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.