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8/24/2011
02:28 PM
Eric Zeman
Eric Zeman
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How Sprint iPhone Could Reshape Your Options

If the Apple iPhone becomes available from three of the top four U.S. wireless network operators--AT&T, Sprint, and Verizon Wireless--watch for pricing and plan changes.

On Tuesday, the Wall Street Journal reported that Sprint will carry both the iPhone 5 and the iPhone 4 for the first time. Sprint won't be alone, however. The iPhone 5 will launch on AT&T's and Verizon Wireless's networks the same time it goes on sale from Sprint in mid October.

What does this mean?

First, it'll probably boost the number of iPhones sold in the U.S. "We believe in the first two quarters, Verizon sold 4.6 million iPhones," Piper Jaffray analyst Gene Munster said in a note to clients. "We are modeling for Verizon to sell 12 million iPhones in the first year of having the iPhone. In other words, we expect 11% of phones sold at Verizon will be iPhones. If 11% of Sprint's phones sold in CY12 were iPhones, that would add [about] 6 million iPhones to our estimate, increasing our overall CY12 iPhone unit estimate by 5%, from 111 million to 117 million."

Bully for Apple, but what about everyone else? Well, therein lays the rub.

Verizon Wireless and AT&T are larger than Sprint by tens of millions of customers. Sprint's also-ran status as the third-largest network operator in the U.S. has been solidified by customer defections and weak financial performances quarter after quarter. In its most recent quarterly earnings report, Sprint actually blamed its subscriber losses and revenue failings on the fact that it doesn't sell the Apple iPhone. AT&T has sold the iPhone since June 2007, and Verizon began selling the iPhone in February of this year.

Will adding the iPhone to its smartphone stable automatically help Sprint reverse its losses? Possibly, but not necessarily. Now that the iPhone has been around for more than four years, it is highly likely that those who want it, already have it. Adding one more distribution point in the U.S.--Sprint--is nice and all, but the customers who've fled Sprint probably have contracts with AT&T or Verizon Wireless. Further, those customers who've stuck it out with Sprint are probably enjoying a WiMax 4G smartphone. Even if customers do flock back to Sprint, Sprint may develop new problems.

The two big problems Sprint will face if it sells the iPhone relate to financing and its network.

First, financing. The iPhone costs a fortune. The unsubsidized cost tops $600 and $700, depending on the model. AT&T and Verizon Wireless are subsidizing the heck out of it to get the iPhone down to the $199 and $299 price points that Apple prefers to advertise. Sprint's current finances aren't exactly the prettiest set of numbers to adorn a spreadsheet. Can it afford to subsidize the iPhone down to price points that are equal to those offered by AT&T and Verizon?

And what about its network? The iPhone crushed AT&T's network. It has taken AT&T years to recover from the 5,000-fold increase in data usage caused by the iPhone. The iPhone didn't have as big an impact on Verizon's network, but it still managed to get Verizon's attention. The reason behind this worry is that Sprint still offers unlimited (truly unlimited) data plans, meaning customers can consume as much data as they want and not incur penalties. The iPhone is a known data hog, and could gum up Sprint's network. If things go badly, Sprint may be forced to change its unlimited data policy, which will surely enrage its existing customer base.

Adding Sprint to the distribution list for the iPhone 5 may also slow iPhone sales at AT&T and Verizon Wireless. It may also affect sales of non-Apple smartphones at Sprint stores.

The question then becomes, what will AT&T, Sprint, and Verizon Wireless do to sign up new iPhone customers? Will there be a price war on the cost of the handset? I doubt it, it's too pricey. Will there be a price war for iPhone voice/data plans? Also doubtful. Each of the carriers will have to find some way to attract customers to its network. The competition will be interesting to watch unfold.

Get lessons from five companies on the front lines of implementing unified communications. Also in the new, all-digital supplement of Network Computing:Mike Fratto on how to make the case for UC. Download the supplement now. (Free registration required.)

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