How Apple Won’t Become a Mobile Carrier

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.