Could Apple Solidify GSM in the US?

Apple could get the US to finally move to GSM

ThinkSecret reports that the much-rumored-about iPhone from Apple is coming and will be available exclusively through Cingular. If true, it would mean that Apple has decided to take a position on what phone stack it is willing to support and has come out on the side of GSM.

Understanding the mobile landscape

In a lot of ways, the mobile phone landscape in the United States could be considered a case study into how sometimes the free market fails end users. Let me explain: in the late 80s and early 90s, there were two different types of technologies available in the US for mobile phone delivery: CDMA and TDMA. However, due to vendor differences, the market fragmented even further with Sprint PCS (now Sprint Nextel) adopting a different flavor of CDMA than Verizon. Meanwhile, Nextel (now part of Sprint Nextel) adopted a proprietary technology called iDen, which was based on TDMA while T-Mobile and Cingular adopted GSM, a flavor of TDMA that has become the global standard outside of the US.

The bottom line on this whole acronym soup is that most mobile operators in the United States cannot operate on each other’s networks because they are using different technologies. This is why foreigners visiting the US generally lament about the poor quality of the mobile experience in this country and why the US is falling behind in the global mobile race. This is also why most American mobile phones don’t work abroad.

Because Cingular and T-mobile used the same GSM technology, they agreed to share their networks, allowing their customers to use both networks transparently, in a situation similar to the one one would witness outside of the US. The fact that they use GSM is also why a lot of cool phones make it to their networks before they are available to other providers. Verizon is now hedging its bets by introducing hybrid CDMA/GSM phones under the heading of Global Phone Service. To many outside the US, it looks like GSM is already the winning format in the standards war.

Enters Apple

Traditionally, Apple has been known for its exceptional industrial design (creating hardware people lust after) and marketing (also known as the reality distortion field). However, one of the other interesting features of Apple is the company’s willingness to take a standard and move forward with it. For example, by rebranding the 802.11b standard into Airport and later the 802.11g standard into Airport extreme, Apple pushed forward usage of wireless networking. Apple was also the mainstream PC first company to decide to drop disk drives being installed by default on their machines, prompting the rest of the industry to follow suit. The recent removal of modems from their new laptop lines does, in my view, harbor the death of modems being built into computers by default.

Meanwhile, the recent success of the iPod eco-system has gotten many vendors to rethink their strategy when it comes to the portable media player.Microsoft is now creating a closed system called Zune, following the Apple iPod + iTunes strategy and Sandisk and Real Networks are working on a similar walled garden approach. These trends seem to be defying common wisdom as to the progression of markets, whereas markets would generally tend towards standardization.

But what does all this have to do with mobile, you might ask?

Well, the question here is how successful Apple can be. If it creates a product that is so compelling that users will be interested in switching carrier for it, Apple may actually tip the scale on adoption of GSM in the United States. Going back to the ThinkSecret piece

insiders say Apple is internally estimating that shipments of the iPhone will top a staggering 25 million in 2007 alone

According to Gartner, roughly 700 million phones will be sold this year so it’s not improbable that Apple would try to sell 25 million, which would garner it a marketshare of 3 percent. But the overall market numbers may be misleading as many of those mobile phones are on the lower end of the price range, aiming at the developing world, a market Apple is not current going after. The numbers get more interesting when one considers single operators: for example, Cingular is the largest US operator with 56 million subscribers. If Apple were to work its magic here, Cingular could see anywhere up to a 10% growth or more in their subscriber base just on that one product. These users would move to a GSM network and away from CDMA technology.

From there, two possible scenarios could evolve: Apple could decide to license CDMA technology from Quallcom (CDMA is a proprietary technology so every vendor has to pay Quallcom for its use) or say that they are happy in the GSM-only market. If they were to do the latter, they could potentially tip the scale in a life-long fight in the US, making GSM the standard.

But why is Apple interested in mobile?

When considering rumors about an iPhone, one might wonder the interest Apple may have in that marketplace. After all, it’s not one that the company has ever entered and there doesn’t seem to be much overlap with their current existing products.

However, one has to look at the natural progression of the music business to understand why Apple would be interested in this market segment. While its current iTunes store sells roughly US$2 million a week of tracks, the ringtone market is much larger and the margins are supposedly better. So Apple is getting into the market for two possible reasons: first, it needs to protect the market it’s created with the iPod and sees mobile as the next evolution and a potential competitor to their single use device. Second, the company sees a market it wants to dominate. So that adds up to a new phone

But can Apple tip the scale on GSM?

As it stands, GSM in the US is supported by 2 of the big four operators. If Apple is successful, one could see defection from the other two. It’s not going to be an overnight kind of thing but, much like Apple has forced its competitors in the music field to reconsider their position, it could happen in the communication field.

Of course, all this is predicated on those standards still being relevant further down the line. If phones move towards more of a VoIP model, as I suspect will happen over the long run, this may all be irrelevant but, for the time being, a major shift of that kind could have tremendous impact in the telecom world.

About the Author

Tristan Louis

Writing and working on the internet since 1993, I've launched 6 companies, of which 2 (internet.com and Earthweb) went public and two were sold (Net Quotient and MoveableMedia). My latest, Keepskor provides tools allowing anyone to develop mobile and connected TV games without writing a line of code. This is my personal site and all opinions here are mine.

  • R. Boylin

    Apple’s 25M in sales is likely to include Europe as well. In any event GSM is the best bet for Apple to garner a share of both markets. The expanding functionality of mobile phones has led to customer frustration with the technology. Apple probably sees the opportunity to dramatically impact that segment as well as multi-media content. Video conferencing with iChat might signal another potential in the future.

  • DB

    Big problems with this story — Verizon and Sprint are interoperable and customers roam on each other’s networks in markets where they are not blocked from doing so. And Alltel and US Cellular also use the same CDMA technology. Even with Cingular and T-Mo more of the US is on CDMA than on GSM and more of the country is unserved by GSM than unserved by CDMA.

    The real issue is that Verizon in particular refuses to support Java on cellphones and disables all kinds of third-party customizability on their phones. An iPhone by nature would need this customizability and Verizon by their nature would cripple it. And of course you have all that GSM elsewhere in the world. Yes, Apple is smart to go GSM to start, but it isn’t because GSM is necessarily winning in the US.

  • John Thacker

    Of course, GSM now is not GSM. GSM is WCDMA, which is based on a CDMA air interface. Everybody still has to pay royalties to Qualcomm as a result, though not as high as with the various standards collectively called “CDMA.” And it’s not backwards compatible to the old, TDMA-based GSM.

    The word “now” is also misleading, as Verizon has long offered those “Global Phone Service.”

    Also, Japan has totally different phones than everyone else (not on the same bands as regular GSM,WCDMA,CDMA), and their phones don’t work with anyone else, and South Korea is absolutely CDMA dominated. I haven’t heard anyone claim that Japan and South Korea are “falling behind in the global phone race,” nor lacking for features… which are mostly a carrier issue.

  • David McElroy

    If Apple sold 25 million phones in a market of 700 million phones, that would be 3.6 percent of the market, NOT .3 percent. Someone needs to take another look at the math. 3.6 percent isn’t a footnote in such a market, especially for a new player.

  • http://www.tnl.net/blog/ Tristan Louis

    thanks to all those who corrected my math. I made the correction. 3 percent it is indeed…

  • Martin Hill

    “According to Gartner, roughly 700 million phones will be sold this year so it’s not improbable that Apple would try to sell 25 million, which would garner it a footnote inducing marketshare of .3 percent”

    I think you mean 3.6% which is a bit more than a footnote on a global scale.
    :-)

    -Mart

  • William S

    A couple of extra issues to consider:

    1) If the Apple phone is sold as ‘unlocked’ then any GSM user globally (such as here in Canada, with FIDO network) can flip their SIM card in it and become a user.

    2) If the Apple phone is Quad band (covering the 4 global frequencies of GSM) then all markets will be covered, including Asia, Europe, etc.

    BRING IT ON, BABY!

  • http://blog.echovar.com/?p=10 JeffreyHF

    So the premise is that Apple will use only GSM/GPRS/EDGE, and not the far faster 3G technologies based on the CDMA air interface, WCDMA (UMTS), HSDPA, and later HSUPA and LTE? Is it also assumed, that lackong GSM IPR of its own, Apple will be immune from paying GSM royalties, which to non-IPR holders are said to cumulatively exceed 20%? I think both assumptions are daft. 3GSM is CDMA, despite that latest marketing moniker.

  • http://blog.echovar.com/?p=10 Ecurb

    Data on GSM doesn’t fly.
    “3GSM” is CDMA.
    Evolved 3GSM is HSDPA/HSUPA which is CDMA.

    Basic stuff.

  • Scott F

    For the average user, what the abbreviations are doesn’t matter. What matters is that I, with a 3G GSM phone from the UK can use my phone in almost any country in the world with zero reconfiguration required.

    If a 3G GSM network is unavailable, it will drop down to one of the normal GSM standards automatically.

    My answerphone messages and Text Messages follow me everywhere and usually I can access data services in some form around the world too.

    With the non-GSM American phones you may be able to use your phones overseas in a few countries (my old home NZ being one of them) but a lot are converting to GSM anyway.

    With GSM, Apple get to make one phone – and concentrate on the features rather than all the different protocols. They’ll probably be able to license a lot of excisting technology too.

    GSM phones compared to the opposition are like Macs to PCs ;)

  • http://blog.echovar.com/?p=10 James Robertson

    Tristan’s claim: “The recent removal of modems from their new laptop lines does, in my view, harbor the death of modems being built into computers by default.”

    The word “harbor” in this context is incorrect (I don’t think he meant to imply that Apple’s action protected modems). Possibly he meant “augur”

  • E

    Regarding WCDMA and Qualcomm:

    http://en.wikipedia.org/wiki/WCDMA

    * The term CDMA in the mobile world typically refers to the CDMA family of standards developed by Qualcomm. They are protocols, sets of defined specifications of mobile communications
    * CDMA (the multiplexing technique) is used as the principle of the W-CDMA air interface protocol, as well as Qualcomm’s CDMA protocols
    * W-CDMA strictly refers to a mobile phone protocol with detailed specifications, as defined in IMT-2000
    * The W-CDMA protocol was developed independently of the CDMA protocol developed by Qualcomm.
    * The CDMA family of standards (including cdmaOne and CDMA2000) are not compatible with the W-CDMA family of standards that are based on ITU standards.