In other iPhone-related news, U.S. providers AT&T, Verizon, and Sprint are expected to post lower-than-anticipated third-quarter earnings due to the high costs of subsidizing the relatively high-priced new device. While subscriptions for the iPhone 5 – along with those involving other LTE-compatible smartphones – should eventually prove lucrative for these providers, they will each likely need to endure some short-term financial pain in order to avail themselves of the benefits.
This story reinforces our conclusions concerning the logic of mobile operators expanding into device design. Sales of the iPhone 5 will result in dramatic up-front cash demands on each of the aforementioned service providers, which they have no real choice other than to accept. Moreover, it is not just the timing of profits that will be impacted by Apple’s policies. To a large degree, it is also the level. In our view, MNOs are in danger of essentially becoming distributors, which by their very nature have low margins and unappealing prospects. To be high-margin companies, exercising self-determination, service providers ultimately must go into competition with Apple. And the only way they can do so is by offering their own competitive smartphones, because smartphones have unquestionably become the driving force in the mobile market. From all appearances, that is unlikely to change any time soon.