Is Apple Planning to Create its Own Mobile Wireless Network?

[Maura]

Boy Genius Report runs a very interesting story which says that Apple is looking to take on the likes of AT&T and Verizon Wireless by offering its own wireless network to customers, according to industry strategist Whitey Bluestein, who has been involved with strategic deals for AT&T, Intel, T-Mobile, Verizon, Microsoft, Nokia and Best Buy. Bluestein says that Apple already has the distribution channels, digital content and ready-made customer base that such a service would require, not to mention 250 million credit cards already on file that could be billed directly for a wireless service.

Bluestein made the prediction during a speech at the Informa MVNO Industry Summit in Barcelona, when he said that Apple also has patent-pending network architecture that would facilitate its move into the wireless service provider area. Bluestein also said that the main barrier that is holding Apple back from taking what would seem to be an obvious next step for the company is the massive handset subsidies paid out by the likes of AT&T and Sprint, which are roughly $381 per iPhone. Apple’s only real way around this would be to pay the same subsidies itself out of its own coffers, and to be fair, it certainly has enough profits to enable it to do so!

Source: Apple to crush carriers, become direct service provider

 

[Skull One]

Sadly his prediction has several flaws. And his assertion that the hold up is the subsidies is beyond ridiculous. Apple would collect those subsidies the SAME EXACT way the current wireless providers do. A two year contract. In fact it would be in Apple's best interest to have two year contracts with it customers because that would show a sustainable income model. Which share holders happen to love.

The real issue is bandwidth. The US only has two FCC approved platforms for cellular service. GSM and CDMA. All the towers are currently owned by the wireless providers or the US government. Apple would have to lease the bandwidth and that isn't cheap. Mainly because Apple doesn't fall under the current teleco laws that force current wireless provider to lease at a lower rate to allow an existing provider to make an operational profit.

The only way Apple could do this is to tap into its current cash reserve (Note: their $100 billion is not all cash). But that creates a new issue since something like 55% of it is overseas and can't be used in the US at present without being taxed. Which Apple doesn't want. And don't forget their new dividend and other expenditures they announced. So at most they may have around $20 billion to play with on this kind of venture. That isn't enough.