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, argues Paul Kapustka of Sidecut Reports. Sidecut report

With data-download speeds up to 10 times faster than previous technologies, it might seem that Verizon’s “fourth generation,” or 4G wireless network, would be a hot commodity in a mobile device-crazed world, says Kapustka.

But lack of a compelling new “4G-only” application is one possible reason why Verizon had sold fewer than 2 million 4G LTE-capable smart phones during the first nine months of 2011. he argues. Some of us also would argue that 3G is quite good enough for most smart phone users, at the moment.

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By way of comparison, more than four million people bought the new Apple iPhone 4S the first weekend it went on sale, from Verizon as well as from AT&T and Sprint, Kapustka argues.

But we should not underestimate sales, either. Verizon sold more than a quarter-million units of its first 4G LTE phone, the HTC ThunderBolt, in just two weeks after its mid-March 2011debut. Those sales arguably were made to “early adopters” who had a reason to buy.

During the first three months of 2011 Verizon also sold roughly the same number of LTE-capable USB modems for laptops (about 250,000).

Verizon’s added 1.2 million LTE subscribers in the second quarter and 1.4 million in the third quarter, , roughly split half and half between smart phones and other devices like modems or portable Wi-Fi hotspots, Kapustka notes.

Keep in mind that Verizon also sold 6.5 million Apple iPhones during the first nine months of 2011, compared to a total of about 1.5 million 4G LTE phones.

Most observers will simply chalk up those sales to the fact that the iPhone remains a compelling device compared to any other single make and model, and that the iPhone only works on 3G networks.

But none of that should have come as a surprise, really. Some would note that 3G adoption took time, as well.

Adoption of fourth-generation network services likely will miror adoption of 3G services in Europe, says Decaln Longeran, Yankee Group analyst, and that has to be seen as modestly good news, but not “great” news, as adoption will not be as fast as many will hope.

“Our assessment of the early days of 3G, from spectrum auctions through to the first one or two years of commercial services, tells us a lot about where 4G is today and where it’s heading,” Lonergan says. The big danger is massive overpaying for spectrum, which happened with the 3G spectrum auctions.

“Overpaying for licenses will quickly destroy the 4G business case, just as it did for 3G in several countries, including the U.K. and Germany,” says Lonergand. On the other hand, if bidders show reasonable restraint, they should be in a better position to the extent that the auctions will be dominated by incumbents, unlike the situation when 3G licenses were awarded.

There will be no new 4G contestants, Lonergan predicts.

Adoption will take longer than expected, he says. “Remember, it was a full five years after commercial launch before 3G handset ownership reached 6.5 percent penetration globally, and 4G will follow a similar path,” he says.

The technology won’t sell itself, he says. Faster speeds will only provide so much incentive, and it is applications that could provide the bigger push to adoption.

Handsets matter more than most people think, as well. Early 3G players failed to understand the importance of quality and choice in their handset portfolios, Lonergan says. Prepaid plans might also be essential, as 3G adoption in Europe was severely hindered in the early stages due to limited availability of prepaid plans.

Coverage also matters less than most people think. Consumers don’t obsess about coverage, except in the places where they use their devices most. That might especially prove true where 3G service is available as a backup.

On the other hand, 4G is being deployed in different circumstances, where a reasonable base of mobile broadband customers exists, and new applications that take advantage of higher bandwidth and lower latency already are getting traction, ranging from video and social networking to mobile apps related to navigation and location.

The first commercial European 3G service was launched by Telenor in December 2001, with commercial 3G services launched in 2003 by 3 in the U.K. and Italy.

But it is worth remembering that 3G also promised major performance enhancements to existing mobile services, . new services, including video telephony, multimedia content and enhanced end user experience. Right now, 4G mostly promises “faster” broadband.

The issue is whether the shift from 1 Mbps to 3 Mbps, or 3 Mbps to 6 Mbps, represents so much a change in end user experience. One might argue the Apple iPhone or iPad represents something users find tangible, not the additional bandwidth.

One might argue that mobile Web access, like mobile email before it, and smartphones, are what is driving 3G adoption. Applied to 4G, will there be unique drivers, or will 4G simply be a 3G experience, albeit with more bandwidth?

In August 2005, for example, the Yankee Group predicted, at a time when 3G penetration in Western Europe was in the range of 0.5 to two percent, that by 2009, 3G penetration would reach 52.6 percent of the population. In reality, average 3G penetration in Western Europe was 27 percent as of December 2009.

The key takeaway from this comparison is that even 3G forecasts that were regarded as too conservative five years ago have proved to be too aggressive.

A new wireless technology will not in itself excite most consumers, no matter how amazingly super-fast its proponents claim it performs. Back in May of 2006, when 3G services had been actively promoted for at least two years in several European countries, Yankee Group conducted an end-user survey that suggested 29 percent of end users had no idea whether they had a 3G phone or not. About 27 percent of respondents claimed they owned a 3G phone. Of course, it is not always the case that a 3G phone uses a 3G connection, either.

In the U.S. market, matters are even more complicated, as various 3G platforms will be available nationwide by the end of 2010, and T-Mobile USA’s network might actually operate faster than 4G networks, so even speed will not be a clear differentiator.

Handsets, on the other hand, could be more important. In the first 18 months after launch, Japan’s DoCoMo failed to build any real momentum behind its 3G service, and 3G users accounted for well under one percent of the company’s total mobile customer base. Then DoCoMo moved aggressively on handsets, and penetration grew.

At least in the European market, prepaid service plans have been important. Prepaid was first introduced to Europe in 1995, and it was a major factor in the rapid growth in mobile services during the past 15 years, Lonergan notes. Mobile services penetration has now reached 130 percent of the population, and prepaid accounts for the majority of these connections, fully 54 percent at the end of 2009.

Back in the early days of 3G, most of the focus (misplaced, as we now understand) was on video telephony because this was one of the few services that 3G could support and 2.5G could not. It should therefore have been a 3G marketing manager’s dream, but it turned into something of a nightmare due to unreliable performance and largely apathetic consumers.

But the single biggest difference between 3G and 4G is the world of demand into which they were born. Smartphone penetration and use of mobile broadband applications clearly is different today than was the case when 3G first was being introduced.

Mobile broadband (the laptop/dongle version) is a good example. This service didn’t exist when 3G was introduced. Neither did the iPhone.

Consumers in 2011 understand the differences between a 2 Mbps, 7 Mbps and 20 Mbps connection. In 2001, most did not.

It took five years for 3G penetration to reach 6.5 percent of global mobile users. Our projections for 4G follow a similar curve: relatively slow adoption in the first three years, with a noticeable pickup in years four to five, says Lonergan.

Some possible areas of upside include handset options, retail pricing plans and indoor coverage. “No matter how lousy the service provider’s network or customer service, if they achieve the right balance and choice in their handset portfolio and price plans, just about any provider can build market share,” Lonergan says.

Indoor coverage possibly could be a differentiator as well. In the early days of 3G, it was assumed 3G would be used by individuals out and about and as a complement to home land-line broadband service. 4G might be different: consumers might use it more as a substitute for some home broadband usage, as they already use their 3G mobiles indoors.

Beyond all that, 4G might really have to wait for a “killer app” of some sort, even though the conventional wisdom is that there will be no killer app for 4G. The personal hotspot is a candidate.

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