The Apple iPhone and MVNO: Some Thoughts

Time for some specualtion over what everyone seems to think is the Holy Grail of 2005 – a mobile phone from Apple with some sort of iTunes support.

It’s an open secret that Motorola are working on something iTuney, what with leaks on Engadget and Gizmodo, rumours of existing phones syncing into iTunes 4.9, and useful programming strings (called phonexxxx.api or something) inside the 4.9 code, so I’ll take that as a given. What I’m also assuming is that the Motorola phone is going to be flash based, with 256mb or 512mb of capacity – possibly through a supplied expansion card (fingers crossed for SD or mini-SD, which is more likely), with maybe 128mb on board. In other words, a shuffle with a screen and a numeric keypad.

It’s not what the public see as an iPhone though, is it? They’re expecting something that’s at least an iPod Mini, maybe even a 20gig capacity. But there’s one stumbling block in the way of Apple getting this into the public’s hands. As with every innovation in the mobile space, if the networks don’t like, it’s not going to run. The thing here is Digital Music Downloads. The networks see this as the next saviour of their bottom line – people downloading the Beatles White Album for the nth+1 time over GPRS at whatever rate they set.

The problem is, everyone already has their favourite album in whatever format they like, and certainly in an open digital format (.mp3 most likely, although .ogg and standard aac are likely). Do you really think they’re going to stomach paying their mobile phone company even 50p/$1 a track just to get a tune they have paid for already onto their phone? The networks think so.

Apple, in public, will probably agree with this. But look at iTunes. It’s not as if you are forced to buy every song you put on your iPod through the iTunes Music Store (which would mean your 20,000 tunes on the 20gig unit is close to $19,500 to fill) – you can rip from existing CD’s and import audio files from your PC and around your local intranet. Sure you can still buy DRM’ed tunes from ITMS, but the point is Apple realised people are going to want their existing music onto their device.

Couple this with the US networks (allegedly) wanting to add 20 cents to the ITMS standard price as their cut – and Apple attempting to keep a level playing field and you’ve got a philisophical logjam. Far be it from me to comment on the price differential between the UK ITMS and the European ITMS at this point, where the Single European Market means that differential pricing on a single serivce across Europe – 79p per track in the UK, 99 eurocents on the mainland (around 69p) – is illegal as UK ITMS users cannot buy from (say) the French ITMS. That breaks the principle of free movement of goods and services between member states.

Anyway, the scuttle on the net is that Apple are going to (in part) bypass the US networks altogether and launch their own with a brand new invention from the networks, the MVNO (Mobile Virtual Network Operator). In effect Apple would hire bandwidth/airtime from a network (sounds like they’re using Sprint) and label the network “Apple.” People would get SIM cards from their nearest Apple Store (or www.apple.com) and away they go. The MVNO has anumber of operators in the UK (Fresh, Tesco and of course, Virgin Mobile) so really it’s a no-brainer in my mind.

Of course, to do this properly, Apple would probably want to sell phones as well as SIM cards. And as the Shuffle style device is already available from Motorola, they’d want something with at least iPod Mini capacity, PC/Mac syncing with iTunes, possibly Wi-Fi/Airport support… a whole bundle of things that Steve Jobs would think is vital to a mobile device, but all bullet points the networks (and certainly the US networks) want to avoid letting loose on the public.

Is this idea practical? Yep, although note that there’s been no FCC mentions of this mystery phone (which seems to be the greatest source of info for the phone hunter) and that, much as there is a lot of hype, Apple don’t make big steps like this very often. But on the other hand the iPod is pretty much at the top of the MP3 market, the smartphone is going to be more and more ubiquitous, music is (allegedly) going to save the networks,. Remember that iPods don’t make a huge amount of net income for Apple, the value is in ITMS. So why should Apple bail out the networks with the biggest brand on the planet when (a) they won’t play ball with Steve and (b) they’d like to keep more of the profits for Apple and their shareholders?

My feeling is an Apple MVNO in the USA is about 60/40 likely to happen. What do you think?

Update: Welcome to all the readers from The Register. My thoughts as of September on the iPhone can be found here (“Motorola and the Apple iPod Phone. Is This, Actually, A Good Idea?“).