From the earnings release:

“We have a number of strategies in progress to increase loyalty and attract more customers, including our announcement today that we will begin offering Apple products later this year. By further strengthening our device portfolio, we’ll give consumers another great reason to switch to U.S. Cellular, and enable our existing customers to choose from an even wider variety of iconic smartphones, and enjoy the outstanding U.S. Cellular customer experiences they deserve.”

This is not a case of Apple finally bestowing the iPhone on the carrier. It’s the opposite: Apple has made a smartphone that U.S. Cellular wanted to sell. You may remember the CEO of the carrier’s parent company, TDS, saying in late 2011 that he’d offer the iPhone when Apple made a more “cutting edge” phone — in other words, he was waiting for LTE.

LTE is a big priority for the carrier: U.S. Cellular said Friday it will bring LTE to 87 percent of its existing customers this year. But smartphones in general are where it can improve. Currently, less than half — about 43 percent — of its subscribers have a smartphone. That means there’s plenty of built-in demand for customers looking to upgrade to one for the first time.

U.S. Cellular customers may certainly go for the iPhone 5, which is Apple’s LTE phone, but the cheaper iPhone 4 and iPhone 4S have been proving especially attractive to late smartphone adopters.

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Sprint will acquire 20 MHz of spectrum in the 1900 MHz band in Chicago, South Bend, Ind. and Champaign, Ill. and 10 MHz of spectrum in St. Louis. The third-place carrier is also buying up 585,000 U.S. Cellular customers in parts of Illinois, Indiana, Michigan, Missouri and Ohio.

U.S. Cellular is giving up about 10 percent of its subscriber base. It said it would continue to operate outside of the markets it is handing over to Sprint. The move should help it focus its operations on other markets, where it said it has a stronger position. It is planning on offering its own LTE 4G service to most of its customers this year.

The deal is expected to close by mid-2013, when the Sprint-Softbank deal is also expected to close. When it does, the Sprint and U.S. Cellular will start to transition U.S. Cellular users over to Sprint. U.S. Cellular said it will retain direct and indirect ownership in 560 towers and spectrum in the affected markets. After the deal closes, U.S. Cellular will also start moving out most of the 1,400 employees it has in the Chicago area, where the company is based.

Sprint continues to show that it wants to compete with giants Verizon and AT&T and a bulked up T-Mobile, which is merging with MetroPCS. The new deal will give Sprint a small boost in subscribers but it also shows just how important spectrum is to carriers, who can always use more spectrum as they roll out 4G service.

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Instead of using the traditional trade shows to introduced the Galaxy S III, Samsung held its own launch event for the device last month in the UK; essentially the same way Apple launches its iPhone hardware. Pre-orders in that country have already set records and early reviews of the device — already available overseas — have been favorable.

The Android 4.0 smartphone uses Samsung’s quad-core Exynos chip for the HSPA+ version, but U.S. models appear to use Qualcomm’s Snapdragon S4 chip as Samsung hasn’t yet integrated LTE radios with the Exynos. The phone has a 4.8-inch, 1280 x 720 resolution display, S-Voice speech-to-text assistant, 8 megapixel rear camera, and Bluetooth 4.0 support to name a few of the newest features. And every model has the single hardware button found on the international version.

A fast, widespread launch is also reminiscent of Apple, although it may show how well Samsung does, or doesn’t, compete against Apple’s production lines. There’s only a month or two lag between the Asia/Europe rollout and the U.S. Samsung already had 9 million pre-orders from operators and the company says it can only produce 5 million units per month and with a large launch, it’s possible to see shortages.

What should help Samsung is even fewer changes and tweaks between carriers. With the prior model, different carriers had slightly different models of the same phone: there were different screen sizes, hardware buttons were either moved around or removed entirely, and even different silicon inside to power the devices. With the Galaxy S III, Samsung is going with one model that should have even fewer differences, save for the carrier name on the device itself. Such a strategy, combined with a solid device could help keep the new “king of smartphones” one step ahead of Apple.

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The network will go live in several small communities in Iowa, Wisconsin, Maine, North Carolina, Texas and Oklahoma, as well as in some of U.S. Cellular’s bigger markets such as Milwaukee, Madison and Racine, Wis.; Des Moines, Iowa; Portland, Maine; and Greenville, N.C. (You can see full coverage maps here.) U.S. Cellular said the launch will cover 25 percent of its CDMA footprint, which currently serves 6.1 million customers.

The big exception on that list is Chicago, the carrier’s largest market and headquarters. When U.S. Cellular and its spectrum partner King Street Wireless bought their 700 MHz 4G licenses at auction in 2008, they failed to win a key Chicago license, leaving a big hole in the operator’s 4G footprint. They appear to be working to rectifying that situation though. U.S. Cellular and Verizon Wireless are currently negotiating a spectrum swap that could put a critical 700 MHz Windy City license in regional operator’s hands.

U.S. Cellular said in many of its smaller launch markets, customers will see their first LTE service, though Verizon’s juggernaut 4G rollout has already beaten the carrier to many of the bigger towns like Milwaukee, Des Moines and Greenville. U.S. Cellular also didn’t reveal any details on how it would price the service, though its current 3G plans offer a hint. U.S. Cellular sells a 5 GB stand-alone tablet plan for $55 a month, and it bundles 5 GB in with its smartphone voice and SMS plans for about $40 a month.

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In November, U.S. Cellular revealed that Apple had offered it the CDMA variant of the iPhone, but it declined, saying it couldn’t make the economics work. That makes a lot of sense in this case: selling the iPhone requires enormous upfront subsidies from wireless operators, leading U.S. Cellular to question the model’s profitability. In addition, the smartphone takes a tremendous toll on operators’ data networks.

Other regional operators like C Spire have risen to the challenge, but C Spire doesn’t have what U.S. Cellular has: a big, dense, data-hungry market like Chicago. U.S. Cellular only has 20 MHz of PCS spectrum in Chicago, with which it serves a tightly packed population of more than 13 million. U.S. Cellular doesn’t have that many 1X voice and EV-DO data carriers to go around. The iPhone’s enormous data impact likely would force U.S. Cellular to shift more voice channels to EV-DO, which might upset the delicate balance between voice and data services it has in Chicago.

The smarter thing to do, from U.S. Cellular’s perspective, is wait until Apple births an LTE smartphone, presumably the iPhone 5. U.S. Cellular plans to launch its own LTE network within the month, starting in smaller markets across its regional footprint.

But if U.S. Cellular does plan to support the LTE iPhone, it won’t launch it in Chicago – at least not with its current spectrum holdings. The operator failed to pick up any 700 MHz spectrum at auction in its flagship market, though it picked up licenses in all of the surrounding regions. U.S. Cellular and Verizon Wireless have filed a petition with the FCC to swap some of the former’s PCS spectrum throughout the country for some of the latter’s 700 MHz spectrum in Illinois and Indiana. If Chicago is part of that deal – and Verizon is flush with Windy City frequencies – then U.S. Cellular can build a complete iPhone-worthy 4G network.

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It’s no surprise that Apple asks a lot from its carrier partners. When news spread that Sprint would be getting the iPhone alongside the latest hardware refresh, it also came out that the investment promises that Apple required of Sprint would be very considerable. During its latest earnings call, Sprint said that its investment was worth “every penny.” Reuters reports that the total cost of that investment would be $7 billion, since the carrier would be paying 40 percent more than the industry average to subsidize each device sold to customers. Sprint also had to commit to a large minimum order of iPhone devices, whether it could sell those on to consumers or not, and likely won’t reap the benefits of the deal until 2015.

Earlier this week, one of Apple’s Czech carrier partners, Telefonica, decided to drop the 4S and all iPhone models because of Apple’s terms. Clearly, it’s not a price everyone is happy paying, despite the fact that Apple continues to break records for device sales.

U.S. Cellular is the sixth largest network operator in the U.S., serving roughly 6.1 million customers, mainly in the Pacific Northwest, Midwest and New England. It uses CDMA technology for its network, which is something the latest model iPhones support since the introduction of the Verizon iPhone 4 early this year.

Despite reaching far more customers than C Spire, which covers the U.S. south and has about 900,000 subscribers, U.S. Cellular was apparently unwilling to make the same investment in Apple that the smaller carrier announced in October. C Spire will begin offering the iPhone on Nov. 11.

Apple has a track record that allows it to make demands of carrier partners that many of its competitors could not, and even though it’s losing some potential subscribers by not being flexible enough to satisfy everyone, it has the luxury of being able to do so. Apple managed to take an estimated 52 percent of the mobile phone industry’s profits, despite having only 4.2 percent market share. With those kind of numbers, it can afford to leave some deals on the table. And U.S. Cellular could come back to that table, too. According to Dillon, the company remains open to carrying the iPhone if the deal makes more sense in the future.

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Meanwhile, in the back offices, the lobbyists, aides and political figures will hash out the deals that will largely reinforce the status quo and deliver a merged AT&T and T-Mobile with a long list of concessions and an even longer list of loopholes. For consumers, the deal will likely improve their AT&T service in the relative short term, while delivering a wireless duopoly that will likely slow (although not outright halt) innovation through high prices for wireless broadband and hurdles for various network services.

René Obermann, Chairman and CEO, Deutsche Telekom and Randall Stephenson, Chairman and CEO, AT&T

But when it comes to regulatory issues around the wireless merger or many of the big telecommunications battles fought, those aiming to stop the big ISPs from choking off or merely charging the hell out of access to the web are playing a loser’s game. Much like the telecom industry has had to react defensively to the onslaughts of IP communications, new business models, and new services that impinge on their revenue, upstarts and those hoping to build their businesses on broadband have let the big service providers define the regulatory game. And as most tacticians know, you can’t just react to the market in order to win; you must redefine the market.

And that’s what folks bemoaning the lack of competition caused by the AT&T and T-Mobile merger must do. The problem isn’t the merger, it’s that this merger will be decided by a Department of Justice and an FCC that’s playing by the old rules. Those rules don’t take into account the future needs of the mobile industry; how different the relationship between the players in that industry have become; nor how those changes affect competition.

For example, on the future needs of a network, it’s generally assumed today that folks wanting to get the most efficiency from their LTE deployments will require 20 MHz of spectrum or even 30 MHz to deploy in even 10 MHz upstream and 10 MHz downstream-style chunks. In a decade, next-generation networks that want to achieve gigabit speeds would require 100 MHz chunks of spectrum. That’s not something our policy today is taking into account. For an example of how that plays out for the consumer, compare Verizon’s LTE network deployed in 10×10 MHz chunks to MetroPCS’ network, which is deployed in half that much.

If one simply views it from that point of view, then limiting the number of players in the wireless market makes sense because it then consolidates spectrum to players that have the experience and capability to deliver those advanced services. But that view ignores that there are other companies and ways to deliver service that the current generation of wireline and wireless companies have either ignored or actively tried to quash. For example, protocols such as peer-to-peer file sharing, mesh networking and even Wi-Fi are alternatives to cellular that can cost less to deploy or help make more efficient use of networks, but are actively discriminated against or have only been reluctantly embraced. Alternatively, new gear or different network topologies might offer a cheaper alternative to the networks in place today.

However, the FCC has been unable to extricate itself from the regulations and politics of decades-old regulations in this space. And the big wireless companies know exactly how to work those regulations to their advantage, so playing on that ground means companies are destined to lose. In a way, that’s one of the real tragedies of the tie-up between Google and Verizon with Android: It somewhat neutered a real innovator and agitator for a different wireless future. Apple, which has pushed the envelope, may be another innovator, corrupting the model from within with its plans for a universal and programmable SIM card, but Apple isn’t exactly an activist company.

Instead of focusing on the debate over short-term issues such as market divestitures, trying to extract concessions on pricing, or the fees that wireless companies pay back to AT&T and Verizon for access to their wireline networks, the broader goal in Silicon Valley and in D.C. needs to be a bottom-up view of the telecommunications industry’s future. As consumers and companies that dependent on it, we need to figure out what we want the nation’s broadband infrastructure on the wireless and wireline side to look like, while understanding how the transition to all-IP networks and the multiplicity of networks has changed the game. We also need to look at where the game has stayed the same despite all the changes in the last decade, and figure out what has impeded progress. Then we need to address that with the long-term view in mind.

That isn’t something that can happen in a merger review, but it’s something that needs to happen, especially if we’re about to have one less player in the wireless market.

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There’s too much variation in operating systems and end devices, which makes it hard for developers to build applications for a mobile phone. Obviously people recognized this when it came to building applications for social networks (see: Open Social), but efforts to build platforms that span mobile phones are nascent.

One problem lies with the hardware, which varies from simple phones that serve mostly to make voice calls to smartphones that have the processing power to handle Office documents or broadcast television. There’s also an interface issue, such as whether it’s a touch screen, a scroll wheel, stylus or keypad.

Seriously, aside from finger cramps, anyone using a keypad to navigate the web is going to get really frustrated really quickly. Designing a browsing experience and services to optimize so much variety general results in designing for the lowest common denominator, or cutting them out entirely, and sticking with the few that have smartphones.

But the big problem is software — there’s too many operating systems to choose from. So the open platform zeitgeist is going mobile. AOL unveiled its open mobile developers platform earlier this week at the World Congress, based on technology assets it acquired from Airmedia, so it won’t be real until this summer. The platform allows a programmer to build applications for up to 150 different handsets using a variety of operating systems, but requires a client on each mobile phone.

Also trying to make the development side easier is Streamezzo, a Parisian startup that has raised $48 million to create its cross-platform software development kit. The kit won’t be available until Feb. 25, and requires a client on the end user’s handset. SFR, France’s second-largest mobile carrier, is running applications built on the Streamezzo SDK. Yahoo has launched a mobile widget development platform as well that went live this week, after being announced at CES in January..

On of the more interesting approaches is being taken by Chicago-based Novarra, an eight-year-old company that is working with carriers including Vodafone, U.S. Cellular and 3 Hong Kong to deliver the web to any phone, even low-end handsets. Novarra offers an appliance for carriers or a service that essentially offloads 80 percent of the data processing associated with downloading a web site to servers run by the carrier or Novarra. This cuts down on the amount of data traveling over the carrier network, and makes load times faster. Content providers such as Yahoo also use it to deliver lighter applications for mobile phones. Novarra powers Yahoo’s oneSearch via mobile.

Novarra’s success at driving data usage among its customers’ end users is exhibited by an increase of between $5 and $15 in ARPU for the carriers deploying the Novarra software. One only needs to look at AT&T’s recent profits, which were driven by wireless growth, to realize that pushing easier access to the Internet for all will drive revenue for carriers. The key is making it as convenient to use the web on a mobile phone as it is to use it from a computer.

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