Apple’s Quiet, Brutal War on Wireless Carriers

on February 8, 2012
Reading Time: 2 minutes

Steve Jobs made no secret of his disdain for wireless carriers. In 2005, when Apple was still denying any interest in getting into the phone business,  Jobs sneered at the four major U.S. carriers as the “four orifices” through which the wireless business passed. With the launch of the original iPhone, Apple made a concerted, but failed, effort to change how the wireless carriers did business by getting AT&T to sell the phone without a subsidy.

iPhone 4SJobs had to make a peace of sorts with the carriers because that was the only way  to get the iPhone into the hands of customers. But now he seems to be wreaking posthumous revenge on his old foes. The problem is simple. The carriers are selling tons of iPhones. and  Apple is collecting all the profit. Sprint reported yesterday that it sold 1.8 million iPhones in the fourth quarter, 40% of them from customers new to Sprint.  But the massive subsidy cost, at least $300 a unit, contributed to a $1.3 billion loss in the quarter (and to Apple’s staggering profit in the same period.) As PCWeek.com’s phone maven Sascha Segan tweeted, “Sprint’s quarterly results show once again how the iPhone is a way to transfer $ from carriers to Apple.” In a CNNMoney post headlined “The iPhone is a nightmare for carriers,” David Goldman quoted Nomura Securities analyst Mick McCormack as saying: “A logical conclusion is that the iPhone is not good for wireless carriers. When we look at the direct and indirect economics that Apple has managed to extract from the carriers, the carrier-level value destruction is quite evident.”

There’s not a lot carriers can do about it. The original deal Apple offered in 2007 was almost certainly better for them. Apple relented after  AT&T pushed to renegotiate the deal and, more important, additional carriers outside the U.S. refused to go along with Apple’s terms. The carriers got what they wanted, and now they are paying the price, having yielded control to Apple over pricing, branding, apps. and just about everything else in the customer experience.

Cable operators might want to take a close look at what Apple has done to the mobile phone industry. It has been widely reported in the last few days that Apple has been talking to cable operators, including Rogers communications and BCE in Canada, about partnering in a long-rumored Apple television venture. Apple has no more love for cable operators than it does for wireless carriers, but it needed the carriers because they control the spectrum and it needs the operators because they control the content. Somehow, though, these partnerships have a way of becoming terribly one-sided. I hope Apple can revolutionize the television experience, but I’d advise the cable guys to watch their wallets.