How Apple Could Screw the U.S. Wireless Industry
All signs point to Apple’s (AAPL) unveiling its third-generation iPad on Wednesday, March 7, and while millions of consumers will follow Apple’s San Francisco event in anticipation, operators around the world will watch with trepidation. New reports emerge daily that the iPad 3 will be the first iOS device with LTE connectivity, but Apple hasn’t given any official confirmation. There’s a lot riding on that spec sheet. If the new iPad—and more important the next iPhone—doesn’t support LTE, then Apple will have struck a huge blow to the wireless industry and impeded mobile broadband’s progress.
The simple fact is that LTE is a much more efficient way of delivering mobile data than its HSPA and EV-DO predecessors. There’s much attention focused on the speed of LTE networks, and while 10- to 20-Mbps connections are nothing to scoff at, the hidden yet very real value of LTE is its ability to deliver a bit of data far more cheaply than previous-generation technology.
That means operators not only have more capacity to offer their customers but also can—theoretically at least—sell that capacity at a lower price. If we really are dreaming of having 100 GB monthly plans that don’t cost the equivalent of a house payment, we are going to need LTE to get there. Operators can’t fully make the leap unless Apple is on board and helping to push consumers onto next-generation networks.
LTE is a global phenomenon, but nowhere do operators have more to lose than in North America, where every single major U.S. and Canadian operator has either launched or is in the process of building these new networks. By the time of the new iPhone’s expected launch this fall, there will be five commercial LTE networks in the U.S. alone and another two in the process of construction. Those operators are selling plenty of Android (GOOG) LTE smartphones, but without the world’s single-most-popular smartphone and tablet connecting to them, the true potential of those networks won’t be realized.
What Exactly Is at Stake
At first glance, this may seem like a minor setback for carriers—their mass transition of the iPhone to 4G will just have to wait another year—but the repercussions of a sans-LTE iPhone are far larger. Let’s name a few:
Operators would be forced to invest in older, less-efficient technology rather than new technology. The enormous data traffic a new iPhone or iPad would have placed on the mobile network doesn’t just disappear. It gets shifted to HSPA and EV-DO networks. Instead of pumping their capital investment dollars into LTE, operators would be forced to build new infrastructure to boost their 3G capacity in order to meet the data deluge of millions of new iOS devices.
Spectrum would be tied up in older technologies for years to come. Operators like AT&T (T) have already overloaded their HSPA networks with iPhone traffic. If a new HSPA iPhone emerges, it will have to start adding new capacity by either tapping into spectrum it is reserving for LTE or cannibalizing its GSM networks. AT&T may already have begun the process of re-farming its PCS and cellular airwaves for HSPA. Once it commits those frequencies, though, they will remain HSPA. No operator can afford to build one network and replace it two years later. Likewise, Verizon Wireless (VZ) and Sprint (S) eventually want to shut down parts of their EV-DO networks and repurpose those airwaves for LTE, but if millions of iPhones are still running over them, they will have little choice but to leave them be.
Data pricing could remain static. It’s a simple matter of math. Cellular networks are in essence shared broadband resources. The slower the connection your device makes with the network, the less overall capacity is available to the network as a whole. The prices operators charge for data is determined by how efficiently they deliver data. If the majority of smart devices on the network are making bad use of the network’s resources, then costs can’t come down.
Why Apple Could Pass on LTE
Apple has plenty of valid business reasons not to put LTE in its next wave of devices. The cost of LTE chips is still high, and LTE radios suck a lot more power than their 3G predecessors (though Motorola (MMI) and Nokia (NOK) seem to have solved this problem by simply slapping bigger batteries into their LTE phones). LTE is still experiencing growing pains as any customer who has had to deal with one of Verizon’s numerous 4G outages can attest.
The biggest reason, though, is LTE doesn’t jell with Apple’s core go-to-market strategy. Whenever it has been able, Apple has produced a single version of both the iPhone and iPad, selling essentially the same device throughout the world. LTE’s adoption has been driven by North America and Asia, which account for the vast majority of LTE’s subscribers today. In Europe and the rest of the world, LTE networks are still few and far between. That’s a lot of territory where an iPhone’s or iPad’s LTE parts would just be extraneous silicon and antennas.
But Apple may be forced to change that strategy for LTE. The fragmentation among global LTE bands—with four being supported in the U.S. alone—means Apple will most likely need to come up with regional versions of the devices. If Apple does split the iPhone and iPad into separate SKUs, it will be under pressure to include LTE in any North American version.
In a few days, we will have an answer. If LTE winds up in the iPad, it’s almost certain to make it into the iPhone. If LTE doesn’t make the cut, we might excuse Apple for not taking a business risk on new technology. After all, Apple has shown that skimping on radio technologies like 3G and HSPA+ in the past hasn’t done a thing to hurt sales.
But the point I’m making here is there’s a lot more at stake than just Apple’s billable cost of materials. Apple has a chance to show leadership by embracing the key technology driving the mobile broadband revolution forward. It may be late to LTE, but on Wednesday, Apple could arrive just when it really matters.
Also from GigaOM: