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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 http://whiteybluestein.com