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Why we’re all better off without a Verizon iPhone

by Kevin Maney

Be glad that Verizon Wireless (VZ) isn’t getting the iPhone anytime soon – it’s the best thing that could happen for all of us.

Of course, it may not seem like the best thing for you, individually. You probably want the best smart phone (arguably Apple’s iPhone) on the best U.S. network (Verizon’s) – not the best smart phone on a so-so network or a so-so smart phone on the best network.

On postings all over the Web, you can read the groans over Verizon CEO Ivan Seidenberg’s admission last week that nothing is in the works to bring the iPhone to Verizon in the foreseeable future. iPhone users are stuck with AT&T (T).

And yet, this is for the collective good. If Verizon had gotten the iPhone much earlier, the entire smart phone milieu would not be as vibrant as it is. If Verizon gets the iPhone now, the market won’t be all it could be.

New networks of innovation

Let’s start with the phones. Because Verizon and Sprint (S) have been shut out of the iPhone, they’ve had to look for alternatives to keep its most demanding, highest-revenue customers from migrating over to AT&T. That gave breathing room to phones based on Google’s Android, allowing them to flourish as Verizon and Sprint drove phone makers to please come up with something to counter the iPhone.

[Related: Big rival catching up to the iPhone]

Android phones are now pretty darn good. By August, Android had grabbed 27% of recent smart phone subscribers, according to Nielsen – pushing Android ahead of iPhone in U.S. market share. Indeed, Seidenberg last week put it this way: “We don’t feel we have an iPhone deficit.”

That in turn has forced Apple to be better. Not that Apple’s bad about improving products – it continues to make iPods better even though there’s almost no real competition in that space. Still, Apple (AAPL) has driven iPhone development hard, improving speed, memory, software, reception – all while driving the price aggressively downward.

Why? Because the iPhone has real competition. Android may not have the buzz of the iPhone – but an Android on Verizon is, for many people, a match for iPhone on AT&T.

Smartphone competition is good for everbody

All in all, the competition has driven Apple, Google (GOOG) and the various Android handset makers (Motorola, HTC, etc.) to innovate. The situation has pushed RIM’s Blackberry and H-P’s Palm to improve quickly or risk being driven out of the market. Subtract the competition, and that innovation would become less of an imperative. A survey by Credit Suisse found that up to 8 million Verizon subscribers would jump to the iPhone if it were available on Verizon – enough to damage the emerging Android ecosystem and dampen the competition.

The battle for customers has made the networks better, too. By exclusively offering the iPhone, AT&T has forced Verizon and Sprint to invest in their networks to keep customers, and in fact both are close to rolling out 4G networks, ahead of AT&T. Now, AT&T has to race to keep up on 4G.

Think of the situation in reverse: If the iPhone had been available all along on AT&T and Verizon and even Sprint. The iPhone would’ve swamped all other smart phones and Verizon would’ve felt less of a threat from AT&T. The tension and competition in the market would’ve been less, and consumers would’ve been the losers, with fewer handset choices, fewer features on the best phones, and networks improving at a slower pace.

Eventually, the iPhone will no doubt wind up on Verizon. But, hopefully not for another year or so. Let the competitive market do a little more work to make the phones and networks better. We’ll all benefit.

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