Why Apple Should Develop A CDMA-Based iPhone
It appears that Apple is talking with Verizon Wireless behind closed doors about launching a connected-media device of some kind over the next year, possibly an iPhone. It’s unclear if those discussions will result in a deal, but even if not, Apple (NSDQ: AAPL) should seriously consider making devices based on CDMA, the network technology used not only by Verizon (NYSE: VZ) but more importantly by hundreds of operators worldwide, including China Telecom.
If it doesn’t adopt CDMA, Apple would be squandering an easy opportunity to vastly expand its global user base. CDMA is used by 279 operators in more than 100 countries that reach a combined 455 million 3G CDMA users, according to the CDMA Development Group, a trade association focused on the development of CDMA technologies. (By comparison, Verizon Wireless, the largest U.S. carrier, has more than 86 million subscribers.)
Of particular interest is that two of the largest and fastest-growing CDMA markets are China and India. According to CDMA Development Group Spokesman Brad Shewmake, China Telecom expects to add 30 million subscribers on its CDMA network this year, and two carriers in India — Reliance and Tata — have started offering 3G CDMA on a wide-scale basis. While Apple has been selling iPhones in India for some time, it has yet to launch anything in China. (Although China Unicom, a predominantly GSM operator, has confirmed that it is talking with Apple about launching an iPhone.)
For its part, Apple COO Tim Cook discounted the importance of CDMA last week during Apple’s quarterly conference call, saying it “doesn
It is my understanding that CDMA phones do not have SIMM cards. Is there a technical reason for this? Could the iPhone be successful without a SIMM card? If there was a CDMA iPhone, would Sprint be able to offer it too?
DAP — You're right, CDMA phones don't have SIM cards. Apple will have to do some engineering to make it work, but it's possible. Whether Sprint would be able to offer it, too, who knows? If Verizon negotiates a deal similar to AT&T's, it would mean that it would have exclusive rights to the device in the U.S., but Apple would be free to launch the device with other CDMA carriers outside of the country. Right now, absolutely nothing is for certain.
The timing for Apple to launch a CDMA iPhone is not favorable. Apple's success has been the strong replacement cycle of existing mobile users. Nokia and Sony Ericsson had both hoped for a short replacement cycle of low-end handsets to provide sales of upgrades. Both their quarterly results indicate how much the replacement cycle has slowed. The strongest CDMA operators are in emerging markets. Apple could only have high margins of a CDMA iPhone with an operator willing to heavily subsidize. Verizon was a good starting place, but their quarterly presentation had comments about the success in data revenue and smartphone sales. Verizon was saying "We can live without the iPhone." Verizon further commented about expense discipline. Verizon was basically giving a "no" to high iPhone subsidies like AT&T's $1.35 billion costs in the second half of 2008.
My understanding of LTE devices is that they will be backward compatible with both 3G CDMA and GSM networks – just without the higher speeds and features that the LTE network offers. Motorola supposedly already demonstrated a technical trial for an active call to initiate on LTE, handshake to CDMA, then back to LTE, and terminate.
Therefore, it would be a really, really poor investment for Apple to develop a new handset for a dead network standard. My money is on them releasing an LTE phone in 2010.
I tend to agree with Bastion. The investment expense and minimal returns on CDMA technology, which will be essentially obsolete fairly soon, at best shortly after Apple could practically roll out a CDMA iPhone, means that it makes absolutely no sense for Apple to do this. Apple, true to form, will adopt LTE and come up with a very elegant way to handle backwards compatibility, so they only need produce one phone for various markets. Bootcamp for iPhone perhaps?
<I>"The investment expense and minimal returns on CDMA technology, which will be essentially obsolete fairly soon [...]"</I>
"fairly soon" is relative.
Verizon plans to roll out LTE during 2010 in 25-30 markets. So, in theory, by the end of 2010, Verizon will have enough LTE towers to make it worthwhile for Apple to try to sell LTE phones.
AT&T, conversely, is looking at LTE deployments in mid 2011.
However, it's still early 2009. So figure you're looking at a year-and-a-half (Verizon) to 2 years (AT&T) before you even have a chance at LTE.
So, the question is, would a CDMA phone make sense for the next two years? As in, Apple would spend <I>x</I> dollars to build it and it would sell <I>y</I> units for a couple of years before everybody was appropriately seated on the LTE bandwagon.
Apple's point-of-view, of course, is no. Apple figures GSM/HSPA gives them coverage where they want to be. I'm not convinced they're right in regards to India and China, but I'm not sure what piece of the market CDMA has versus GSM/HSPA. I would assume that someone at Apple has done the computations and said, "Nope. Not worth it."
Peter, I agree, it will be a decade or more before Verizon's CDMA network is truly obsolete, and it will be at least a couple years before LTE can stand on its own (and that's if Verizon meets its super aggressive goals). When it comes to other CDMA operators — in China and India — it will probably be even longer.
So, the question is, if Apple knows this, and they are still saying "Nope, not worth it," what does that mean? Does that mean Apple is looking for a super high-margin business — not a mass market play?
If that's true, I'd be curious if developers would be OK with that answer — especially if their best chances at making big money on the iPhone platform is through scale and reach?
CDMA is a dead technology in the rest of the world
Take Australia there is no cdma only G3 and G4. CDMA phones have sim cards the same as any other mobile.
No one on here knows what they are talking about. Malcolm Cooke you think that a company that has 87 million subscribers has a dead technology? China with over a billion people living there using that technology too. The US and China use CDMA. Anyways, people need to do research before talking. Thanks.
@Malcolm, while it is true that CMDA phone may have SIM cards, the vast majority do not. Conversely, GSM always uses SIM cards.
@Peter, again, because an LTE handset should function on GSM and (W) CDMA networks, albeit not with the fast speeds of the LTE network, there is no need to wait for Verizon to reach some "magical" level of LTE migration to make it worthwhile.
Apple could release an LTE iPhone this summer and be good to go. Except that they are still exclusive with ATT and it is my understanding that the LTE standard is not 100% final yet – so it would be better to wait.
But releasing in 2010 will be enough wait time.