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Saturday, December 25, 2010

4G Phones: Better for Verizon Than for Consumers?

Now that Verizon's (VZ) LTE network is available to use with USB data sticks, the next logical question is: When are the 4G handsets arriving? Recent Verizon comments, combined with lead-up teasers for CES, suggest such handsets will arrive sooner rather than later. One reason why: Verizon can't wait to get more devices on the speedy new network.

When Verizon launched the LTE network earlier this month, the operator said it would offer LTE handsets in the first half of 2011, some of which will be shown at January's Consumer Electronics Show. Motorola (MOT), a key partner for Verizon's Android (GOOG) devices, was assumed to be building the first phone for Verizon's LTE network. In a Wall Street Journal interview earlier this week, Verizon Chief Operating Officer John Stratton confirmed Motorola's effort, saying such devices are on the horizon, and that "Motorola will be right there."
But Motorola isn't alone in building LTE handsets for Verizon. Earlier this month, HTC Chief Executive Peter Chou made it clear his company will also offer such phones this year. The company bet early on Android, which has helped boost revenue, and although HTC could build a Windows Phone 7 (MSFT) device for Verizon's LTE network, an HTC Android device is more likely to compete with Motorola. The company already builds a 4G phone for Sprint (the Evo) (S) as well several for T-Mobile's fast HSPA+ network. And Engadget today found an HTC teaser site showing a new 4G phone that will be unveiled on Jan. 6, presumably at CES.

Why Sooner Is Better

Although these devices will be shown off in a few weeks at CES, they aren't likely to be sold for at least a few months after that. Verizon, however, wouldn't mind if they were launched sooner—for two reasons. First, the availability of LTE handsets in the first quarter offers a feeling of "underpromise and overdeliver" to customers and investors alike. The phones would give Verizon hardware that competes with handsets marketed as 4G already available from Sprint and T-Mobile.

The second reasons is finances, although it depends on the pricing model that Verizon uses for the new phones. The faster the network, the more that people will use it. The average monthly customer on Teliasonera's 4G network, for example, gobbles up nearly 15 GB of data. That means customers could blow through a 5 GB data plan on 4G handsets far faster, which would either generate overage charges or cause customers to switch to larger data plans at higher monthly prices. In either case, Verizon is likely to see a jump in ARPU, or average revenue per user, once LTE handsets arrive. Although data pricing for LTE phones may differ, Verizon currently sells two LTE plans for data device: $50 a month buys 5 GB per month, while $80 doubles the limit. Each additional GB over the plan costs $10.

While I'm looking forward to previewing the phones themselves when I hit CES next month, the most pressing question I have isn't about the hardware, which I expect will have all the bells and whistles of high-end devices. And I already know from hands-on testing that the right hardware, combined with Verizon's LTE network, is a superfast experience. Instead, I'm wondering what all that speed will cost me, because I'll want to use it on my new LTE smartphone for downloads, video chat, and digital media enjoyment.

Until we have actual handset plan pricing, we won't know how the plans match up with consumer usage and expectations, of course. But I expect video chat and media consumption to be two key-use cases on the new devices. The new LTE network is superb for watching video, for example. As you can see in the short video below, I tested several online venues, such as YouTube, Hulu, and Netflix (NFLX), and the experience was just as good as on my wired home broadband.

It's true that video on the smaller screen of a smartphone won't eat up data as fast on the larger screen of a laptop; there's no need to pipe 1080p video on a screen that can display only a small percentage of those pixels. But adding that bandwidth-intensive activity with song downloads, app installs, and streaming video chat—not to mention using the smartphone as a 4G modem—and consumers could face big bills for the privilege of racing down Verizon's mobile autobahn.

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