On a recent episode of Critical Path, it is noted that the fastest growing slice of the earnings pie for carriers around the world is data. Voice and SMS revenues are slumping, as users are turning to data networks for more and more of their communication. Phone apps like Apple’s iMessage and RIM’s BBM move text message traffic off SMS and to data networks. Phone calls will soon be replaced with Facetime calls when cellular networks are up to the task of carrying video traffic, with the exception of calling while driving.
If we look at Apple’s iPhone (and most cellular phones in general), the most disappointing facet of the device is often the carrier, specifically data traffic; followed closely by battery life (that’s another article entirely). So what is it that Apple can do to drive additional revenue as well as provide it a leg up on the competitions devices – tablets and phones, plus anything else they may think of in the future? It would need an end-run around the current cellular carriers. And this means owning and operating a cellular network.
This is initially difficult to do on a worldwide scale because of licensing issues. Each country has their own spectrum authority (FCC here in the USA), and the same slice of spectrum can be allocated for different uses around the world with the main exception of unlicensed ISM bands (2.4Ghz and 5Ghz for WiFi). Steve Jobsreportedly wanted to build their own network using these unlicensed ISM bands, but it was easy to see that it wouldn’t be technically possible.
Clear?
In the United States the obvious choice would be for them to acquire Clearwire’s spectrum and assets. Its market cap is incredibly low (less than $2B) and it doesn’t need a whole lot of cash to fix up ($900M in the next few yearsto build and operate a new LTE network), and is in desperate need of cash to pay its debt obligations, even choosing to skip a debt payment recently. Cheap considering how much spectrum they’re holding on to in major cities across the USA – 192MHz in many cities, 125MHz in NYC and as low as 75MHz in Detroit. The difficulty is that its majority owned by Sprint, however Sprint is in need of cash too and I expect it will have to be acquired by Verizon within the next five years if they don’t get their act together. Sprint seems less interested in Clearwire lately, especially since they announced they’re going on their own with LTE (using their own spectrum and Lightsquared spectrum instead of Clearwire spectrum). The downside to using Clearwire’s spectrum is that it is in the 2490-2690MHz band, which doesn’t have the best propagation characteristics (e.g. going through walls, into basements, etc). Apple would need to use their extensive antenna engineering knowledge to build a device that will still get fantastic reception even with poor signal strength.
The phone will still need (and should use) the voice networks from the old carriers. There is no need to build up that infrastructure again. Apple would roll out the TDD-LTE-Advanced (rel. 10) network on Clearwire’s 2.5-2.6Ghz spectrum in 2013 and provide tremendous speeds to end users – better than any of the current network carriers could offer. While LTE offers 10Mb/s down, the enormous spectrum holdings of Clearwire would allow speeds up to 50Mb/s on a regular basis, and peak speeds well above that. Putting their spectrum to use in a 50MHz TD-LTE-Adv configuration provides for over 250MB/s raw throughput (downlink, 2×2 MIMO) with user speeds around 20-50Mb/s and upload speeds around 10-15Mb/s.
How would the carriers react? A mixed bag – they’ve invested money in building up a network to handle tons of data, and while they might welcome Apple taking a load off their network (their CapEx would slow down dramatically, for a few quarters at least after rollout), they aren’t going to be happy with Apple taking revenue away – presumably because everyone could switch to no data plan or a minimum data plan for roaming outside of Apple’s initially incomplete network. But Apple recently just took a bite out of their revenue pie by introducing iMessage, reducing carrier revenue from text messages, though that is an order of magnitude smaller than the equivalent data revenues.
Killing Cable?
It also offers a hand in creating their own mini-cable system. With an abundance of spectrum, a separate 20MHz channel could be used just for broadcasting their own live TV on multicast – a 20Mhz channel (2×2 MIMO) with a 87:10 down/up ratio would have 120Mbs down, enough for 10 12Mbps 1080p feeds, the 8Mbps upstream channel would just be for device authentication and updates only. In true Apple/Pixar fashion, they’d only be showing a few choice channels with high quality content. During the low traffic periods of the day (would Apple sell informercials? I don’t think so…) they could turn off a few channels and stream prime content to the devices to be “unlocked” as prime-time TV shows. If they needed to increase throughput, they’d move to 4×4 MIMO and change the ratio to 90:7 for 255Mb/s down (21 channels 1080p channels) and a small control channel up.
Technical Difficulties
Apple would need to build dual-SIM devices, it would need a carrier SIM for voice and SMS, but an Apple SIM for data. However, Apple was rumored to be building a SIM replacement. This would allow for still one SIM card and Apple’s SIM would be based in software.
Building a network is no easy task, and considering that Clearwire is moving to a co-located configuration with Sprint (the same tower would have Sprint’s and Clearwire’s transmitters), any buy out might negate that cost-sharing benefit.
But overcoming one of the last poor aspects of the smartphone experience would be a huge deal, and give Apple a leg up on both other cellphone vendors and their carrier partners, at least here in the US.