How Apple Won’t Become a Mobile Carrier

Steve Wildstrom / May 2nd, 2012

Apple logoAt GigaOm, Whitey Bluestein writes that Apple’s next move is becoming a mobile virtual network operator (MVNO), buying wholesale spectrum from operators such as Verizon wireless and AT&T and offering an Apple0branded service directly to customers. I’ll never say never, but this seems extremely unlikely.

Bluestein errs in his description of the history of Apple’s carrier relationship. The original 2007 deal with AT&T was revolutionary (for the U.S.) because it eliminated the carrier subsidy. But after just two months, Apple cut the price from $600 to $400. And when the iPhone 3G was announced in June, 2008, Apple went to a traditional subsidy model. Carriers other than AT&T were unwilling to come aboard otherwise, and even AT&T was happier with a familiar, although arguably worse, deal. Apple is more powerful vis-a-vis carriers than any handset maker has been, but it doesn’t unilaterally call the shots.

The MVNO business in the U.S. has been one epic fail. Companies from Disney to Richard Branson’s Virgin empire have tried it only to flee after a relatively short time. Of the major U.S. carriers, only Sprint has been very interested in wholesaling spectrum; both Boost Mobile and Virgin Mobile USA, the leading U.S. MVNOs, are owned by Sprint. And Sprint’s network won’t do for Apple unless Apple were willing to pump in the billions in capital Sprint needs to build out a 4G network.

This is not a business Apple really wants to get into. It comes with a boatload of federal and state regulation, something Apple has always worked hard to avoid.

But most important, a major Bluestein  argument doesn’t hold water: “By offering mobile service with iPhones and iPads, the company could provide the full Apple experience to its users.” No, because it would be dependent on carriers’ existing network, it would be providing the same lousy experience AT&T and Verizon customers get today. But Apple, not the carriers, would get the blame for the dead spots, slow data rates, dropped calls, and lousy voice quality. Apple could certainly improve on billing (though much of the complexity of billing is the result of an impenetrable thicket of federal and state taxes and fees that Apple couldn’t avoid) and could offer more rational, though probably not cheaper, data plans. But the Apple experience is the result of the company’s top-to-bottom control over its products. And that is exactly what it would be unable to provide as an MVNO.

And that is the primary reason why Apple is going to avoid this business.

 

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.
  • Pk22901

    Steve,

    Maybe in 3 years, the tech being developed to support devices using whatever lowest cost carrier signals are available at the moment.

    Would this capability make a difference?

    • steve_wildstrom

      In terms of RF circuits and baseband radios, that capability is close today, with only the number of frequencies in use for LTE around the world being a problem. The much bigger challenge is the business issue of getting carriers to support usch a system.

  • Info

    Missing the BIg Picture.. Too many reasons that a “Private Label Network” makes sense for Apple.

    First and most obvious. Apple would be able to control the entire end user experience. First of all, the Apple Private Label Network would only be “built from Scratch” in the highly populated ares. Similar to the Apple Stores. In areas outside of the Native Apple Network, then multiple MVNO partners would be available. An Apple O&O network would provide Apple with significant advantages.

    First it could provide native network access to it’s entire product line of IPods, IPads, Laptops, etc.

    Apple could provide Free Access to ITunes / Apple Store / and App Store from all of its products without a subscription on its “native” network. Users who travel infrequently could purchase “a la carte” data services on the native network while traveling.

    The biggest competitive advantage of a Apple Private Label Network would be Apple’s ability to implement new network technologies far before the overall market. LTE standardization began in 2004, and has only come to the commercial market in the last year or so. By Apple owning both the user terminal and the network itself. It could implement network technology changes years before standardization bodies. So phones/tables would provide “multimode/multiband” capabilities that employ their own “one off” network technologies.

    The network provides product differentiation in a way that would be difficult for other user terminal manufactures to match.

    • steve_wildstrom

      And where wil the spectrum for this “built from scratch” network come from? The only readily apparent source is Clearwire’s 2,500 MHz spectrum, but that is effectively controlled by Sprint.

      • Info

        Well, outside the potential for Clearwire spectrum @2.5, we have much better Verizon A and B Block 700Mhz spectrum that appears to be coming to market. There are also “regional carriers” like a combination of MetroPCS and Leap Wireless that could provide the necessary spectrum that would likely get FCC/DOJ approval. DISH and Lightsquared have attempted to cobble together 1.5 Ghz/2Ghz MSS/ATC spectrum, (with mixed results) and convert it to Terrestrial. The Big LEO MSS providers hold authority to a total of over 35Mhz of “global” dedicated spectrum between the L and S Bands.

        Again, We don’t think Apple is initially interested in building a competitive CMRS network against the National Carriers as the shear amount of spectrum necessary would be an issue. However, we believe there is a “business case” for building a “Private Label Network” for ITunes/Apple Store/App Store access. A network that would allow, Apple-only “a la carte” data services”,
        “Buy an Apple TV and download movies without paying for a monthly internet connection”. “Low cost international roaming” on the Apple Network for Apple-only devices in the US initially, and then eventually abroad. Such a network would provide Apple with a huge competitive advantage. Especially, if Apple could deploy next generation network technologies without waiting for the bureaucratic “standardization” bodies (ie 3GPP). There is little doubt that Apple could easily approach Qualcomm to include a “Apple Private Label” network band and technology into its Baseband Road Map.

        Since an Apple Private Label Network would not be a “National Network”, then Apple could roll out the network on a city by city basis over a period of time, like it does with Brick and Mortar Apple Stores, while using other carriers as MVNO networks in the less populated areas.

        • steve_wildstrom

          The private network idea is intriguing. The problem is that it would really only be suitable for downloading content, not streaming (because of the real-time throughput requirements of streaming) and that might prove very confusing to customers.

          The value of the Verizon 700 MHz A block spectrum is dubious because of UHF interference issues. The B block spectrum is more valuable, but also more limited both in bandwidth and geography. The satellite guys have to find a way to succeed where Lightsquared failed because the GPS issues are not going away.

      • Info

        Now being reported that Ergen has bought Ichan’s 250MM Lightsquared debt…

        Ergen compiling a MSS spectrum powerhouse.

  • Dorotheo Arango

    It seems that apple is worry for next generations on apple instead of growing as telephone companies. But you can send free text with out a cell phone at http://www.textme4free.com/ and it is free lol

  • Peter

    I switched to StraightTalk when my iPhone contract was up. It’s an AT&T MVNO but charges a lot less. I don’t see why Apple could not do something similar.

    Another option would be to purchase T-Mobile

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