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Apple's iPhone Just Isn't Worth It

This article is more than 10 years old.

That's the conclusion that T-Mobile has reached at least. No, not that an Apple iPhone isn't worth it for you, or for the Apple fanboi in your life. But that it isn't worth it for T-Mobile:

T-Mobile USA has lost customers because it does not carry Apple's iPhone, but the company is not willing to make major sacrifices to add the device to its portfolio, said a T-Mobile executive.

"Make no mistake about it: We would love to carry the iPhone. However, we want the economies to be right for us," said Jim Alling, COO of T-Mobile USA.

Sure, they'd love to have the customers who insist on having an iPhone, but there's another side to these calculations as well:

Alling said T-Mobile would not want to sign a deal similar to one a competitor recently signed with Apple. That was likely a veiled reference to Sprint Nextel, which began carrying the iPhone in late 2011 under a four-year, $15.5 billion deal with Apple. The device has substantially driven up Sprint's device subsidy cost, and the operator has said its iPhone business will not turn a profit until 2015. But Sprint is hoping that selling the iPhone will pay off in the long-term via reduced churn and higher data ARPUs.

The problem for the network operator (or airtime provider, whichever you prefer) is that they have to provide a subsidy to the consumer in order to get them using an iPhone. People will indeed purchase an iPhone at full price: at which point they want to be free to use whichever network they choose. But most people look for a handset subsidy: a lower upfront cost for getting the phone in return for paying some set fee per month over the life of the contract.

That, clearly, means that the airtime provider must subsidise that initial purchase and then recover its subsidy over the life of the contract. There's nothing strange about this at all: it's how the contract phone market has worked since its inception (yes, I was there at the beginning and yes it did work this way when a phone was the size of a brick and had to be plugged into a car battery).

However, the price that Apple charges for the iPhone is rather higher than most other manufacturers charge for their handsets. This explains Apple's huge margins: and why not, if they can manage it. But, as ever, someone, somewhere, has to pay that higher price. And it's the airtime providers in higher subsidies for iPhone subscribers than for other handsets. And it's at that point that T-Mobile thinks the iPhone isn't worth it for them.

They do a very good trade indeed providing airtime to iPhone users who have bought them elsewhere. But the subsidy necessary to get a new iPhone into a new subscriber's hands just doesn't seem to be a value proposition for them: when offset against the extra revenue to be earned from that new subscriber.

They might be wrong or right about this: clearly other companies have come to a different conclusion. But as far as T-Mobile's concerned, the iPhone just isn't worth it.