network reliability — Donovan’s presentation was a bit defensive about network reliability. He said he is well aware of press coverage of network issues, but “I don’t plan our network based on blogs. … no one knows more about the wireless network experience than AT&T”.

(AT&T sent both its wireless CEO and corporate CTO to keynote on successive days, but unlike Verizon didn’t have a booth to answer questions.)

However, Donovan recounted AT&T’s impressive record of firsts in innovative mobile devices. AT&T (or more likely its predecessors like Cingular) was the first US carrier for Palm (PALM), Windows Mobile, BlackBerry and the iPhone. Windows Mobile launched Pocket IE (for better or worse) at a time when the rest of the world still thought WAP was the future.

Donovan argues that its experience with the iPhone (and its 75,000+ apps) means that it understands what consumers expect from the latest mobile applications. It’s a plausible argument.

Perhaps now carriers differ in their quality, but eventually wireless bandwidth will be a commodity. The higher levels of the stack — applications, services, connecting people and not hardware — will become the drivers of growth, usage and revenues.

All of this is happening at the device level and above, which is why VZW will need to shed its parent (Vodafone’s (NASDAQ:VOD)) historic desire to commoditize handsets, and seek out the latest hardware. The rumored Dell (DELL) Android phone for 2010 will be just a start.