UPDATE 2-Verizon iPhone launch greeted by shorter lines

Thu Feb 10, 2011 5:41pm EST

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By Sinead Carew and Gabriel Madway

NEW YORK/SAN FRANCISCO, Feb 10 (Reuters) - Verizon Wireless' new iPhone drew sparse crowds on Thursday, a far cry from the mania that usually surrounds a nationwide Apple Inc (AAPL.O) product debut.

The No. 1 U.S. wireless carrier had prepared for a huge turnout for its kick-off of store sales of the iPhone, but it still had supplies in stock by the afternoon.

The new phone ends AT&T Inc's (T.N) more than three-year U.S. stranglehold on the device.

Verizon had said it was preparing for unprecedented demand even after a day of online sales last week. Analysts see the new phone boosting both Apple and Verizon revenue.

The carrier had outfitted stores with metal barricades and put plenty of employees inside, anticipating long lines.

But crowds of 10 to 20 people in front of Verizon and Apple retail stores in New York and San Francisco contrasted with the mobs of customers that snaked around Apple stores during the summer launch of iPhone 4.

"We prepared for more," Verizon Wireless spokeswoman Brenda Raney said. "When you have people over for dinner, don't you prepare for more?"

Raney described sales as "brisk and steady" and noted that the device had already been on sale online for two days -- on Feb. 3, which was reserved for existing customers, and Feb 9.

But AT&T and Apple saw much bigger lines last summer after they too had also allowed preorders for the new iPhone.

In New York, where temperatures were well below freezing, lines of about 10 to 40 people waited outside Verizon locations. In San Francisco, where the weather was much milder, only about 20 people were lined up outside the Verizon store on Market Street at 6:30 a.m.

"I came around the corner expecting to see a big line and there was nothing," said Bruce Burbach, 48, who was first in line at 4 a.m.

Burbach is switching to Verizon from AT&T, because "the service, we hate it."

Analysts took note of the smaller crowds.

"It is cold out but it's a surprise that there's not many people showing up for the launch," said BTIG analyst Walter Piecyk, who had visited stores across New York. "They had Verizon store clerks prepared for the masses and the masses just weren't there."

Jim Liu, 25, was sixth in line an hour before doors opened at 7 a.m. at the Verizon Wireless store in Bryant Park, New York. Liu joined eight others on a line that started at 3 a.m.

"I have the AT&T iPhone 4 but I've really had it with the service," he said. Liu was wearing a red woolly hat that Verizon handed out along with handwarmers to help customers fend off the cold as they waited for the store to open.

Some analysts say Verizon may sell 13 million iPhones this year, which would add roughly $8 billion in revenue for Apple.

The iPhone had until Thursday been exclusively available in the United States on the network of AT&T, the No. 2 phone company. But many customers had complained about AT&T's network, citing dropped calls and slow download speeds.

Analysts say there is three years' worth of pent-up demand for the device among Verizon customers who did not want to leave that operator, as well as AT&T customers who want a change.

While hefty iPhone subsidies are expected to hurt Verizon Wireless profits, UBS analyst John Hodulik sees the device helping the company to nearly double its revenue growth rate by the fourth quarter of this year, to 10.7 percent.

THE DOORS OPEN

Verizon is selling a version of the iPhone 4 that is compatible with its network. Apple already launched a version of the same model for AT&T's network more than seven months ago. Apple stores were inundated by customers on launch day last June and many sold out of the device. [ID:nN25166745]

"I don't think the investment community was expecting a huge blow out line of first day sales. It's not a new device," said Mizuho Securities USA analyst Michael Nelson. "Most of the existing customers have had the chance to preorder the phone."

Verizon shares closed off 26 cents or 0.7 percent on New York Stock Exchange, where AT&T shares rose 27 cents or almost 1 percent.

Verizon began selling the device to existing customers a week ago, but cut off sales after 17 hours as the inventory it had set aside ran out. The company said it had beat its previous launch-day phone sales record that day in a mere two hours. [ID:nN04174578]

Verizon Wireless, a venture of Verizon Communications Inc (VZ.N) and Vodafone Group Plc (VOD.L), will charge $199.99 for the 16-gigabyte iPhone, with a two-year wireless plan.

The iPhone, launched in 2007, set the standard in the smartphone market, transforming Apple into one of the largest mobile phone makers on the planet.

Apple sold 16.2 million iPhones in its most recent quarter, generating more than $10 billion in sales. The smartphone is available in 90 countries on 185 carriers. (Additional reporting by Liana B. Baker in New York; Editing by Kenneth Li, Derek Caney and Bernard Orr)

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