by Noah Kravitz, Reviews Editor

22 November 2006

Apple to Cellular Carriers: Thinking Different on Mobile Phones, Pt. II

NOTE: This is part two of a two-part article. Click here to read part one.

How to Build it and Where to Sell it (continued)
So let's say Apple does build a killer iPodPhone that somehow manages to combine the best features of portable music and cellular calling with that certain Apple je ne sais qua. What do they do then?

First off, the success of the iTunes Music Store is enough proof for me that Apple's not going to be satisfied with a profit margin on an iPhone but none of the service revenues. That being said, I honestly don't see how they could be excited to get into the Mobile Virtual Network Operator (MVNO) game right now, either. MVNOs like Amp'd Mobile, Helio, and the now defunct ESPN Mobile haven't exactly been rousing successes in the US cellular market, and Apple's own .Mac Internet service ain't no great shakes, either. While it's certainly possible that I have no idea what I'm talking about (woulnd't be the first time) and Apple's on the verge of somehow rolling out the world's first ultra-profitable MVNO, I don't think that's the route for them to take. Selling music over the Internet is one thing; operating a telephone network is quite another.

And don't even get started on the whole "Apple's going to launch their own cellular network" theory. That makes even less sense. Take all of the customer service headaches associated with an MVNO and multiply them by your favorite seven digit number - that's what an Apple-branded cell phone network would look like.

So what then? Well, for a long moment I thought an Apple partnership with T-Mobile was the way to go. Admittedly, my theory was spurred on by T-Mobile USA CEO Robert Dotson's warm and fuzzy comments about OS X, but it made sense at least for a spell. T-Mobile's playing catch up in the war of the 3G data networks, but they do have a bunch of "Hot Spot" WiFi networks already set up in airports, Starbucks, and other public spaces around the country. So why not roll out an Apple iPhone on T-Mobile featuring WiFi connectivity to iTMS? That way everybody gets to upsell something: Apple can sell iTunes content direct to phones via WiFI, T-Mobile can sell add-on HotSpot plans to new iPhone owners, and Starbucks can sell overpriced lattes to iPhone-packing teenagers and road warriors. Eventually, if T-Mob gets its 3G act together and the iPhone has proven a success, Apple can roll out an updated version with a 3G radio built in.

But I don't think that's the best route for Apple to take, either. I think Apple should sell the iPhone themselves as an unlocked GSM handset. And here's why:

• Global Domination: Most of the world uses GSM cellular phones. An unlocked, quad-band iPhone could be released in one version with multiple lanugage support and sold the world over, just like iMacs and MacBooks.


• Top to Bottom Control of the Consumer Experience: Apple 2.0 has made its name on a chic, high-end user experience from the Apple store through to product packaging and user interfaces. Even if a cellular provider were willing to let Apple control the UI on a co-branded iPhone - which is more than highly unlikely - sales and support would likely be handled by the provider and not Apple. Ever been inside of a T-Mobile store? It's a very different experience than that of an Apple store. I'm not saying it's any better or worse, just different. And Apple's spent a lot of time and money honing their particular retail asthetic, so I doubt they'd put the fate of their first mobile phone in the hands of ... well, of anyone else.


• Thinking Different on Cell Phones: As I said, mp3 cell phones haven't taken off like iPods have, and the user experience has a lot to do with it. Building a cell phone that's capable of storing and playing a decent amount of music, wirelessly browsing and making purchases from a digital music store, and providing a happy user experience would be no small feat. But if anyone's up to it, it's Apple - The Mac, OS X, and iTunes are proof positive of that. A killer music phone that's also the first unlocked handset to be widely and successfully marketed in the US could really change the way consumers and providers alike think about cell phones in this country.
• Plenty of Profits: There's plenty of money to be made by Apple even if the iPhone isn't sold through a cellular carrier. Some may argue that US consumers are used to getting their cell phones for free and will balk at paying $300 for an Apple phone. I say if they're willing to pay $199 for a nano or $299 for a full-sized iPod, why wouldn't they pay $200-300 for an iPhone? So long as it carries on Apple's tradition of easy to use, high-quality technology, I don't see why consumers would balk at an iPhone. Unless their demand for iPods has been sated entirely.

  I've used plenty of unlocked GSM phones in the past few years, and it's easy enough to pop a SIM card out of one phone, put it into another, and transfer your contacts information to the new handset. Apple could make the process even easier with some well-designed cross-platform syncing software, and upsell some sort of wireless backup software (like Sprint currently offers) via .Mac. So long as the phone gets good reception, is easy to use, and works like an iPod, I think people will buy it. We'll think of it like a new iPod, which so far we've been more than happy to ante up for with each and every new revision.

  Heck, Apple could sell the phone in Apple stores but with optional service on your choice of GSM carriers. Plenty of Mom and Pop cellie outposts all over the land have carrier activation deals, so I can't imagine Cingular or T-Mobile balking at a chance to have Apple retail employees hawking their services, too. An iPhone for $299, or with a $100 discount if you sign up for new service activation with your choice of carrier? I think it could work.

  And then there's the whole mobile iTunes Music Store angle. As a MobiTV executive told me, "The cell phone is the ideal way to sell people things. There's no credit card information to enter, and usually not even a username and password. You just hit "Yes" and you've bought and paid for the content." Apple's already got the iTunes Store up and running. Imagine being able to access it from your phone whenever the itch to hear a certain song hits you? Talk about impulse buying. Again, a Wi-Fi and EDGE enabled phone with an iTunes client, and perhaps built-in 3G capabilities (Cingular's already rolling out their HSDPA network, and I'm sure Bob Dotson wouldn't mind telling Steve Jobs what T-Mobile's high-speed plans are), should suffice.

Honestly I'm as tired of all of the iPhone rumors as I am excited by the prospect of an Apple designed mobile handset. And I have no idea if and when an iPhone might be coming and what it will or won't do. But my newfound experience in the mobile phone world tells me that an unlocked quad band GSM phone with a solid feature set, good reception, and killer iPod functionality would be a hit. Or at least it'd have more of a chance of being a hit than an (insert carrier name)-branded phone would. I may well be wrong, and a year from now I may be writing about how Apple revolutionized the cellular industry by rolling out their own service network focused on messaging and Internet connectivity. We'll just have to wait and see.

Hopefully we'll find out all about the iPhone at MWSF in early January. Beacuse, honestly, I don't think I can stand the rumors much longer.

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