All the talk about Apple's ( AAPL) next U.S. iPhone carrier once the AT&T ( T) exclusivity expires appears focused on Verizon Wireless ( VZ). There are some good reasons for this: VZW has the reputation of having the best network, partially for its consistency in CDMA/EVDO in combination with its 850 MHz band. With 89 million wireless customers, VZW is 9% larger than AT&T's 82 million wireless subscribers. Before I get into my argument, I need to make the point that I don't know when AT&T's U.S. iPhone exclusivity ends. All indication is that it will take place no earlier than 2010, but no later than 2012. But really nobody outside Apple and AT&T knows. Perhaps AT&T will pay for an extension to whatever the current or recent data were supposed to have been. And the rest of my argument is somewhat dependent on when this eventually takes place. Let's assume that the AT&T exclusivity ends relatively soon, say June 2010. Apple would then have the choice to spread the iPhone to all U.S. carriers, or only some. Which one would be Apple's highest priority? My contention is that it is in Apple's best interest to make Sprint ( S)/ Clearwire ( CLWR) its highest priority, if it could do so relatively soon, say by mid-2010. The common suggestion that Apple should go with VZW is misguided: It's not that Apple needs VZW. It's that any carrier needs the iPhone. From this perspective, it can be said that it is the iPhone that makes any carrier. So therefore, the critical question becomes: What does Apple get out of the deal? It doesn't matter what the carrier gets out of the deal, because all carriers will take the deal.
Apple enjoys superior popularity with the iPhone today, but what will it need to do in order to lift the bar on keeping the iPhone "special?" Seeing as all the three main networks outside AT&T -- Sprint, VZW and T-Mobile -- offer service to the vast majority of U.S. households, the only remaining argument of greatest importance to Apple is technology. What can Apple offer in terms of technology that would be truly special and differentiating? That's the question -- not how many legacy subscribers does a carrier have. People will follow Apple's lead; Apple doesn't need to follow the crowd, i.e., VZW's legacy customers. Based on this premise of Apple's need to make technology its chief variable in selecting its next U.S. carrier partner, I believe the obvious answer is for Apple to make an iPhone for Sprint/Clearwire. Sprint owns approximately 50% of Clearwire, and the Sprint/Clearwire is a necessary combination because of backwards compatibility with EVDO. Clearwire chose to build its nationwide 2.5-2.7 GHz network on the WiMax standard, which offers far greater speeds than any 3G technology such as EVDO. Clearwire's almost 200 MHz spectrum means that its capacity to support many users downloading/uploading data is vastly superior to all the other incumbent cellular providers. What should be Apple's two most important goals with the iPhone working on a new network? capacity and latency:
- Capacity: From downloading ever-richer applications to video/television/movies, Apple needs to demonstrate that its iPhone platform can deliver more bandwidth-intensive services than competitive devices.
- Latency: This is critical for real-time communications such as voice and videoconferencing. VoIP services on smartphones are just starting now, but are suffering from generally poor quality as a result of unacceptable latency on today's HSPA and EVDO networks from AT&T, VZW and T-Mobile USA.
What does this mean for Apple? VZW will not offer Apple a technology to differentiate itself against the competition until mid-2011 at the earliest, perhaps mid-2012. But Sprint/Clearwire does, already today! Therefore, if the AT&T iPhone exclusivity ends meaningfully before mid-2011, Apple would be best served to launch its next version of the iPhone on Sprint/Clearwire. Imagine the superior services a Sprint/Clearwire WiMax iPhone could offer: Flawless low-latency VoIP, liberating the consumer from traditional voice plans, videoconferencing, streaming television and laptop tethering without that pesky 5GB monthly cap. All of these things are either impossible or performed with subpar quality on AT&T today, and on VZW before it can offer backwards-compatible LTE handsets no earlier than mid-2011. Sprint/Clearwire is already working with HTC to launch dual-mode WiMax/EVDO Google ( GOOG). Android handsets in coming months. All of these advantages of WiMax performance in the cellular handset will soon be pointing their big guns full ablaze against the iPhone. 4G networks -- WiMax and LTE -- are nuclear weapons in the hands of operators fighting an escalating war for the next-generation services: VoIP and videoconferencing. Sprint/Clearwire will detonate the first bomb in this competitive quest in 2010, using the Android platform. If Apple has the ability to join the party, it needs to do so quickly, instead of following the popular suggestion of joining VZW's me-too EVDO network. Final clarification: When the AT&T iPhone exclusivity ends, Apple may simply be able to launch the iPhone on all carriers, using all the applicable radio standards in different versions: WiMax, LTE, and 1.7 GHz HSPA+. But if it chooses only one carrier -- for whichever reason -- and can do so meaningfully before backwards-compatible LTE handset chips become available, it needs to take advantage of Sprint/Clearwire's WiMax network in order to not slip behind competitors such as Android and potentially others such as Palm/WebOS and Research In Motion ( RIMM). /Blackberry. At the time of publication, Wahlman was long Apple, Google, Qualcomm and Research In Motion.