Apple Eyes the Wireless Auction

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Major Strategy Change?

Indeed, cutting out the carrier would probably be in sync with Steve Jobs' view of the world. Before striking the iPhone deal with AT&T, he publicly dissed phone companies as little more than "orifices"—good only for providing dumb pipes to deliver more innovative companies' more innovative services.

"Apple is the most anti-carrier company there is," says the former Apple executive. "They're probably already frustrated with AT&T. If they put a few billion behind this, they could build a kick-ass network." Indeed, on Sept. 5, Apple announced a new iTunes Wi-Fi Music Store so consumers can buy songs at wireless hotspots, something they can't do on AT&T's network. And Jobs made a point of noting Wi-Fi is faster not only than the so-called 2.5G EDGE network, but also than 3G cellular networks.

The fact Jobs was interested enough to investigate bidding for the spectrum opens up the possibility of a major strategy change for Apple. Today, Apple's approach is built on the idea of the PC—preferably a Mac—being the "hub of the digital lifestyle." If you want content on your iPod or iPhone, or on your TV via an Apple TV settop box, you download it to your PC or Mac, and then sync it with those other devices.

From Devices to Services

But if it had its own network, Apple could conceivably move to a "cloud computing" approach, where it would store customers' files, music, movies, e-mails, and other content on servers in its own data centers, and dole it out directly to whatever device a customer is using at any given time. If you wanted to purchase the latest Pixar flick from iTunes, you wouldn't need to schlep over to the Mac to do it; it could be delivered straight to the Apple TV—or even to an Apple TV at the ski house miles away from that Mac.

Taken to its extreme, some experts suggest Apple could one day move to making its money on selling such services, rather than on the devices themselves. "At some point, they're going to tap out the percentage of people who still need to buy an iPod," says one telecom executive who requested anonymity. "Maybe their strategy is to get into the services business, and switch to getting nice, recurring revenues" from subscribers. Indeed, Apple has already changed its accounting for the Apple TV and for the iPhone. Rather than book revenue when the cash register rings, Apple books the sale over 24 months.

To be sure, Apple has given no hints of any such makeover of its hugely successful strategy. Still, most analysts think this Net-centric model of computing will dominate in the future. Following the success of Google, Yahoo! (YHOO), and others, Microsoft (MSFT) is already signaling it will follow suit. And Apple would have some unique advantages should it head in this direction, particularly the Mac OS. For starters, it's based on the battle-tested Unix operating system, considered far more reliable and powerful than Microsoft's Windows.

Superior 'Walled Garden'

And since the Mac OS lies at the core of the data centers that host the iTunes store as well as almost all of Apple's commercial products (except for the iPod shuffle, nano, and classic), it could provide a level of glue to help Apple provide a superior experience for its customers. With such a common foundation of software, Apple could more easily ensure that Pixar movie is sent in the proper resolution, whether it's to be viewed on a large-screen, high-definition TV or on an iPhone. Also, Apple could simplify the job of syncing various devices.