Verizon has iPhone envy

Correction, 5:25 p.m. PDT: An earlier version of this story incorrectly stated the number of iPhones AT&T sold in the third quarter. The company has not disclosed that information. This story also incorrectly described Verizon Wireless' churn rate. The story has been corrected to reflect the changes.

Verizon Communications CEO Ivan Seidenberg said Monday during the company's third-quarter conference call that the wireless operator would be more than happy to have the iPhone on its network. But he said it wasn't up to Verizon.

"This is a decision that is exclusively in Apple's court," Seidenberg said. "We would obviously be interested at any point if they thought of us as a partner."

The comment comes even as Verizon introduces new devices and launches advertising campaigns to target the iPhone.

In one of its ads, Verizon takes a jab at AT&T's network coverage with a slogan that mocks the iPhone's catchphrase, "there's an app for that." Verizon has tweaked it, and says instead, "there's a map for that." Verizon has also put together another ad for the Motorola Droid that spoofs the iPhone.

It's easy to understand why Verizon is drooling over the iPhone. Verizon added about 1.2 million new wireless subscribers in the third quarter. AT&T, which reported third quarter earnings last week, added about 2 million new subscribers. The company hasn't said specifically how many of those new customers are iPhone customers. But it's believed it's a fairly large part of the new activations. The company said that nearly 40 percent of the 3.2 million new iPhone activations were new customers to AT&T. Some of these new activations were people who were using recycled phones, but a large number of them are likely to be be new iPhone 3GS phones, which went on sale in June.

In a market that is more than 89 percent penetrated, getting new subscribers means stealing some customers from other carriers. It looks like the iPhone could be eating into Verizon's customer base. Verizon reported for the third quarter that its churn rate for postpaid customers or customers on a contract was 1.13 percent, which was up slightly from the company's post paid churn rate in the second quarter of 2009. Customer churn rate refers to how many customers cancel their service.

Verizon consistently has one of the lowest churn rates in the industry, because in general customers are very satisfied with the coverage and reliability of its network. But the company has lacked a wide selection of cool phones, which has tempted many consumers to leave. And many subscribers hold on in the hopes that Verizon will one day get the iPhone.

In the meantime, Verizon is talking up its new line up of smartphones. On Monday, the company introduced Research in Motion's touch-screen BlackBerry Storm 2. And it's introducing the Motorola Droid, which uses Google's Android operating system, on Wednesday. Early next year, Seidenberg said the company will have the Palm Pre.

Without the iPhone, Verizon needs to win some ground with these new devices. The iPhone is not just valuable because it has helped AT&T win new subscribers, it has also increased the amount of money consumers are spending on services, since the phones require a $30 a month data plan.

Adding new data revenue is important to all of the major cell phone operators, because profitability on voice services is declining. For wireless operators, boosting data revenue is important to improving their profits.

Verizon recognizes this and has revised its data plan pricing for non-smartphones. The company will also require the new pricing plan for more non-smartphones in the future.

But Seidenberg emphasized that the company's strategy in wireless is not to be dependent on one device or even a few, but to have a broad range of products.

"We've always said we'd have a wide array of devices," he said. "And when we deploy 4G wireless it pushes you to think of the kinds of other devices we could add. We want to make sure we have a breadth of products, instead of focus on one or two."

Specifically, he said that in addition to cell phones, Verizon will be generating data revenue from machine-to-machine devices that will use the network to transfer data.

The company also plans to add more integration between its wireless services and its wireline fiber service. The company's fiber service, called Fios, offers customers broadband, telephone, and TV service. The company recently began bundling wireless into Fios pricing packages. And it plans to add more functionality between the services.

"We have a chance to develop combinations of applications around services," Seidenberg said. "So you could use handsets to do different things."