I have been monitoring the iPhone from long before it was even launched, and I gave the world’s first international market opportunity analysis for the iPhone three days after it was announced and five months before the first model was sold.

That is so long ago, that AT&T was still known as Cingular at that time. Funny to see that I had the international footprint for the iPhone very accurately forecasted, which is still very close to how Apple sells iPhones in 2010. In the analysis I clearly stated that Apple had to evolve the iPhone, and that a 3G/GSM version had to be offered first, before a CDMA version – exactly as Apple did in 2008. And now we have the CDMA version, which Verizon starts to sell in early February of 2011.

There are some differences on the Verizon iPhone 4. Technically it is a CDMA device, so it is not compatible with GSM networks and the Verizon iPhone users cannot use their iPhone in Europe and most of the rest of the world, for example. While CDMA forms a little over half of all mobile phones used in North America, GSM forms 90 percent of all mobile phones used worldwide, so outside of the USA, about 93 percent of the rest of the world uses GSM (and is only compatible with AT&T’s iPhone).

The PR people of Verizon have said that the most accessories of current iPhone 4 owners should work but warned that some cases will not – suggesting that the casing of the CDMA version of the iPhone 4 will have some cosmetic differences – related to the antenna, as Verizon does not want to experience a return of Antennagate with their own launch.

The impact on the American market

The US market will definitely see a boost in iPhone sales as Verizon is one of the three big mobile networks with AT&T and Sprint. T-Mobile the fourth biggest network is significantly smaller than these three.

There are also many regional networks, so AT&T and Verizon together very roughly speaking account for half of all US mobile customers.

Because AT&T and Verizon are on the two rival standards that most American phones use, it is easy to think that once Verizon releases the iPhone, it would double the sales in the USA.

That won’t happen. There will be significant growth yes, and Verizon will gain plenty of disgruntled AT&T iPhone users yes, and some ex-Verizon users will return. But the total US market for the iPhone after Verizon will not be double that what it is today.

Let’s take some known metrics to understand. The latest TNS survey of US consumers tells us that the current iPhone owners are the wealthiest segment of smartphone owners in the USA, with an average income of over 100,000 USD.

This means that for the typical existing iPhone owner, there is no financial burden whatsoever to consider a second phone and second account on a rival network. If the US consumer had wanted an iPhone, and earned more than 100,000 dollars annually, they could easily walk into an AT&T store, sign the two year contract and get a new, second phone, no matter what network their other phone was on.

As my Tomi Ahonen Phone Book 2010 tells us, a fifth of US mobile phone accounts are multiple accounts meaning that one in four US cellphone owners today has two accounts. And these tend to be smartphone owners. So for example, a white collar worker in a well-paid job may have a Blackberry from work as the company phone, and then bought an iPhone as the personal phone. About one in four US mobile phone owners will actually have two active accounts.

The iPhone has been around in the US market for 3.5 years already, so for most who ‘really wanted it’ (and could afford it) they had had the chance to get the iPhone. Even for those who were locked in long-term contracts who had just signed a new contract a little before the original iPhone launched, has had now time to get a new contract, and would this year get another new contract, giving ample time to get the iPhone if they wanted it.

Note this is different from France or to a lesser extent Britain. I would not be surprised to find many analysts celebrate how greatly the iPhone sales and market share grew in France after the iPhone went from one carrier/operator to all three in France.

France got the iPhone six months after it launched in the USA and only a year after Orange of France started selling the iPhone on an exclusive deal, the rival networks SFR and Bouygues both received the iPhone. So the ability for the rival networks to capitalize on ‘virgin’ iPhone users was far greater than it now is in the USA.

When I did my very deep regional analysis and preview just before the iPhone launched in 2007, in my Crunching the Numbers analysis, I explained that AT&T could use the iPhone as a weapon to steal valuable premium customers from the rival networks.

And we’ve heard repeatedly from AT&T that many of its iPhone buyers were new customers to AT&T, not just existing AT&T customers upgrading from featurephones to the iPhone. For example when AT&T reported on 1Q numbers for 2010, it said 33 percent of iPhone activations were new accounts, not upgrades of existing accounts. The strategy has worked very well for AT&T.

What is the US market in size? The US market is about a quarter of the world’s smartphones, so it will end up at about 75 million smartphones sold for the full year 2010. Google’s Android family of devices is currently the best-selling smartphones in the US market.

Apple has passed Blackberry during 2010 and is now the biggest selling single smartphone brand in smartphones in North America. For 3Q Apple had 26 percent market share. For the latest 12 months (4Q’2009 to 3Q 2010) Apple has sold 14.5 million iPhones in the USA. Apple’s total iPhones sold in the same period was 40 million.


The impact on Verizon Wireless

The existing market was roughly 14.5 million for the latest 12 months. If we project that for full calendar year 2010, let’s call it 17 million. That is up from 10.3 million for calendar year 2009 so the iPhone showed growth of 65 percent in the past year. Note this is slower growth than the iPhone did globally (85 percent).

Is there a market segment in the USA, which has customers on Verizon today, who want an iPhone and can afford it, and have not gone to AT&T? Of course there is. But note, of those customers who once were on Verizon who have over the past 3.5 years gone to AT&T to get the iPhone – I would argue this is by far the bigger part of Verizon’s true iPhone-hungry customer base. They have already gone to AT&T, and a Verizon iPhone for those customers is at best a chance to win them back. Note, some will not shift, even if they would prefer the Verizon network.

Will Verizon be able to steal customers from rivals with the iPhone, perhaps a bit, more from metroPCS, Sprint and Alltel (CDMA providers) than GSM providers AT&T and T-Mobile, but there is some potential for that. Again, AT&T has had plenty of time to do that, and securing those customers on long-term AT&T contracts, so it is not likely to be a big segment that Verizon can even hope to target. If AT&T has been capturing a third of iPhone users as new customers – mostly stealing from rival networks, that market was roughly 5.6 million US consumers.

I would argue that Verizon will not be able to match this level out of all customers taking an iPhone, Verizon will cut into AT&T’s customer base, but its rate will be less. There will be early buzz about Verizon and an early spike yes, but if we look at the full year 2011, no, it will not be that big. There will be some who explicitly want a CDMA standard phone – for those the Verizon iPhone is the only choice.

There will be some customers who are very ‘loyal’ to Verizon either in a real loyalty sense, or perhaps because of their phone number or Verizon is the telecoms provider at their employer, or in Northeastern USA, the customer may be on a Verizon family telecoms plan with the fixed landline phones, etc. For those existing Verizon customers, there will be some segment of totally new iPhone customers who were not valid candidates to buy one from AT&T. I would argue this is far less than 10 percent of all new iPhone customers in 2011.

There will be some customers who hate AT&T and they will of course take the first chance to abandon AT&T and jump (often back to) Verizon. These are not new iPhone customers. This is for Apple moving money from one pocket to another. For the carriers in the USA, it will be typical churn and loyalty war between the networks.

There will be offers AT&T will make to existing iPhone customers, to try to entice them to stay, and there will be penalties for leaving before the contract is completed. Most customers who want to abandon AT&T will wait until their contract period is done. So even for this total market, note that almost exactly half of them will not even be able to shift to Verizon during calendar 2011, half will do so in 2012 (of customers on 2 year contracts).


The effects on AT&T

This launch is obviously bad news for AT&T. It has had a very long run in being the sole provider of the iPhone, but now that run is done. I think it is inevitable that AT&T will see more of a loss of customers to Verizon than any new customers it might attract to the iPhone. Some will be normal churn and loyalty, some will be aggressive marketing by Verizon, some will be ‘customer revenge’ for bad consumer actions that AT&T has done in the past, etc.

So I do believe that AT&T’s total sales of iPhones will stall and start to decline. Almost all of the sales at AT&T of new iPhones in the next two quarters will be contract renewals, i.e. sales to existing customers, not new sales.

Almost all new customers will sign up to Verizon now – many of those customers are of the type who explicitly did not want to sign with AT&T and waited for Verizon. So for AT&T I am modeling flat sales and gradual decline.

Recently we have seen AT&T activities to embrace new smartphones and this would mean that in AT&T stores, the emphasis of the iPhone would diminish, helping the Android based phones gain more sales in AT&T stores. Don’t forget the allure of "4G" and devices such as Motorola Atrix 4G. With all that, I model the US market to run about 50 percent growth in total iPhone sales for calendar year 2011, so about 24 – 26 million iPhone units sold.

I would split the full calendar year 2011 to go about 15 million for AT&T and 10 million for Verizon. Nice sales yes, but remember, most of those 10 million that Verizon would be activating, would be former Verizon customers coming back from AT&T.

One caveat: I have separately been arguing that Apple must soon release an ‘iPhone Nano’ cheaper simpler version of the iPhone and release two new phone models per year. If Apple were to release the Nano model in 2011, then the total iPhone market globally would grow dramatically. This analysis of the CDMA iPhone with Verizon, is not considering the separate Apple option to release a Nano iPhone in this year.

Is this really good news for Apple? I don’t think so. I think they could easily have sold 33 percent or 45 percent more iPhones this year with AT&T alone, without all the expense of the design and approval and support of a CDMA version. And it would have been far cheaper to release the same GSM version of the iPhone 4 with T-Mobile. Why not, if the exclusive contract with AT&T has run out?

Is it really true, that T-Mobile doesn’t particularly "want" the iPhone? What do they know (from T-Mobile’s vast European empire) that we don’t? And why only Verizon on the CDMA standard? Why not both Verizon and Sprint? Again, doesn’t Sprint want the iPhone?

It seems a bit strange. At least in Europe like Italy, France, UK etc., and Australia, it was clear that all carriers/operators wanted the iPhone. I do think it’s a bit weird that only two of the four biggest US carriers sell the iPhone, in Apple’s home market, its best-selling market after all. We have to monitor this space and try to find out why if AT&T’s exclusive contract is out, why not all four (or five, or six) of the biggest US carriers are not launching iPhones. Or maybe we’ll hear more deals when Apple announces its quarterly results later this month.

Clearly the US investors of Apple have desired to see the exclusive AT&T deal ended and have wanted to see the iPhone on Verizon. This is good news for Verizon, its clearly bad news for AT&T – but both of these were anticipated. But for Apple, in the US market, I don’t see a meaningful bump in sales. Yes for one quarter or two, but even for the full year 2011, I don’t see much impact. Not out of the US market. But maybe the gold is abroad…


The world split

Taking only the iPhone numbers, for the latest quarter for which we have global numbers (3Q 2010), I found that 39 percent of all iPhones were sold in the USA, 33 percent were sold in Europe and 28 percent were sold in the rest of the world. To understand the market sizes, the TomiAhonen Phone Book 2010 tells us that out of all smartphones sold, the USA and Europe both account for about a quarter, and the rest of the world accounts for half. If we use that split of markets, and use the rough estimate of 47 million iPhones sold for full calendar year 2010, then it would be 18 million sold in North America, 16 million sold in Europe, and 13 million sold in the rest of the world.

Europe has no CDMA

A CDMA version will not add any sales in Europe. So Apple’s 16 million sales in Europe will not receive any boost out of this new variant to the iPhone 4. But Apple is seeing both growing competition from Android devices, the same effect as they saw in North America last year, Android is poised to grow bigger than Apple in Europe, led by Samsung’s Galaxy class – Samsung is Europe’s second-best-selling ‘dumbphone’ so every carrier/operator offers a vast array of Samsung phones including many Samsung cheaper touch screen featurephones.

Meanwhile Europe is Nokia’s home market and ‘back yard’ and Europeans have been eagerly snapping up Nokia’s new N8, seen by the consumers as Nokia’s answer to the iPhone – and are now awaiting the E7, which looks like the ‘iPhone anyone would really want’ i.e. it has a 4" touch screen but also the slider full QWERTY keyboard, that costs about the same as the iPhone 4 and Nokia is set to release the E7 this quarter.

Apple’s dramatic growth in global market share of smartphones stalled in 2010 as I first predicted and most major analysts have since confirmed. That was in early 2010, before the Galaxy S, before the Nokia N8, before the latest Blackberries, HTCs, LGs, and Motorolas etc. The iPhone 4 was the hot phone in the summer of 2010. It is now looking increasingly tired and old in the European market.

Expect Apple’s sales in Europe to decline in the first half of 2010 and only show new growth with the next iPhone 4G expected in June of 2011. So for the full year we could see something like 20 million iPhones sold in Europe, and Apple’s iPhone market share to decline there.

The rest of the world has some CDMA

World’s biggest mobile telecoms market is China and good news for Apple is that China does have CDMA. The bad news is that China’s biggest mobile operator, China Mobile, does not support CDMA. China’s second largest operator, China Unicom, is the official iPhone provider on GSM, and it’s only the newest and by far smallest Chinese operator, China Telecom who operates a CDMA network.

Apple has been struggling to sell iPhones in China, it is perceived as very expensive in the market where they have no handset subsidies and customers pay the full price for handsets (like over 80 percent of all customers in the world). So adding the smallest carrier in China will not do magical things for Apple.

What of Japan, Apple’s best market in Asia? Well, there is some good news, some bad news. The good news is yes, there is also one CDMA operator in Japan, KDDI, which is slightly bigger than the current iPhone provider, Softbank, which runs obviously on the GSM evolution of 3G. But Japan’s biggest carrier/operator is NTT DoCoMo, as big as Softbank and KDDI combined.

NTT DoCoMo runs the GSM evolution to 3G, so they could use the current GSM style iPhones, and NTT DoCoMo has expressed many times their desire to do so. It is not because the Japanese don’t want to sell the iPhone, it’s the same problem Verizon had in the USA – it’s a contractual situation with the rival. Softbank has an exclusive deal in Japan. We do not know how long that lasts, but it’s very unlikely that the CDMA version of the iPhone 4 now will help in any way in Japan.

What other markets have significant CDMA operations? India, South Korea, Indonesia, Taiwan, some Latin American countries and Canada. In most cases the CDMA carriers have already started their migration away from CDMA to GSM – like two of the three carriers in South Korea – so often the CDMA network is run by a carrier who already operates a parallel GSM network – and could have launched the original GSM standard iPhone already.

And then, in the markets where CDMA carriers still operate, in most cases they are one of the smallest carriers and have a tiny slice of the domestic market, like in India, Indonesia, and Taiwan etc. The total ‘new’ market opportunity for the CDMA variant of the iPhone is very small in the world.


Price pyramid becomes the decisive factor

I have calculated the price pyramid for phones sold worldwide in 2009, for the TomiAhonen Phone Book 2010 and it tells us that in 2009, only 5 percent of all phones sold worldwide were in the price bracket of the iPhone 4. Even if we take next lower price bracket and assume we can ‘upsell’ current mid-priced smartphone owners in the roughly 300 dollar smartphone price bracket, and upsell them to the iPhone in the 600 dollar (unsubsidized) price range, the combined market size of these two premium phone segments is only 14 percent.

What was Apple’s total global market share of all mobile phones sold in 2010? We don’t’ have the final numbers, but in rough terms, the iPhone sold 4 percent. The Samsung Galaxy alone in 4Q is selling about 3 percent. Nokia’s N8 as just one smartphone model from Nokia’s range of several dozen sold about 1 percent in 4Q. Both are in the same price range as the iPhone 4.

Then we have Blackberries whose average price is near 300 dollars and they sell another about 4 percent of smartphones. That price bracket is very tightly contested by several dozen global brands from SonyEricsson and LG and Motorola to Lenovo and Dell and ZTE.

The competition is getting ever tougher for Apple as today every rival offers some touch screen based smartphones that are significantly cheaper than the iPhone, and in many cases offer at least some features now in early 2011, that are better than the iPhone 4 (bigger screen size, better camera, in-built slider QWERTY screen etc.).

The battle gets brutal at the top of the pyramid. In the US market it is not as clear-cut because American consumers are so wealthy, and the phones are subsidized. Apple itself admits its easiest markets are those where phones are heavily subsidized and Apple struggles most in markets where there are no subsidies like in China and Italy for example.

With this, I do think there is a natural limit which Apple is already approaching. In 27 years of selling the iconic Macintosh PC, which has a magnificent history of technological innovations, the Mac has always been a premium priced PC, and its global market share has settled very close to the 4 percent market share of all personal computers sold.

Now the iPhone is approaching that point in handsets (3.7 percent actually for calendar year 2010 . All major markets have now launched the iPhone, so there are no major countries left that would still be ‘virgin’ territory for Apple to launch in.

Its CDMA version will help sell more in North America yes, but mostly it means return customers from AT&T back to Verizon, and because of the vast prevalence of multiple handsets in America, the impact will be modest, further dampened by the 2 year contracts, and Verizon further hurt by a poor international roaming footprint, in the wealthy customer segment.

This is a good move by Apple to sell more in North America, and yes, they will sell more in the USA with both Verizon and AT&T than they would have done with only AT&T. This is a move that will be liked by its investors but it will more help Verizon than Apple.

For the rest of the world, looking at where most smartphones are sold, the CDMA version can only help in some major Asian markets. Europe, Middle East, Australia and Africa are not CDMA and Latin America is way too small as a smartphone market to really matter in the big picture.

But in Asia the CDMA carriers are mostly the small ones in their home markets, always in countries where the iPhone GSM version has already been launched.

If the iPhone is not selling well on several GSM networks after several years of sales in India for example, then a new CDMA version in 2011 will not move that needle at all in that market, for example. Same for Indonesia, Taiwan etc.

Some markets may see a jump (China, South Korea, and Japan) but in these cases, the exclusive contract situation is likely to be similar to what Verizon faced in the USA against AT&T. So for the full year 2011, I am tentatively modeling in very round numbers that Apple will sell 70 million iPhones (plus minus 5 million) and would have roughly speaking 15 percent market share of smartphones and 4 percent of all mobile phones, very similar to their market share for 2010, i.e. their market share growth has indeed stalled from what it was still in 2009.

This does assume that the next iPhone 4G has to be a very successful new phone again in June of 2011, similar to how successful the iPhone 3GS was in 2009 and the iPhone 4 in 2010. At that level the iPhone would be the second-best-selling smartphone (Nokia will sell in the range of 140 million smartphones this year, totally out of reach for Apple) but I will be revising my preliminary model for 2011 sales later in February, when we have the final numbers for all manufacturers and the total industry (including Apple’s Q4 numbers) for the full year 2010.

Does the CDMA version add iPhone sales, yes? Will it change the picture? Not much. What is the rough ratio of CDMA to GSM versions? About one in seven iPhones sold in 2011 will be a CDMA version. I will be monitoring the smartphones market on this blog in the continuing ‘Bloodbath’ series of smartphone market analysis blogs articles, and separately I will be doing a full analysis of Apple’s iPhone performance for the full year 2010, when we get the final numbers from Apple soon. 

For those who want more numbers and facts about the global mobile phones industry including smartphones, dumbphones, featurephones, installed bases, average sales prices, regional performances, operating systems, market shares and so forth I have released the TomiAhonen Phone Book 2010, a 180 page statistical review of the handset industry just two weeks ago, with all end-of-year 2010 numbers and facts, including over 90 tables and charts. The eBook is available for immediate download and only costs 9.99 Euros. To see more (this is the only place to buy it) – see TomiAhonen Phone Book 2010.