41 Comments

Summary:

Wireless industry veteran Whitey Bluestein writes that it isn’t a question of if Apple will offer its own mobile service. It’s merely a question of when. Apple has all of the infrastructure and ambition. And most importantly it has leverage over the operators.

iPhone with AT&T logo crossed out

What’s next for Apple? Apple will provide wireless service directly to its iPad and iPhone customers. First, Apple will sell data packages bundled with iPads. Then it will sell data and international roaming plans to iPhone customers through the iTunes Store. And in time — sooner than many think — Apple will strike wholesale deals with several mobile operators so that Apple can provide wireless service directly to its customers, as Apple Mobile.

Will domestic and global mobile operators like AT&T, Vodafone, Telefónica and others “play ball” with Apple? Many in the U.S. were surprised six years ago when AT&T capitulated to Apple’s terms to become the first carrier to offer the iPhone six years ago. Conventional wisdom is that the struggling operators compromises, not a leading operator like AT&T. But Apple makes everyone “think different.”

And in hindsight, the first iPhone deal was a brilliant strategy that has continued to pay huge dividends to AT&T. In the last quarter just reported, four out of five smartphones AT&T sold were iPhones.

Apple changed the formula of the relationship between operator and handset vendor, with Apple having more bargaining power than the operator for the first time in mobile history. And that’s the point.

Apple will make an offer carriers can’t refuse

Today, mobile operators would have a hard time saying “no” to the world’s largest and fastest growing company, which builds the devices everyone wants. Apple tends to have its way with operators. Any reluctance on the carrier’s part to offer Apple a sweetheart wholesale deal would be outweighed by the huge business opportunity presented. It’s a classic case of “The Prisoner’s Dilemma.” The carrier’s biggest fear is that if it says “no”, the business and growth would go to a competing carrier and it would be kicked the curb.

It’s no secret that Apple has been thinking about this strategy for some time. Apple filed a patent for “Dynamic Carrier Selection” on October 10, 2006, just a few months before Apple announced the first iPhone. The diagram in the patent application portrayed Apple as the wireless service provider connecting to multiple carriers. This would allow Apple to make wholesale cellular agreements with and connect to multiple carriers so it could offer its customers choices in carriers, plans and services. Apple has clearly put a lot of thought into its dynamic carrier selection architecture.  And lest anyone think Apple isn’t serious about this, last June Apple extended the filing in what many considered confirmation of its plans.

Adding further fuel to the fire, Apple recently has been fighting with other handset vendors, including Nokia, over a new, smaller-sized SIM card for GSM and LTE handsets. According to some, such a SIM would allow Apple to bypass carriers entirely, and activate a new customer through the iTunes Store. Whether it uses the NanoSIM, virtual SIM or other variant, Apple could have the ability to activate and sell voice, data, messaging and roaming subscription plans before the ink dries on a carrier wholesale agreement.

Apple has all of the pieces necessary to offer wireless service directly to customers. They have the world’s leading brand, a loyal following who will pay a premium for Apple’s products and services, and 363 retail stores around the world, growing to 400 by the end of the year. And with iTunes, it has the digital content and billing platform to offer service with one-click simplicity. The infrastructure is in place today, with the patented architecture ready for Apple’s next big move.

iPhone customers typically spend as much as twice or more the U.S. national average monthly wireless bill, which was about $44 in the last year. So these are high value customers. And they buy apps and content – music, videos, TV shows and movies – through Apple today. By offering mobile service with iPhones and iPads, the company could provide the full Apple experience to its users.

How likely is this to happen? Given the patent filing more than five years ago, it wouldn’t surprise me if Apple is already talking to mobile operators, nor would I be surprised if the mobile operators initiated the conversation.

And what about Google?

Might Google offer mobile service directly to its customers, for the rumored Google Android Tablet or any Android smartphone? With Google acquiring Motorola Mobility, it, too, will be able to manufacture handsets to its own specifications. But it won’t be nearly as easy for Google to follow Apple’s likely path. While Google has a great brand — number two in the world and second only to Apple — it doesn’t have the retail stores, the experience with subscription services, and the customer care that Apple offers. Nor does it have the elegant ecosystem that enables single-click app and content purchasing that Apple has through its iTunes Store.

Whitey Bluestein, a 25-year telecom veteran, is a strategic advisor and corporate development specialist focused on prepaid, applications, payments and services. For more information, go to http://whiteybluestein.com

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  1. I would LOVE to see them putting up towers and making trades acquisitions. I would doubt highly that the Carriers would allow Apple to single handedly put them out of business.

    1. “I would LOVE to see them putting up towers and making trades acquisitions.”-Ryan Mills

      The article is talking about Apple buying spectrum from existing carrier’s, not building towers, themselves.

      I have a lot of questions about this proposal, but I believe the thinking is that Apple would buy spectrum from, for example, both AT&T and Verizon and the software only SIM in the phone would “dynamically” switch back and forth as required.

      I have more questions than answers. I think the idea has potential, but I’d have to know a lot about how it might actually work.

  2. what a croc.

  3. I find it hard to believe that a control freak of a company like Apple would put their name on a service run by a company like ATT. If they are going to offer wireless service, it will be through their own network – they can certainly afford to buy both T-Mobile and Sprint. But that model won’t scale worldwide, and it just isn’t worth it to offer Apple-branded phone/service bundles only in the U.S..

    Apple doesn’t have that much bargaining power with ATTand VZ; if they did, they wouldn’t be locking up the phones to keep VoIP applications that run over 4G and wi-fi off their phones. It’s not like either company gets a discount when they buy the phones, in fact, they pay retail, even though they buy millions of them. If Apple decided to offer their own service, they would lose all of that margin on the new customers, and the hardware business is more profitable than the service business.

    Apple will only enter a market if they think they can do better than the incumbents. It’s hard to see how they can improve the service of ATT if all they are doing is re-branding it. I hope you’re right about them getting into the service business, though, and they buy T-Mo or Sprint.

    1. Whitey Bluestein keninca Wednesday, May 2, 2012

      Three things: (1) Apple is unlikely to build their own network or buy Sprint (or any other operator), although the certainly have the cash to do so; they will enter into wholesale agreements to buy bulk voice, messaging, data and roaming services from multiple operators. That’s what their patent is all about. (2) Apple has considerable bargaining power with AT&T and VZW, e.g., look at the subsidies these operators are paying Apple today. That’s bargaining power. When they come in to negotiate bulk deals, it will be a classic case of the Prisoner’s Dilemma – any carrier that says, “no” risks losing a lot of business. (3) It costs Apple less to build an iPhone ($196 for 4s/16) than what they would sell it for to new customer, so unlike most operators or resellers, acquisition cost would be VERY low, the customer being profitable from the start. I don’t see Apple buying T-Mo or Sprint because they are a global company and even Apple doesn’t have enough money to buy mobile operators everywhere, nor do they need to.

      1. I don’t think they will build or buy a network, either. But I also don’t see them putting their name on service they don’t have control over, especially service that lots of people complain about. This makes the question about Apple’s bargaining power moot, but in any case, they don’t want to risk losing all that margin on phones for the potential profits of what is essentially a reseller of service – they won’t make $300-$400 in profits on the service in 2 years, and it would consume a lot of bandwidth. And even if they did make a similar profit on the service, it would require a big investment, one that would create little, if any, incremental increase in overall profitability.

        I think the technology that Apple has developed is not about offering Apple wireless service (although I won’t be the least bit surprised if they build a wi-fi network), but rather about offering unlocked phones, where they don’t have to cater at all to the carriers. In the long term, this would force carriers to compete on price and service, and not confusing gimmicky marketing and plans.

  4. Jon Singleton Tuesday, May 1, 2012

    definitely possible. If other MVNO’s can do this why can’t Apple! This is huge. Google will follow suit and then Microsoft will come in with a huge carrier purchase, coz they have Office365 and Lync of course. But, its all going SIP so Broadsoft is right in there as their meat in the sandwich! The Tech sector now has 15 industries all using the same protocol. The industry has just started developing a titanium bubble with an atomic shield this time!!!!

  5. If Apple becomes your provider who will they have to blame poor signal and dropped calls on? By getting rid of AT&T and other carriers, they loose the scapegoat and might be forced to answer for all the iPhone’s short comings as a phone?

    1. Yup. Keep that “superior” black-and-white TV, too.

  6. Sprint is bleeding cash. Apple is up to its butt in cash, customers and devices which use wireless. Its only going to get worse as it enters the NFC market place.

    Apple is currently learning from Google’s takeover of Motorola Mobile.

    Sprint may be ripe for a takeover … by Apple.

    Sprint would be the CHEAPEST place for iPhones, by about 5¢.

    The “halo” effect would carry over from the Apple store.

    So might the re-design of the Sprint retail experience. (Thousands of new Genius bars would definitely make good selling points.)

    It would be a way for Apple to sell iPhones and get the monthly revenue from phone & data plans.

    The problem is how to change the image of Sprint so that its not bloated and crumbling under its own weight. (That COULD be changed and Apple get an image as a JOB SAVER/CREATOR to get even more tax advantages. [Buying Apple products and services could be seen as doing one's patriotic duty...:-])

  7. Mr. Faded Glory Tuesday, May 1, 2012

    $69.99 for 128kb of data, 10 minutes of voice with overages of , texting at $1.50 per message, $75 cents per extra minute, and $29.99 per extra MB (rounded up of coarse). Sure that sounds like a good deal……..NOT
    Ok its an obvious exaggeration, but you get the point.
    :P :-)

  8. Dave Serchen Tuesday, May 1, 2012

    I think what should really happen is that carterfone ruling should be applied to the wireless industry. http://en.wikipedia.org/wiki/Carterfone

  9. maybe they can do it without all these separate things. Just do data & do voice over data. Messaging is already moved over the net. You don’t need to worry about mints that way or message counts. Its just data. It’ll be much easier managing 1 thing rather than 3. Apple does net with messenger, voice is digitized so just send it by net, too. Everyone is going lte too, now

  10. Dear “Whitey Bluestein, Strategic Advisor” – this simply isn’t going to happen. Apple aren’t going to brand or white label ATT/Verizon etc. They are already garnering more ARPU than the networks, why would they go and ruin it by having to deal with coverage and billing woes?

    This suggestion has been extracted from a posterior.

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