T-Mobile Wants the iPhone. Bad.
May 13th 2012 7:07PM
Updated May 13th 2012 7:10PM
Being the No. 4 wireless carrier in the U.S. doesn't earn you a lot of respect, especially when it comes to grabbing the attention of one of the most important smartphone makers in the market: Apple (NAS: AAPL) .
In February, T-Mobile reported that it lost more than 700,000 customers in the fourth quarter, and CEO Philipp Humm was upfront about the culprit: "Not carrying the iPhone led to a significant increase in contract deactivations in the fourth quarter of 2011." With open arms, T-Mobile has always welcomed adventurous users who are willing to unlock their devices, but even then the iPhone is relegated to 2G data speeds because of frequency-band incompatibilities.
What about the little guy?
Apple has little incentive to devote engineering efforts to include T-Mobile, the lowliest of the big carriers, in its stable, especially as the carrier's three larger rivals -- AT&T (NYS: T) , Verizon (NYS: VZ) , and Sprint Nextel (NYS: S) -- now offer the device.
In January, I had told you how T-Mobile might finally be able to get the device, since part of its consolation prize for the failed AT&T-Mobile deal was that Ma Bell was forking over some of its AWS spectrum to T-Mobile. The FCC just signed off on the spectrum transfer at the end of April, and T-Mobile has now secured the requisite licenses.
Using this new spectrum in addition to its ongoing efforts to refarm existing spectrum holdings, T-Mobile is investing $4 billion in deploying its own 4G LTE network. You might recall that AT&T also paid T-Mobile $3 billion in cash as part of the breakup fee, so this was all made possible by AT&T when you consider all the cash and spectrum it put on the line for the acquisition (and lost). Thanks, Ma Bell!
T-Mobile intends to roll out its HSPA+ network, which it markets as "4G," in the 1900 MHz frequency band that is supported by the iPhone. Its network should be ready for iPhone users by the end of this year. Even if Apple won't go after T-Mobile, T-Mobile is going after Apple.
4G by any other name
The important thing to remember is that this applies only to existing iPhones, and Apple's sixth-generation iPhone is widely expected to feature 4G LTE, again putting T-Mobile at a disadvantage to its larger rivals as it catches up. T-Mobile would still probably market it by saying you can use the iPhone on its "4G" network, just like AT&T does, as both carriers run HSPA+ networks.
Assuming Apple goes with LTE for the next iPhone, which is a fairly safe assumption, Verizon and AT&T will enjoy network advantages. Verizon boasts the widest coverage in more than 230 markets right now and is shooting for 400 by the end of the year. Sprint just recently began its own LTE deployment.
Can I have my margins back?
AT&T and Verizon are becoming increasingly hostile toward Apple because of its margin-sucking ways. AT&T is putting its marketing weight behind the Nokia (NYS: NOK) Lumia 900 as its new exclusive flagship device, while Verizon is warming up to Microsoft Windows Phone, saying a third mobile ecosystem is needed in the industry. That means the No. 1 and No. 2 carriers aren't as keen on the iPhone as they once were.
At the same time, the No. 3 and No. 4 carriers are all too happy to pick up where their larger rivals left off. Sprint is on the hook for $15.5 billion in iPhone purchases over the next four years, and T-Mobile is eyeing AT&T iPhone users.
Their hands are tied
Ultimately, it all boils down to what consumers want, and that's where Apple is focusing. When asked about carrier subsidies on the most recent conference call, CEO Tim Cook said:
And at the end of the day, I think that carriers, the vast majority of carriers, or maybe even all carriers, want to provide what their customers want to buy. And that's what they're motivated for. And so the most important thing by far is for Apple to continue making great products that customers want.
Source: Apple Q2 2012 conference call.
Even more importantly than how the domestic iPhone carrier landscape unfolds, nearly three-quarters of iPhone sales are now generated internationally and continue to trend higher. The relative importance of the U.S. market for Apple is diminishing, and at this point the most important carrier in the world to be negotiating with is none other than China Mobile.
That carrier will be key to Apple's international expansion, and here are another 3 American Companies Set to Dominate the World by tapping into emerging-market growth. Grab a free copy of this report to read more.
At the time this article was published Fool contributor Evan Niu owns shares of Apple, AT&T, and Verizon Communications, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Microsoft and Apple. Motley Fool newsletter services have recommended buying shares of Apple, China Mobile, Nokia, and Microsoft and creating bull call spread positions in Microsoft and Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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