Four years ago, an Apple patent surfaced that outlined how the consumer electronics company might become something called an MVNO. Rumors to that effect have persisted for years, most recently resurfacing this week at Business Insider. Apple swatted the latest aside, telling CNBC that it hasn’t discussed and isn’t planning anything of the sort. And that’s a shame, because it absolutely should.
MVNO may sound like an obscure pharmaceutical stock ticker symbol, but it stands for “mobile virtual network operator,” which is admittedly still pretty inscrutable. In practice, though, it’s very straightforward, explains telecom industry analyst Jeff Kagan.
“An MVNO is simply a reseller,” says Kagan. “It’s a company who strikes up an agreement with a wireless network to sell wireless service without owning their own networks.”
Think of it as Costco, but for wireless service. In the same way that your favorite bulk toilet paper provider repackages name-brand cereal for its Kirkland Signature private label, MVNOs like Republic Wireless (Sprint) and MetroPCS (T-Mobile) are simply selling you access to a larger carrier’s network, often for less than their affiliated providers charge.
Take, for instance, Straight Talk, an MVNO owned by TracFone and available in Walmart retail locations. Straight Talk piggybacks on both GSM (T-Mobile, AT&T) and DCMA (Verizon, Sprint) networks, while offering an unlimited talk, text, and data plan for $45 per month, a significant discount compared to any of the big four carriers supplying the bandwidth. It’s able to do so in part because it’s bought up wholesale access to those networks on the cheap, and in part because the scale enabled by its Walmart partnership makes thin margins more feasible.
The other way MVNOs make money? No overhead. “They have no network to invest in, so there’s very little capital expense” explains Iain Gillott, president of iGR, a research firm that specializes in the wireless and mobile industry. That freedom from having to build and maintain massive networks also enables MVNOs to seek out very specific audiences. “Since they do not have to invest in networks, they can afford to target niches,” Gillott goes on. “Prices are usually better, or at least they offer more value for similar dollars, but often MVNOs will not offer the same range of services.”
Republic Wireless and Straight Talk and MetroPC may be the best-known MVNOs (TracFone alone has around 30 million subscribers), but the one that may be most relevant to Apple-oriented speculation is one of the smallest, and most recent: Google’s Project Fi.
Google launched Project Fi this past April. Next to more established MVNOs, it operates on an infinitesimal scale, available only on the company’s flagship Nexus 6 smartphone. What Project Fi lacks in breadth, though, it makes up for in innovation. More importantly, it provides a blueprint for any similar ambitions Apple might have.
Project Fi offers a few features that are hard to come by among traditional carriers. Chief among those, and most common to MVNO, is a more competitive pricing scheme. In this case, you pay $20 per month for unlimited talk, text, Wi-Fi tethering, and international coverage, and then an additional $10 per month for each GB of data you use. Crucially, though, you only pay for what you actually consume; chew through 1.5GB in a month you paid for 2GB, and you get $5 credited back to your account.
The real key to Project Fi, though, is that Google bought up network access from both T-Mobile and Sprint. Whichever network is more reliable where you are in that moment, that’s the one to which your phone will connect. “Not all carriers are good in all places,” explains Gillott, “but in each market, a few carriers are very good. The problem is that they vary.” By hedging its network bets—and offering a seamless Wi-Fi to cellular handoff—Project Fi phones are better steeled against dropped calls and fuzzy connections than phones that rely on a single network.
Sounds good! But why so small? In part because it’s an entirely new business for Google, and a small pilot program helps determine whether it’s worth a more aggressive push. It also, though, doesn’t necessarily need huge scale to be effective. “I look at Google Fi in the same way as Google Fiber,” says Gillott, referencing Google’s equally disruptive, small-scale broadband play. “Has it had any operating impact on AT&T, Verizon, and the cable companies? No, but the fear of Google Fiber did make all the broadband folks sit up and invest in their networks. I get 100 Mbps from TWC for the same price I used to pay for 15 Mbps.” Similarly, the mere threat of an expanding Project Fi could potentially effect change among the big four U.S. carriers.
It’s worth spending so much time on Project Fi because this is the exact lens through which Apple would be looking at an MVNO of its own: A chance to reshape the unpopular industry on which its most important product relies.
“Apple has been playing with the MVNO idea for years,” says Forrester Research analyst Dan Bieler. “Ultimately, it is about a power struggle with the telcos.”
The impetus for that kind of grappling should be apparent to anyone who’s ever spent time on hold with Verizon, or waded through fine print mined with early termination fees. Apple is popular. Carriers are not. So why cede so much of your customer’s iPhone experience to the latter?
It’s not a small gap, either. In the 2014 American Consumer Satisfaction Index, Apple ranked 15th overall, and just narrowly second (behind Amazon) among technology companies. AT&T, T-Mobile, and Sprint all sit near the bottom, while Verizon managed to split the difference, likely thanks to its perennially reliable coverage.
Selling iPhones, then, must often feel like serving filet mignon in an Arby’s. No wonder Apple has been rumored to seek a way out. Especially one with such a relatively low barrier to entry.
“You can get into the wireless business overnight at low cost by being an MVNO and seeing if it works,” says Kagan.
If and when Apple changes its mind, you could expect it to follow the Project Fi model with a few improvements. It could tap into all four major U.S. network providers, providing even more comprehensive coverage than Google’s two-network MVNO. Apple could leverage its existing customer service chops to ease those common carrier pain points. It already has your credit card on file, which would streamline the billing process.
Most important, though, it would have the opportunity to reshape the arcane pricing labyrinth that makes negotiating the current cellular landscape such a pain.
“The more Apple can control the customer relationships, data collection, and revenue generation, the greater its influence will be… the emerging digital ecosystems,” explains Bieler. “I think Apple’s real intention is to force the traditional telcos to offer more competitive data and voice plans.”
And as counterintuitive as it may sound, the entrenched carriers may very well let it. “They’re frenemies,” says Kagan. “It’s the way the industry operates. On the one hand you’re partners, on the other hand you’re competitors. It’s been that way forever.”
It’s safe to assume that the maker of the world’s most popular high-end smartphone has plenty of leverage. You don’t even really need to assume, though; Apple’s already introduced a carrier-rankling iPad SIM card that lets you switch between AT&T, T-Mobile, and Sprint data plans at will. There’s been some blowback (if you purchase an iPad direct from the carrier, the SIM will likely come locked down), but clearly not enough to dissuade Apple from pushing forward.
Apple may be waving off the idea of an MVNO for now. It shouldn’t. Not if it wants what’s best for Apple, for its customers, and for anyone with a data plan.Go Back to Top. Skip To: Start of Article.