Apple Should Stay Away from the Wireless Carrier Business

Jean-Louis Gassée’s Monday Notes are some of the sharpest and most insightful commentary on the web. But I have to take issue with his suggestion that Apple should get into the wireless business by becoming a mobile virtual network operator (MVNO).

Apple’s mountain of cash naturally gets people thinking about what Apple could do with that mountain of  money, and getting into the wireless business naturally springs to mind. Buying an actual operating carrier is probably out of the question. You can’t just up and start a wireless carrier. You need spectrum, and there isn’t any of that available. Clearwire’s big block could come on the market  if the company cannot overcome its financial woes, but at 2.5 GHz, it’s not the best cellphone spectrum around, and Apple would have to spend tens of billions to build out the network.

Apple could buy a carrier. Sprint could be had and T-Mobile would be available if, as seems likely, the AT&T deal falls through. But I find it impossible to imagine Apple thriving in the highly regulated, intensely political  carrier world. Apple is extraordinarily good at many things, but living in a highly regulated regime, where AT&T and Verizon have decades of experience, is not one of them.

Becoming an MVNO, which means running a retail service over wholesale capacity supplied by other carriers, makes marginally more sense. MVNOs don’t need their own spectrum and are much more lightly regulated than facilities-based carriers. But in the U.S., being an MVNO is a terrible business. The biggest U.S. MVNO’s, Boost and Virgin Mobile, are both owned by Sprint. They, and MVNOs in general, cater to younger and less affluent, often prepaid, customers–not exactly the prime iPhone audience. Apple, being Apple, could make a success of a business where many others have failed, but if I were a shareholder I would not be thrilled with such a move.

But the biggest problem with Apple getting into the wireless business in any form is that it would put it into competition with its most important partners. Steve Jobs’s made no secret of his distaste for carriers–in pre-iPhone days, he called them “orefices”–but, starting with A&T, Apple has done remarkably well and bending the carriers to its will. It failed in an early effort to move away from carrier-subsidized iPhone sales, but gat carriers to offer pay-as-you-go 3G plans for the iPad. Unlike any other handset maker, Apple totally controls iPhone branding and has maintained total control over the software loaded on the phone.

Becoming and MVNO would  put a tremendous strain on these relationships. And for what? Apple Wireless’ service would only be as good as the wholesale carrier Apple is using. Its flexibility on pricing would be limited because it would be at the mercy of its wholesaler. It wouldn’t be able to eliminate many of the mysterious fees and charges that clutter wireless phone bills because most of these are government mandated. And it’s a crummy, low-margin business.

I agree with Gassée that the stodgy and unimaginative carriers are ripe for disruption. The problem is that the scarcity of available spectrum, which effectively bars new entrants, and the difficulty of dealing with one of the most complex regulatory regimes on earth, alas, leaves the incumbent carriers in an extremely strong position to defend their turf. Apple has enough money to get into this business, but I really doubt they would like what they found.

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Steve Wildstrom

Steve Wildstrom is veteran technology reporter, writer, and analyst based in the Washington, D.C. area. He created and wrote BusinessWeek’s Technology & You column for 15 years. Since leaving BusinessWeek in the fall of 2009, he has written his own blog, Wildstrom on Tech and has contributed to corporate blogs, including those of Cisco and AMD and also consults for major technology companies.

7 thoughts on “Apple Should Stay Away from the Wireless Carrier Business”

  1. Disagree! Apple would benefit greatly by having a wireless carrier system comparable to its hardware and software product. Having iCloud, iTunes, iPhones and TV streaming on its own network in the US works for everyone, except the current carriers. That first data center wasn’t just built for iCloud/iTunes.

  2. I’d have some interest in the MVNO idea if they could do it globally via ALL their existing partners and all the remaining carriers. They should just buy from all the carriers to provide them all with a base amount of bandwidth the remainder of which they could sell to everyone else.

    As a benefit of this wholesale relationship Apple would turn around and offer unlimited data at LTE speeds.

    1. One reason MVNOs struggle is that it is very hard for them to underprice the carriers that supply the wholesale service. They can offer more creative plans but not, on average, lower prices.

      LTE is more problematical. Verizon is years head on LTE, but VZW doesn’t really do MVNOs. The bulk of the U.S. MVNO business runs on Sprint. Sprint offers unlimited data on its 4G WiMax network, which in turn is wholesaled from Clearwire, but coverage is limited and expansion is on hold while Clear and sprint work out their financial and technical woes. AT&T is still in the early stages of LTE deployment and, if it’s claims are to be believed, doesn’t have much spectrum to spare.

      The bottom line is that while Apple might do some interesting things as an MVNO, it can’t overcome the physics or economics of wireless.

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