What Icahn Knows About the New iPhone: Channel Control

NEW YORK ( TheStreet) -- Carl Icahn gave up his position in Dell ( DELL) Wednesday and bought himself some Apple ( AAPL).

This is the kind of thing that makes Icahn, Icahn.

First, the Dell thing was done. By this week, Icahn found himself battling over pennies per share, against a group that had the votes to deny him even the pennies. He's pushed the price up, he's got a gain, so cash out.

Icahn informed Dell's board he held $1 billion of its shares in March, when it was selling at about $13.25/share. The current price is $13.85. In math class, we call that a profit.

So what about Apple? Apple has become a battleground stock with fairly predictable patterns. When Apple makes a market move, the shares go down. When it makes a boardroom move, the shares go up.

This means there is action in Apple. Its 52-week low is $385/share. Its high during 2013 is about $550/share. So the current price of $468 is in the middle of its trading range.

Then there's something Icahn knows, that all the analysts dismissing the iPhone 5C and 5S models are ignoring.

Apple controls the channel. (That's short for the sales channel, or the distribution channel. The channel is how phones get from manufacturers to consumers.)

If you're going out to get a phone, chances are you're going to a carrier-owned store. A year ago, those stores were pushing Android phones. With the new announcements, they're pushing iPhones -- all of them.

The key is in the pricing. Just go by the Apple store's official 5C page. You will be getting the new phone for as low as $99, with a wireless plan. That's the full retail price out of the box. They're asking $550-$650 for the same phone, unlocked.

That's a really big spread. It creates a huge mark-up for the carriers carrying the phone. If a two-year wireless plan on a single phone costs just $50/month, that's $1,200 going to the carrier for a $450 subsidy. The pricing is designed to discourage buyers from thinking differently.

While Apple spent years going from carrier-to-carrier, all around the world, the new phones will also launch with nearly all the world's carriers simultaneously. The prices quoted are first-day retail prices. It's nearly certain that by Christmas you'll be able to get one of these phones from a carrier "free."

But a "free" phone from a carrier is not a free phone. As my daughter Robin and I learned on a recent trip to Europe, you can't buy a third-party SIM card for a locked phone and just put it in. There are ways to unlock the phone with technical knowledge, but that breaks the warranty. When the average consumer asks about unlocking their phone, the answer is just no.

We got along fine, but my daughter's iPhone became a camera and alarm clock. For service, we relied on my unlocked Nexus 4, which I bought directly from Google last Christmas for $349.

Christmas is another key term. Christmas is when most people go phone shopping. Chanukah, Kwanzaa, Chinese New Year, and Diwali all fall within the sales period.

These "free" phones are going to hit around Christmas. Consumers won't be paying for them until they get locked into contracts, next summer. While Apple and the carriers have also put in policies designed to allow faster upgrades, that doesn't mean you're being unlocked from your carrier -- just the opposite.

By giving carriers their best deal ever, and by having its phones in every retail outlet around, Apple assures itself a dominant market share this fall. It's going to be harder for Samsung and Motorola and LG and HTC and even Google to reach consumers than it was before, through the channel, because the channel is getting the best possible deal from Apple.

Also note that no manufacturer is better at monetizing the data traffic from its phones than Apple. An iPhone user still buys more paid-for apps than an Android user, and Apple gets a fat cut of all that business.

That's what has Carl Icahn excited, and that will likely propel Apple to the top of its trading range by January, or beyond. At $468 he's getting stock with a price/earnings multiple under 12, a 2.61% yield, and an ongoing buyback program that will keep dropping the float from its current level of 908 million shares.

We're not even talking about whatever other new products might be rolled out in the coming weeks or months.

When everyone is stocking Apple, Apple stock becomes a buy.

At the time of publication, the author owned 80 shares of AAPL.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Dana Blankenhorn has been a business journalist since 1978, and a tech reporter since 1982. His specialty has been getting to the future ahead of the crowd, then leaving before success arrived. That meant covering the Internet in 1985, e-commerce in 1994, the Internet of Things in 2005, open source in 2005 and, since 2010, renewable energy. He has written for every medium from newspapers and magazines to Web sites, from books to blogs. He still seeks tomorrow from his Craftsman home in Atlanta.

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