AT&T's iPhone puts Verizon on the defensive

Verizon CEO Ivan Seidenberg used to bristle about how Apple was crowned a wireless success without earning the title. But with Apple announcing it sold 1 million 3G iPhone in just three days, the AT&T/Apple partnership is starting to look like a formidable contender.

Seidenberg's ire is somewhat understandable, Verizon (VZ, Fortune 500) hasn't exactly enjoyed smooth sailing this year, the stock is down 20% amid a widespread market selloff. The ride has been particularly choppy at Verizon given its rapidly declining land line count, soaring debt and its costly no-win video expansion effort. Until now, Verizon has been able to deflect scrutiny of its weaknesses by delivering a strong performance in wireless with strong profits and market share gains.

That winning course is likely to change as wireless growth slows, the economy falters and competition heats up.

While still early, AT&T's (T, Fortune 500) blockbuster $199 iPhone promotion looks to be a tremendous hit. And if last year's pattern holds, about 40% of the iPhone customers will be defectors switching service from other telcos, namely Verizon, Sprint (S, Fortune 500) and T-Mobile (DT).

"It's another home run," says IAG Research analyst Roger Entner. "And for better or worse, the other carriers don't have that iconic device."

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