Verizon Hates the iPhone

What does Apple get for working with Verizon, the nation's number-two cellular carrier? Complaints, betrayal, and a lifetime of headaches. At this time last year, you couldn't escape the hype for the iPhone 4's long-awaited debut on Verizon VZ. After all, the iPhone was the world's single-most popular smartphone. While Samsung and other smartphone manufacturers have to release a zillion different models to appease consumers, Apple AAPL has been satisfying its customers (and attracting millions of new ones annually) with one device and one yearly upgrade. By receiving the iPhone 4, Apple was expected to open doors for Verizon and consumers alike. Instead of being forced to sign up for AT&T's T overpriced data plans, they would now have an alternative -- or so the hype led us to believe. Best of all, AT&T customers could finally abandon the "dropped call network" (as I like to call it) and sign up for the most reliable cellular carrier in America. Verizon, of course, would supposedly benefit from the millions of new customers that the iPhone would bring. Those customers would not only buy the iPhone but pay more than a thousand dollars a year on talk and data plans. Was this a fairytale ending for Verizon, or a fantasy that would never come true? Thus far, the latter seems to be the case. While the company's profits rose 17% in the first quarter, the Wall Street Journal reports that Verizon is unhappy with the "high costs" of offering the iPhone. Consequently, the wireless carrier plans to give Microsoft MSFT a boost by promoting smartphones that run the Windows Phone 7 OS. With only a small number of smartphone users currently taking advantage of Microsoft's mobile operating system, Verizon is taking a leap of faith on this one, joining forces with a company that may or may not be developing an iPhone-killng superphone. Then again, Verizon, Sprint S and T-Mobile took a leap of faith on Android several years ago, and they have made billions as a result. Granted, their reason for supporting Android so heavily had more to do with the fact that they couldn't sell the iPhone (thus making them desperate for an iPhone clone) than the quality of Android. But Google GOOG proved to be a formidable competitor with frequent Android tweaks and upgrades that have turned the mobile OS into a powerful iOS alternative. If it weren't for the carrier support, however, Android would never have become the industry's number-two player. In that sense, Microsoft could benefit greatly from Verizon's support. By becoming the star of Verizon's TV ads, by filling stores and mall displays with Windows Phone 7 images, and by instructing its employees to push Microsoft's smartphones, the Windows maker is going to be in the optimum position to compete. Verizon, however, might get shafted on the deal. If it angers Apple by choosing to heavily support a competitor, the iPhone maker might be less likely to come to Verizon with future devices. It's not as if Apple doesn't have alternatives. At this point, Apple can go to any carrier it wants and consumers will follow. Mindsets Can Be Changed The biggest challenge that Verizon and Microsoft face isn't the competition -- it's consumer mindset. Right now, consumers believe that iOS is the best smartphone platform. Android is a close second. Diehard fans on both sides will inevitably argue that their favorite OS is the best. But all that really matters is that when it comes to profitability, Apple and Google reign supreme. It wasn't hard for either company to get BlackBerry loyalists to abandon Research in Motion's RIMM dated smartphone collection. But it will be very difficult to convert an Apple loyalist into a Windows Phone 7 user. Thus, Microsoft shouldn't even bother trying to win over those consumers. Instead, Microsoft needs to look at everyone except the loyalists as a potential customer. This is where the Verizon partnership is key; if the carrier spends enough time beating a dead horse (that is, if it frequently reminds consumers that their next phone must run Windows), consumers may eventually respond. It will take time. It will take patience. And it could require billions of dollars in additional advertising. But if Microsoft wants it bad enough (and it appears that the company does), this can be done. There is one more hurdle, however: overall market share. Even if Microsoft managed to steal a quarter of Android's users and 5% of Apple's, the company would still have a long way to go before it became a top player in the industry. Unexpected Competition Apple and Google aren't the only companies that Microsoft has to worry about. In addition to the possibility that Google could use Motorola MMI to build a better Android phone, there is always the chance that Research in Motion will get its act together and release a product consumers want to buy. Even Nokia NOK, whose U.S. sales are in the toilet, has stayed afloat by selling millions of phones overseas. They're not the fanciest phones, nor do they have the highest margins. But consumers still buy them. Then there is the threat that Chinese manufacturers like Meizu will bring their impeccable iPhone clones to America. If that happens, Microsoft won't be the only company that should begin to worry. Follow me @LouisBedigian