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Reality Check: Faster phones, faster networks – Who wins and loses this holiday season?

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.

This week, we focus on our twice-yearly handset lineup graph. In previous assessments, we had focused on the stock keeping unit (SKU) imbalance between Apple and Android, which led to what we called the “Android World.” The thesis was that if you had 15 to 17 products that used one operating system and a couple of products that used another operating system, no matter how attractive the other products were, salespeople in the store would gravitate to the 15 to 17 product suite. The sheer quantity of devices has been a key contributor to Android’s success.

Now we have the dimension of speed, specifically LTE. This has become an important differentiator for AT&T Mobility and Verizon Wireless as they lure unlimited 3G plan data users into LTE shared data (a.k.a, “pay by the gig(abyte)” plans. AT&T alluded at an investor conference this week that there were a fair number of unlimited data plan subscribers making the switch.

And, as of last Friday, we have the added dimension of the iPhone 4 (free), iPhone 4S ($99) and iPhone 5 ($199). This is the first time that the CDMA carriers (particularly Verizon Wireless and Sprint Nextel) have had a free iPhone in the mix. With the iPhone 5, there will be a significant uptick in LTE usage (where available), and if many of these users are upgrading from 3G models, the 3G network pressure should subside (at least temporarily).

Let’s look at where the carriers stand in each of the smartphone segments. First, for the premium smartphone segment, it’s an LTE world unless you are BlackBerry. What’s absolutely amazing is how this previously mighty smartphone maker continually shoots themselves in the foot. No Blackberry 10, an outage in Europe right before the iPhone 5 launches – what next?

Outside of BlackBerry, it’s a small, but elite mix of super-fast phones at the top. IPhone 5, Galaxy S3, and for AT&T Mobility, the Galaxy Note (April version). In addition, both Verizon Wireless and Sprint Nextel are carrying their popular Droid and Evo brand devices, respectively (note: Verizon Wireless will begin selling the Rarr HD and Razr HD Maxx, which will likely go on sale beginning in late October. This device is not included in the attached assessment as we only count devices that are in stores as of the cutoff date). While the focus will be on the iPhone 5 for the next few weeks, there’s a good set of devices for individuals to upgrade to. For fun, have a look at what smartphones people were buying in late 2010 – the upgrade cycle will be heavy, for sure.

One interesting theme that runs through all of the pricing tiers is the lack of a smartphone lineup for T-Mobile USA. The first chart says it all – they have no iPhone or Android high-end anchor. Without an anchor in the line-up, the rest of the smartphones are adrift – e.g., the Galaxy S3 for $99 (online only through the end of September) competing against the Galaxy S2 for $149.

Don’t get me wrong – T-Mobile USA has always been competitively priced on devices, and the promotion of the Galaxy S3 is similar to Sprint Nextel’s August iPhone 4S special sale ($149). The goal is to get traction. But it’s very apparent that T-Mobile USA’s naked at the high end – at best, a Galaxy fig leaf and that’s it. Without the aspirational or anchor device, how should customers judge the rest of their lineup?

To wrap up, at the high end, it’s Samsung, Apple and wireless carrier brand-focused specialty Android devices. No new Lumia. No LTE BlackBerry with Release 10.

The middle band of smartphones ($99-198) is a combination of yesterday’s high-end lineup and some very competitive new devices. It’s replete with LTE devices, most of which have 1 GHz or faster processors. The iPhone 4S is still a competitor in this band, but it’s a lot easier to pitch “economical” or “powerful and new” than something in between. The iPhone 4S has decent photo enhancements, but the panorama feature on the iPhone 5 is so powerful that most of the “Apple attracted” are going for the premium device.

This gives the advantage to Android in the middle segment. Great processors, large screens and fast networks. This band of devices really catches fire if Verizon Wireless runs a “double data” promotion this winter (it could drive a lot of folks to their network).

Finally on the low end it’s a tale of two networks. On the AT&T Mobility side, the store reps substitute their iPhone 3GS pitch for the iPhone 4. Free sells, and it will sell a lot of iPhones. Free at Verizon Wireless and Sprint Nextel will bring a lot of new smartphone users (or additional smartphones into family plans) this holiday season. The only thing that might dampen the sales pitch would be that the iPhone 4 previously occupied the $99 price point and a lot of the groundbreaking features of the iPhone 4 might have to be re-learned.

So who benefits from the lack of a free Apple iPhone 4 at T-Mobile USA? All of the “Big 3” win, but, especially for Sprint Nextel, it will mean a lot. “Everything you want in a wireless plan but now with a free iPhone 4” will be their message. Sprint Nextel needs to back that up with data speeds that justify the value of their product, but, if they fulfill their Network Vision rollout schedule, it will be a very bright holiday sales season for Sprint Nextel.

The real victims of a free iPhone, especially at Verizon Wireless and Sprint Nextel, are the Android handset manufacturers. Sure, most AT&T Mobility and Verizon Wireless low-end handsets have LTE capabilities (as opposed to the distinction that free = 3G last holiday season), but for new entrants into the smartphone category, the allure of the Apple brand, even over less powerful networks, will be difficult to resist.

Apple is going to affect the low end of the market this holiday season. Simply put, there’s more distribution. This does not rule out another strong Android showing (and T-Mobile USA will do very well at the low end) but there’s a new standard for free phones, and it’s the iPhone 4S.

Choices have been compressed. Networks are getting much faster (and, network choices will be more localized than ever this year). More catchy names of Android operating systems (Gingerbread, Ice Cream Sandwich, Jelly Bean) will need to be learned. Pricing plans will change for many, and watching data usage will become important to the cost-conscious. In an industry marked by a dizzying pace of change, this holiday season will be one of the busiest.

Jim Patterson is CEO of Patterson Advisory Group, a tactical consulting and advisory services firm dedicated to the telecommunications industry. Previously, he was EVP – Business Development for Infotel Broadband Services Ltd., the 4G service provider for Reliance Industries Ltd. Patterson also co-founded Mobile Symmetry, an identity-focused applications platform for wireless broadband carriers that was acquired by Infotel in 2011. Prior to Mobile Symmetry, Patterson was President – Wholesale Services for Sprint and has a career that spans over twenty years in telecom and technology. Patterson welcomes your comments at [email protected] and you can follow him on Twitter @pattersonadvice.

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