Big fish, but not too big

Matt wonders why Verizon, which has by far the best network coverage, doesn't also have the best phones, thereby totally killing the competition:

No link here, just the observation that it seems to me that Verizon is working with a strangely unambitious business strategy. Basically, they've got themselves the best cell phone network out there. Their calculation seems to me that, given the superiority of their network, they ought to put forward a product that's inferior in other respects, secure in the knowledge that their network will always give them a healthy market share. A much better strategy, it seems to me, would be to offer the best network and the best phones and just drive everyone out of business. They seem to have reconciled themselves to trying to be like Toyota in the auto industry when they could achieve Microsoft-esque levels of domination if they wanted to.

My tenative explanation is that Verizon doesn't want Microsoft-esque levels of market domination. Coming out of a heavily regulated industry, Verizon probably has justifiable fears that if it really dominated the wireless market, regulators would descend like a ton of those old brick phones you see lying around people's junk drawers. Verizon wants to be the most powerful player in a decently competitive marketplace, which is what it is.

This still won't keep me from buying an iPhone when my contract is up next year, though. . .

Comments

It would seem to me that in many ways, the costs of dominating an industry are usually more costly than the long-term gains of doing so.

Verizon could easily be looking at the example of America Online, which achieved near-monopolistic success in a certain industry, but at a very high cost and in a manner which ensured that the period of time they would hold that power for was brief.

Microsoft holds its power not only because of its market dominance, but because there are significant limits to how user-friendly we can make computers. Many people, myself included, favor Microsoft operating systems simply because we have invested a great deal of energy in learning how to manipulate it and maintain it, and we do not want to invest that energy a second time. Cell phones are not nearly as difficult.

Posted by Jay Elias | September 7, 2007 1:38 PM

I think there's some weirdness related to Verizon Wireless not having the same ownership structure as Verizon. If I remember right Vodaphone has something like 45 percent of the shares but very little influence -- not least in the fact that Verizon doesn't use GSM. If they did, there would be a Verizon-Vodaphone global behemoth. Which maybe again is the point that they won't want to be that big.

Posted by P O'Neill | September 7, 2007 1:38 PM

Snarky, but silly. Publius could easily tell you more, but the idea that Verizon, having been stung under Section 2 in the past, is no longer trying to monopolize the market, is....how, do I put this....factually wrong. Research is your friend, Meg.

Posted by Justin | September 7, 2007 1:55 PM

PS - I'm not saying they're violating the law in any way (at least none that I know of). But its pretty clear they have been taking on both an M&A and marketing strategy in various markets that is designed to increase market share as much as possible. If they weren't, they wouldn't be doing their job, after all.

Posted by Justin | September 7, 2007 2:06 PM

According to some reports Apple wanted to use Verizon Wireless as the iPhone service provider, but the companies couldn't come to an agreement.

Posted by Peter | September 7, 2007 2:59 PM

The presumption that because they are the biggest carrier in the US means they will have access to the best phones is wrong. The global market for cell phones is much bigger than in the US and Verizon is on a pretty proprietary network (CDMA) it chose to build and is now stuck with (which isn't necessarily a bad thing). When cell phone manufacturers decide what phones to produce they have the option of making something for Verizon and Sprint or making something for T-Mobile, AT&T, and most European carriers, Chinese carriers, Australian carriers, and South American carriers.

The US is actually quite slow with adoption of new mobile standards and technology and most mobile phone development is not focused on us.

Posted by Avi | September 7, 2007 3:08 PM

Yeah, my understanding was that it's the CDMA vs GSM thing, which basically plays out thusly:
1. Europe standardizes on GSM.
2. Lots of nations follow suit.
3. Phone makers put their focus into making GSM phones, since that's where the bulk of the world market is, and those markets are more active in purchasing the latest and greatest cellphones.
4. the US (really Qualcomm) comes out with CDMA, which is mo-betta than GSM (which was to say, TDMA)and some big US carriers (Verizon and Sprint) choose it and roll out very competitive networks.
5. Still, more GSM customers out there in the world, so that's where the market for hot new phones is.
6. Europe et al discover that it's more cost-effective (barely) to rollout a 3rd gen version of GSM based on CDMA than it is to switch everyone over to US-style CDMA.
7. GSM continue to be the bulk of the market, and thus attract the top phones.

Posted by Geoff | September 7, 2007 3:13 PM

Market domination =! Shareholder value creation

But this has little to do with regulators in the referenced case.

Posted by Bob Dobalina | September 7, 2007 3:33 PM

"Many people, myself included, favor Microsoft operating systems simply because we have invested a great deal of energy in learning how to manipulate it and maintain it"

that's so anti-web2.0..nothing takes as long to learn as MS suff anymore. I've put an os x macbook in front of a 40 yr old secretary only trained in MS stuff and she was cruising along, happy as bug in about a week. Which is why MS is just a latent player now and will probably be a memory a decade from now.

Posted by judson | September 7, 2007 3:42 PM

One other thing to remember about the Verizon network is: it's a network. Duh.

The quality of it is in part related to the fact that Verizon *does* leave a lot of potential business on the table by doing things like offering worse phones than other carriers.

If Toyota sells cars faster than they can make them, that leads to shortages for people who want to buy new ones -- the wheels don't start falling off all the Toyotas that are already sold and driving around.

But if Verizon were to sign up additional customers faster than it could expand its network capacity, this would lead to worse service for all their users.

Their network would then no longer be as much of a competitive advantage, and they'd wind up competing on the basis of the coolness of phones.

It's very easy for Verizon to compete based on the network, because few companies can come up with the emormous amount of money needed to build something that's competitive. On the other hand, anybody can sign a contract with a phone manufacturer.

Posted by Tino | September 7, 2007 5:01 PM

I don't know how typical I am, but what I look for in a cell phone is the ability to make phone calls. I don't need a lot of fancy features or anything. I use Verizon and was able to get a phone with a decent camera, speaker phone, bluetooth, and a Micro SD slot. It's way more phone than I need, but it was cheap. My reception is pretty good and I'm covered everywhere I go.

I'm more interested in their prices and coverage than in their fancified phones. They even offer the ability to watch TV on my phone... I guess someone out there likes to do that, but I think it's just silly.

EI

P.S. It does have a reminder function that helps me remember to breathe, though... and it gets VRWC signals anywhere I go.

Posted by Earnest Iconoclast | September 7, 2007 5:10 PM

El, I'm with you. Mostly, I just want a phone that works wherever I go.

I'm not a complete Luddite though. I subscribe to a couple digital services like weather radar and forecasts as well as traffic condition maps. Those services are nice. I like to have a calendar with reminders and alarms. It's also convenient to sync my phone book with outlook. I want the battery to last a long time and be able to carry the phone in my pocket. I want all that fairly cheap.

I don't care about email, video, web access, text messages, playing music, or any of that extraneous junk even though my phone will do most of those things. Just about anyone's phone will do the things I want a phone to do. What Verizon gives me is a large reliable network.

Posted by Dale B | September 7, 2007 7:31 PM

Verizon with the new Blackberry kicks butt!!! By far the best combination of phone/coverage I've ever had.

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