fifiana hutapea: An Apple wireless carrier? Not a wise move. fifianahutapea.blogspot.com

Really, Apple?

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.