What if Apple had its own wireless network?
A Business Week article on Monday, citing two unnamed sources, said Apple is considering a bid on the chunk of 700 Mhz wireless spectrum that the Federal Communications Commission plans to auction Jan. 16. (It's the part of the spectrum that television channels currently use to broadcast their over-the-air signals.) Many have called this spectrum "beachfront property," as anyone who owns it will be able to set up a powerful wireless broadband network. Possession of a piece of this spectrum would free Apple from requiring a partner such as AT&T to provide the network services for the iPhone. That must appeal to Apple -- we all know how much Steve Jobs relishes controlling "the whole widget."
But as tempting as the idea sounds – imagine the elegant integration of Apple wireless products with an Apple-operated network – analysts have dumped an ocean of cold water on it. Articles from other publications such as Forbes pointed out yesterday that while Apple has the motive and the money (nearly $14 billion in cash), building and operating a wireless network does not suit the company's core strengths: designing cool consumer hardware and software.
A list of the potential hurdles:
1. Operating a network generates low profit margins, and almost everything Apple does generates high profit margins or, as with the iTunes Store, encourages the purchase of high-margin products.
2. Apple has no experience in creating and running a national wireless network, but would be competing against several large telecommunications companies that do.
3. Nitty gritty details like billing, activation and consistent signal quality would sop up a lot of resources Apple can't afford to spare.
4. Whoever wins the spectrum – the television broadcasters are scheduled to surrender it to the government in 2009 – will be required to maintain an "open" network that will allow competitors' devices to access it. Apple would be loath to support devices not of its own creation.
Still, Apple's commitment to the iPhone means it has a vested interest in the Jan. 16 auction and its eventual winner. One would expect Apple to be mulling some form of participation. If the major telecommunications players such as Verizon and Sprint gobble up this newly available spectrum, Apple's unappealing options among network service providers will not improve.
But consider if one or more of Apple's techno-allies wins a significant block of the spectrum. I'm thinking specifically of Google and Intel, both of which have publicly stated interest in bidding. The Business Week article envisions a possible bidding war between Apple and Google, but Steve Jobs' close friendship with Google CEO Eric Schmidt – the guy serves on Apple's board of directors, for Pete's sake – conjures a distinctly different scenario.
Schmidt has said Google will put up the minimum $4.6 billion to bid for the spectrum, and the company led the campaign to persuade the FCC to require the winner to make the network open. But Google would face many of the same hurdles as Apple in trying to create and run a wireless network from scratch, primarily a lack of experience. In fact, Google may be at even more of a disadvantage; its expertise lies almost entirely in Internet-based software and services.
Intel, at least, has plenty of hardware experience, although the development of microchips and motherboards doesn't have much in common with operating a wireless network.
However, a partnership forged of all three companies would make for a formidable opponent. Since all three have an interest in the spectrum but little expertise in running a wireless broadband network, the trio might consider jointly backing a fourth player that does have the necessary expertise, namely Clearwire.
Could Apple, Google and Intel team up with Clearwire to create an alliance aimed at breaking the stranglehold the big telecoms have on wireless communications? The connections are all there. As I said, Schmidt serves on Apple's board. Intel President and CEO Paul Otellini has served on Google's board since 2004. (Intel also can call on the wisdom of Reed Hundt, a member of its board who happened to have served as chairman of the FCC for four years.) And since Apple switched to Intel chips, those two companies have grown accustomed to working closely together. Want more? Intel Capital, Intel's venture capital arm, invested $600 million in Clearwire last year. Intel's relationship with Clearwire stretches back to 2004.
I know it's all far-fetched, but it would be glorious, wouldn't it?