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How Apple will become a mobile carrier

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What’s next for Apple? Apple(s aapl) 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(s t), Vodafone(s vod), Telefónica(s tef) 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(s goog) offer mobile service directly to its customers, for the rumored Google Android Tablet or any Android smartphone? With Google acquiring Motorola Mobility(s mmi), 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

41 Responses to “How Apple will become a mobile carrier”

  1. Nisse32

    The base for Apples entry is some big flaws in the current telecom industry:

    – The price on a specific service is not based on production cost but totally arbitrary on what the market can bear (ie SMS, international roaming etc)
    – Because of the mismatch above a lot of new services are blocked/hindered/artificially priced (ie IP-telephony, tethering etc)

    The above makes more and more customers unhappy and Apple also doesn´t like that the telcos throttle the customer use of the iPhone.

    Another example of lazy telcos is for example the lack of visual voicemail. This is an excellent feature for customers but, for example, in Sweden none of the four “official” iPhone operators has bothered to implement this service…

    What Apple should do is to buy up bulk capacity (only ip-based) in every major market. This is possible with the use prepayment etc and Apples large cash reserve. Then sell flatrate subscriptions wich includes everything (roaming, tethering, messages, web, etc etc) and without any service blocking. Apple could also migrate to 100% IP-based service (forget oldfashioned voice calls, SMS, MMS etc). Instead new improved HD VOIP services, iMessage, Facetime etc etc.

    With virtual SIM technology Apple can change the underlying serviceprovider dynamically (even several times per day) depending on the terms with the different providers. The customer wouldn´t even notice. This would permanently shake-up the whole telco-industry as we know it.

    Only one company has the customer base, cash and infrastructure to do this. The question is: Does Tim want to?

    • Yago,
      spot on Nisse32. Just take the whole roaming pricing chaos out there. No operator will dear to attack their roaming revenues. This is the weak point of the telco industry and this is where Apple has a lot to win and nothing to lose.

      Forget switching carriers in your home country, there is little value for the customer there. But now imagine you travel to Spain and instead of paying 50€ plus for a handfull of calls and MB, you could choose the best price at local rates offered to you by Apple mobile, directly through your itunes, just as if you would buy an app.

      Apple gains:
      – total control of the customer, way beyond the normal lifetime of any device
      – offer the best service to the user, as they could be switching from one network to another depending on better coverage.
      – additional margin from wholesale deals in minutes and data, even higher by saving all the customer acquisition costs that mobile operators pump into saturated markets just by cross selling into their base.
      – Additional ARPU (15-40€), who does not want this?

  2. eventually every great thing comes to end, thats what happening to google i.e. they are shifting focus from thier core product and trying to put their hands in every possible direction which mean their fall later or sooner.

  3. CUEngineer

    ” Apple will provide wireless service directly to its iPad and iPhone customers. ”

    Do you have any facts? or are you completly talking out of your …

    whats the point in writing random stories without anything to back it up?

  4. Wow. This could really be a possibility. Every Apple device on an Apple branded network that actually uses whichever network is best in your current location…

    Sign me up yesterday please. Bill my iTunes account monthly and I’ll take a new iPhone every 18 months as will all the family. And did I hear a family package Apple? Yes to that too…

  5. samvitraina


    Interesting post. The MVNO route for Apple has been long rumored. You mention Google less likely to do so. Google launched their MVNO operations in Spain (wonder why they chose a 100%+ saturated market). I am not sure on how that venture is doing for them. But they could gather learning from the Spanish market and apply it elsewhere.

    A key consideration on this business model will have to be profitability. You mention companies like Virgin doing this successfully for the last few years but it is important to note that their profitability has always been under pressure. Virgin has also reached a plateau of sorts in the number of subscribers, a problem I am sure will be alien to Apple.

    There is also the other point of handset subsidy, which in the MVNO model will have to be fully supported by Apple. This would be an additional expense, which Apple does not bear today.

    Lastly, in the US, the market is largely dominated by AT&T and VZW and in my view, Apple would gain a better start and pilot if they were to parter with an international operator like Vodafone with more than 10 properties globally and offer unique value propositions like reduced rate global voice and data roaming.

    Just some thoughts..

    • Whitey Bluestein

      The report last September that Google was conducting a trial of three networks in Spain for a possible future launch of an MVNO was apparently a hoax. It sounded fishy to begin with. And it was.

  6. I think Apple certainly has the muscle (money) and infrastructure to pull this off. What else are they gonna do with their billions and billions of cash they are hoarding? The question is execution (which they seem good at), but also the image they portray and how they position themselves as a monopoly of sorts, and how the users (customers) receive it. One issue that I see is privacy and security of data. With one vendor controlling everything, seems the user does not have much control or choice.

  7. Whitey Bluestein

    The iPhone is offered in something like 70 countries through agreements with one or more mobile operators in each country. Down the hall from the people who negotiate handset deals for the mobile operator are the people who negotiate wholesale deals. Apple doesn’t have to negotiate all the agreements at once, but country by country. No big deal.

  8. I completely understand and share the skepticism, but there is some sense in this suggestion. Carriers have been starting to push back against Apple’s terms–China Mobile, T-Mobile, Free–but Cook publicly said he will not budge. Apple may well want to future-proof its iDevice business model by taking even more leverage away from carriers by enabling multi-carrier support on a single device. Apple gets paid for the device and the content, not the data service, and has an interest in keeping the service cost low.
    To me, there are 2 big questions here: 1. Does a device-centric MVNO model (think Kindle) make sense for data-hungry iDevices? Would the pricing be better than a straight up data plan? 2. Could Apple really improve the user experience by piggybacking on carrier networks?

    Overall, it seems to me that Apple is more likely to try to develop a platform that seamlessly and automatically chooses the cheapest network available from multiple carriers and multiple technologies (3G, LTE, WiFi), rather than running its own network. The question then is technical feasibility.

    • Whitey Bluestein

      The platform you describe in the second ‘graph of your posting is the patent Apple filed before announcing the first iPhone, which allows for connecting to multiple wireless networks to optimize the customer experience while obtaining the lowest cost services. Definitely agree on your point that although Amazon already bundles mobile data with several of the “3G” Kindle models, browsing on an iPad or iPhone consumes much more data, and really is an entirely different proposition. A significant portion of this browsing is on Wi-Fi networks, so it’s not all cellular data.

  9. Johny Doe

    Google started buying large corporate building all over the US years ago to set them up as Carrier data centers. I’m sure its a matter of time for Google as well..

    • Whitey Bluestein

      Actually, it’s a classic Prisoner’s Dilemma. If the operator says, “no” to Apple, Apple just goes to the next operator. If you are taking this literally, that the operators are “prisoners”, of course not. But the operator who says “no” risks the same fate as the prisoner who refuses to cooperate with authorities; the authorities just go to the next suspect and if they play ball, the first prisoner who refused is in deep trouble. See

  10. Michael W. Perry

    Yeah, right. And Boeing’s going to get into the airline business–Not.

    What a dumb idea. Apple has better sense than to move onto the turf of their corporate customers. There’s no way even Apple. with its huge cash reserves, could afford to build out a cellular system. It doesn’t have the bandwidth for one reason. Nor do cellular companies want to sell airtime to Apple and see a giant like it take away their customers.

    At most, Apple might create a useful international roaming scheme for iPhone users in cooperation with carriers. Current roaming costs are far too high and the feature would be a selling point for iPhones that wouldn’t threaten the cellular corporate giants. Apple could give them a piece of that action.

    • Whitey Bluestein

      The carriers are NOT Apple’s “corporate customers.” Apple’s customers are people who buy Apple products. That’s why Apple thinks different about mobile. They don’t go to trade shows (MWC or CTIA) because their customers are in their stores, other retailers or buying online. Nor did I suggest or believe Apple is going to buy or build out a network, but rather simply buy capacity from other operators. Dumb idea? Ask TracFone, Virgin or others who have been doing this for years. The only difference is Apple already has all of the infrastructure in place to launch an Apple-branded mobile service, whereas others had to build it first.

  11. Ron Larson

    I used to hope for this. It makes sense. Apple’s devices don’t work without a good network behind them. But when Apple announced a dividend and share buyback, I knew it wasn’t going to be. That was Apple’s way of saying “We don’t know what to do with this money, so we will give it back.”.

    The problem is that new IP based technology (Voice, messaging, and TV over internet) compete with the core business of our network providers (AT&T, Verizon, Cox, and Comcast). They have every incentive to stifle progress.

    I really wanted Apple, Google, and Microsoft to join to create a 3rd broadband and Wireless option for the US. One with true net neutrality. One that will enhance their core business rather than compete with it (like we have now).

  12. Kindroid

    Will not pass regulatory scrutiny. And even if it could…all it would take would be for AT&T and Verizon to join together and tell Apple to screw themselves. Apple already garners more than its fair share of Verizon and AT&T profits. Better that AT&T and Verizon cut a little better deal with Android and WP7. Hapless Sprint and T-Moble are of no value to anyone really and even less to Apple.

    • Whitey Bluestein

      Regulators rejected the AT&T and T-Mo deal because the merger of the second- and fourth-largest mobile operators would create a dominant player that would control 78% of US mobile revenue. The entry of a new competitor, Apple, would not concentrate the industry but bring new competition. It would not fail on regulatory or anti-trust grounds.

  13. Droidfan

    Will not pass regulatory scrutiny. And even if it could…all it would take would be for AT&T and Verizon to join together and tell Apple to screw themselves. Apple already garners more than its fair share of Verizon and AT&T profits. Better that AT&T and Verizon cut a little better deal with Android and WP7. Hapless Sprint and T-Moble are of no value to anyone really and even less to Apple.

  14. Geraldus

    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.

  15. Jeff Hall

    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

  16. Mr. Faded Glory

    $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 :-)

  17. msbpodcast

    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…:-])

  18. James

    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?

  19. Jon Singleton

    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!!!!

  20. keninca

    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.

    • Whitey Bluestein

      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.

      • keninca

        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.

  21. 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.

    • John R. Kirk

      “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.