Why Speedy 4G Hasn’t Taken Off (Yet)

It’s billed as the nation’s fastest wireless network. But it’s been slow to attract users. One year after its launch, Verizon Wireless’s 4G LTE network has failed to capture the imagination of the cell phone-buying masses, who still prefer the slower-connecting Apple iPhone by large margins.

With data-download speeds up to 10 times faster than previous technologies, Verizon’s “fourth generation,” or 4G wireless network, would seem to be a hot commodity in a mobile device-crazed world. But a general iPhone inertia, combined with high 4G LTE device prices and the lack of a compelling new “4G-only” application are all possible reasons why Verizon had sold fewer than 2 million 4G LTE-capable smartphones during the first nine months of 2011.

While not exactly a flop, the slow pickup on 4G LTE phones during 2011 signals that Verizon might be a bit ahead of the demand curve for faster wireless connectivity. However, the company’s first-mover position in the LTE market might pay off handsomely during 2012, as its more-complete network buildout should give it an edge over competitors–if and when an expected LTE-capable iPhone arrives.

iPhone Inertia and Improved 3G

Right out of the gate, Verizon’s 4G LTE generated excitment and buzz as the provider sold more than a quarter-million units of its first 4G LTE phone, the HTC ThunderBolt, in just two weeks after its mid-March debut. But instead of taking off like a rocket, Verizon’s 4G LTE numbers went into a much slower climb, adding 1.2 million LTE subscribers in the second quarter, and 1.4 million in the third, roughly split half and half between smartphones and other devices such as modems or portable Wi-Fi hotspots.

Though far from a flop, the 4G LTE sales were also well behind those generated by Apple’s iPhone, which only runs on 3G networks in its fastest versions. Verizon, which gained access to the iPhone in February, sold 6.5 million iPhones during the first nine months of the year, compared to a total of about 1.5 million 4G LTE phones. And that’s not counting any iPhone 4s sales, which should just increase the gap. According to Apple, there were 4 million iPhone 4s devices sold in the first weekend of sales in October, from Verizon, AT&T and Sprint. So why do the slower iPhones continue to outsell the speedier 4G LTE devices?

Even in the face of multiple reviews showing that 4G LTE Android phones might offer a superior performance edge over iPhones, the fact remains that people will line up overnight for iPhones (and iPads), and not for anything else. When it comes time to upgrade, the millions of largely happy iPhone users simply pick the next version from Apple by default–even if it runs on a “slower” 3G network.

[Related story: 4G wireless speed tests: Which is fastest?]

One reason that statement rings even more true these days has to do with a couple of related facts working against sellers of 4G LTE. The first is that 3G network performance from all carriers now is pretty decent, usually able to handle bandwidth-intensive tasks like streaming video or large-file transfers. The second is that there is no new, compelling application that can only run on a 4G network, leading many to question whether you really need a faster network and a more expensive device. If 3G is “good enough,” why do you need 4G?

Premium Pricing, No Unlimited Data Plan

Two other reasons may have kept users from leaping to 4G LTE phones: The new tiered data plans that Verizon initiated in July, and the premium prices for 4G LTE phones, which were the priciest in the market at either $250 or $300, even with a 2-year contract. By comparison, the latest basic model iPhones have been just $199 for most of 2011, for the iPhone 4 as well as the iPhone 4s.

In 2012, what could change the game significantly is the arrival of an LTE-capable iPhone. In the weeks and months before that happens, Verizon’s main competitors AT&T and Sprint will be scrambling to do what Verizon has already done–build a nationwide LTE network capable of bringing 4G LTE speeds to that iPhone wherever its potential customers may be.

In 2011, network buildout was the one area where Verizon outperformed even its own goals for 4G LTE, surpassing its original intention to cover 178 markets by bringing live services to more than 190 markets by year’s end. Even though Verizon had a few network outages, the 4G network largely performed as advertised.

AT&T, by comparison, was able to only launch LTE services in 15 markets by the end of 2011, putting it well behind Verizon. Sprint, whose current 4G network is live in 71 markets, is even further behind in the LTE race, with only “plans” to offer LTE services sometime in 2012. That leads us to conclude that despite its somewhat pedestrian start in 2011, Verizon’s 4G LTE network should truly come of age in 2012, allowing the company to “Rule the Air” as its advertisements beckon, while its competitors struggle to catch up.

Paul Kapustka is editor and founder of Sidecut Reports, an independent research firm that specializes in wireless technologies. Click here for the full 4G LTE Market Report for January 2012.