Summary
The recent announced that Verizon, Sprint and AT&T will offer Google-based Android platform handsets is a major development. Not only does it change the dynamics of the iPhone exclusive debate next year, it adds further pressure for T-mobile to find a new path to gain market share. As a result, T-mobile is more likely to strike a deal with Clear or acquire Leap and/or MetroPCS.
Analysis
The recent announcement that Verizon, Sprint and AT&T will offer cellular phones running on Google’s Android platform is significant for several reasons. If there is anyone that can produce products in the near-term that can compete effectively against the iPhone, it’s the folks at Google. And considering the impressive advantage in 3G network coverage that Verizon holds over AT&T, they might just persuade some customers to come their way.
The key in wireless is still this: what kind of devices are you selling? There are numerous players trying to create the iPhone competitor but none of these handsets can deliver the overall experience Apple now offers due to their dominance in applications. However, as an open source platform, Android provides the possibility of introducing its own fascinating tools, games and silliness with the added benefit that these applications are working in the Google environment. Verizon has made a good move to partner with Google but with all the major carriers selling Android products their competitive advantage remains their size; both in customers and coverage.
Perhaps the biggest loser in the Google/Verzion partnership is T-mobile. Previously the only source for Google Android phones, they now find themselves as the spurned dance partner as the other Big Four join the Android craze. While Google will certainly maintain the relationship with T-mobile, you can rest assured that Verizon and AT&T are now the main focus for Android products. Now T-mobile must seek new niches and look for another successful product to stay relevant. Frankly, I’m not sure how they can compete effectively as they are getting squeezed by the regional unlimited players (MetroPCS, Leap, Pocket, Revel) while losing market-share to the big boys (AT&T, Verizon).
Sprint is also struggling to bring sexy products to market and the Palm Pre’s respectful but not extraordinary results suggest just how difficult that proposition remains. But at least Sprint has its 4G roll-out and all the possibilities of interesting new usages (TV via broadband anyone?) that give them hope. While they continue to struggle with high churn, they do have the hope of establishing an interesting mesh of niche markets from Boost and Virgin prepaid to mobile broadband.
T-mobile’s recent play to gain access to LTE or 4G networks shows how necessary it is in the wireless game to always be cutting edge. Stop moving forward and you find yourself at a significant disadvantage. Perhaps Clear (Sprint’s 51% ownership notwithstanding) will sell access to T-mobile as they do need the capital. That would make for the strangest of bed-fellows but the wireless industry has never been short on creative relationships and this one does make sense, at least on paper.
Or T-mobile might make a big gamble and go after Leap and/or MetroPCS. In fact, they could combine those two prepaid carriers, add the additional coverage available on the T-mobile network and have a major player. It would be a bold move and would be extremely disruptive to the post-paid world. But it would require a massive shift in the T-mobile business model even if they kept the brands segregated. Some may doubt that a GSM carrier would acquire a CDMA provider but with LTE rolling out by 2011, this is not as big a concern now.
Perhaps T-mobile will become the second US carrier to offer the iPhone when AT&T’s exclusive ends next year. The bidding between the Big 4 will be fascinating to watch and AT&T will do all it can to maintain the iPhone exclusive. But having the iPhone at T-mobile instead of Verizon would certainly be to AT&T’s advantage. And with the FCC watching the exclusive issue closely, an additional carrier offering the most successful phone of all time might be in the cards. Only time will tell how these questions get answered, but for now, it appears that the T-mobile executive team will face many sleepless nights as they wrestle with their next move.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
