Now you want to be my wireless carrier?
Are you sure that’s wise? I mean, sales of iPhone — great as they are —
did not meet analyst expectations last quarter. iPad sales continue to
disappoint. No one knows the actual Apple Watch sales numbers, but it
seems as if nearly everyone thinks they are below original estimates.
Even your biggest supporters have been mightily disappointed lately in Apple Music, the once-ubiquitous iTunes, and your software.
Given that $90 billion, yes, billion, got whacked from your market cap
soon after announcing last quarter’s results, perhaps now is not the
best time to tackle an entirely new line of business, especially one as
messy and price-driven as wireless service.
Earlier this week, rumors ran hot that Apple was in active talks to offer a “MVNO” in
the US and Europe. A traditional MVNO, or mobile virtual network
operator, is a company that provides mobile service — 4G, for example —
but doesn’t own the actual infrastructure. Instead, the MVNO leases
capacity from an actual carrier, an AT&T or Verizon, then sells this
service directly to customers.
The opportunity
Companies like Disney and ESPN have tried and failed to launch a successful MVNO.
The primary problem is that no matter what clever services you offer —
ad-free radio streaming that doesn’t count against your data usage, or
clips of last night’s top plays — the MVNO’s costs are inevitably higher
than the actual carrier’s cost, those who own the equipment.
Apple no
doubt believes it has a workaround. Unlike previous MVNO efforts, Apple
makes its own smartphone. This opens up numerous untapped opportunities.
For example, Apple might sell a monthly plan that includes the latest
iPhone, voice and data service, free Beats 1 streaming,
unlimited FaceTime calls, perhaps even a Discover Card-like discount on
purchases when using Apple Pay. It’s a tantalizing idea. One bill, one
service provider, everything you do on your iPhone all cleanly managed
by Apple. Customers would no doubt love this.
There’s still another Apple advantage. Apple already uses a SIM card in select iPads that
lets the customer choose from a variety of monthly plans or
pay-as-you-go options. This current iteration is a bit crude but in
theory, Apple could use it’s super-popular iPhone to force multiple
carriers to compete on price, offering iPhone customers the very best
price across a range of carriers.
The denial
Will it happen? Uncharacteristically for Apple, the company quickly and very publicly shot down the rumor:
“We have not discussed nor do we have any plans to launch an MVNO.”
I have problems with this denial.
Firstly, “plans to launch” leaves
enormous wiggle room. At present, I do not have dinner plans for
tomorrow, though undoubtedly it will happen. Secondly, Apple has been
keenly interested in being an MVNO
since before iPhone — back when the failed Motorola Rokr was the only
‘iTunes Phone’ on the market. That original Apple patent, which the
company asked to extend in 2011, was created by Tony Fadell, the former
Senior VP at Apple who went on to create Nest, the home automation
hardware company now owned by Google. As the original Fadell patent
makes clear, Apple’s proposed MVNO wouldn’t simply lease capacity from a
single network, but pit carriers against one another.
Bids are received from multiple network operators for rates at which communication services using each network operator can be obtained. Preferences among the network operators are identified using the received bids, and the preferences are used to select the network operator for the mobile device to use in conducting communications.
There’s still another clue that Apple is
interested in the MVNO opportunity, despite the denial. Just last month,
the Financial Times reported that both Apple and Samsung
were in “advanced talks” with GSMA, a global telecom industry
consortium, on an embedded SIM (eSim) card that would let mobile phone
users switch from one carrier to another on the fly. Right now, the
traditional SIM card locks the user’s phone to a particular network, so
the potential for the eSim, planned to launch in 2016, is huge. Maybe
Sprint has excess capacity in Los Angeles and you choose Sprint. Then
you travel to Silicon Valley, where T-Mobile offers the best price. In
theory, Apple could have software to automate all this for you, choosing
the best option based on price, time and place. For those who travel
from country to country, this could be a godsend.
With an MVNO, Apple controls the all the
important pieces, the smartphone, the customer relationship, and has
reduced carriers to little more than dumb pipes.
The problem
This is almost certainly doomed to fail.
The iPhone is the primary driver of Apple
profits. Competing directly against the very carriers who market, sell
and support these devices seems to stretch the bounds of corporate
hubris.
Plus, the carriers control an extensive retail footprint. Apple has 265 Apple Stores
in the US, but there are over 4,000 Verizon and AT&T retail
outlets. Add in Sprint, T-Mobile and others, and an Apple MVNO could
lead to each of these carriers limiting their support of iPhone. It’s an
unnecessary risk.
As Apple blogger John Gruber noted:
Apple is a partner with all the carriers around the world that support iPhone. They can’t compete against them while partnering with them.
There’s also the potentially devastating
hit to Apple’s good name. Probably the most frustrating failure of
iPhone, of any smartphone, with the possible exception of battery life,
is a failed connection. Dropped WiFi and spotty cell coverage can be
rage-inducing. We rightly blame such failures on the carrier. With an
Apple MVNO, Apple itself becomes the full target for our rage. Given
that Apple’s brand is the most valued in the world, running their own MVNO seems foolhardy.
Proceed with caution
Apple is famous
for seeking to own all the core pieces that directly contribute to the
customer experience. Cellular service is a core aspect of that, no
doubt. Meaning, no matter what an anonymous Apple spokesperson says,
this rumor is unlikely to die. This is doubly so now that Google has
stated it will be launching an MVNO-like service. Apple should let the urge pass.
Becoming an MVNO
is simply too much risk for too little reward. Apple’s time can be
better spent on fixing the problems it already has, not on adding new
ones into the mix.
Source: https://gigaom.com
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