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Verizon and AT&T compete for wireless subscribers

The two biggest phone companies in the country are vying for new subscribers--and the battle looks to be heating up.

A heated battle is brewing between AT&T and Verizon Wireless, the No. 1 and No.2 cell phone operators in the U.S., as they duke it out for new cell phone subscribers. And things will likely only get more intense as AT&T ramps up iPhone sales.

On Monday, Verizon Wireless, which is jointly owned by Verizon Communications and European cell phone company Vodafone, announced it had added 1.3 million net customers to its roster for the second quarter of 2007. Meanwhile AT&T, which reported earnings last week, racked up 1.5 million new cell phone subscribers in the second quarter.

Wireless is proving to be a key revenue driver for AT&T and Verizon. So signing up new customers is very important for these companies. In 2006, the U.S. cell phone penetration rate was about 72.5 percent, according to the CTIA. And as penetration increases, cell phone operators, like AT&T and Verizon, are going to have to work harder to find growth.

Right now, the companies, which do not compete at all in the residential phone market, are neck and neck in terms of overall subscribers. Verizon Wireless ended the quarter with 62.1 million subscribers, and AT&T reported 63.7 million wireless customers at the end of the quarter.

But AT&T will soon pull further ahead of Verizon with the pending $2.8 billion acquisition of Dobson Communications, a rural cell phone carrier that serves about 1.5 million customers. Verizon is also looking to bulk up subscribers through acquisition. The company also announced Monday it would spend $757 million to score 716,000 subscribers from Rural Cellular, which provides cell phone service in 15 states under the Unicel brand.

AT&T could widen that lead in the coming quarters with its exclusive deal with Apple for the iPhone. AT&T said it activated 146,000 iPhones in the first two days the device was on sale. While this number wasn't as high as some analysts had expected, AT&T has said that it has seen strong sales in July and traffic in its store is way up.

One thing is clear, the iPhone is like no other phone on the market. And unless Verizon and its phone manufacturing partners can come up with something just as cool, there will be some defections from Verizon to AT&T. But it may take some time to see this play out in the numbers. Many subscribers will likely wait for their Verizon contracts to expire. Or they'll wait for a 3G version of the iPhone. Some may even wait for AT&T and Apple to lower the price.

Exactly how much the iPhone will impact Verizon's overall business is hard to say. The company has consistently maintained strong sales and a low churn rate. Despite having fewer customers, Verizon Wireless reported stronger sales than AT&T in this most recent quarter. Verizon reported $10.8 billion in sales during the quarter, compared with $10.4 billion for AT&T. Verizon also once again reported a lower churn rate than AT&T. Verizon lost customers at a rate of 1.08 percent compared with AT&T's 1.6 percent rate.