Apple Buying Sprint Fixes Everything

This isn't supposed to be Apple's (NASDAQ: AAPL  ) week.

We're seeing iPhone rivals hog the spotlight. Yesterday we saw BlackBerry (NASDAQ: BBRY  ) shares soar on buyout chatter and news that the Z10 smartphone will finally hit the stateside market later this month. In two days it will be Samsung's turn to shine as it unveils the anxiously anticipated Galaxy S IV.

Apple doesn't really have to worry about BlackBerry at the moment. The new BlackBerry 10 mobile operating system is impressive, but developer support will remain lukewarm until it achieves critical mass.

Thursday's Samsung Unpacked event will be a game changer. If the leaked specs are accurate -- the 5-inch screen with 1,080p resolution, the 13-megapixel camera with the ability to snap 3-D pictures, a speedy 1.8GHz processor, and a full two gigs of RAM -- Apple's iPhone 5 will be behind on all fronts.

Spec sheets alone don't sell smartphones, but the gaps in software advantages and developer support have been narrowing between iPhone and Android.

Apple needs to do something big and bold. How does buying Sprint Nextel (NYSE: S  ) grab you?

Don't laugh
Buying the country's third-largest carrier would seem to be a colossal mistake on many different levels.

  • The move would upset Apple's two largest domestic carriers, putting beefy subsidies and support at risk.
  • Sprint's still losing a lot money.
  • Apple would only be tackling the stateside market when the larger problem is the price of its unsubsidized smartphone in overseas markets.

Let's file that all away in the "I know where you're coming from" folder, and get right back into why this could be exactly what Apple needs at this juncture.

Apple has a problem, and you're seeing it on unconfirmed reports of Apple scaling back on iPhone 5 and new iPad devices from its suppliers.

Folks are buying the iPad Mini at $329 because it's perfectly adequate and nearly as good as the $499 iPad. Apple and analysts were surprised with the product mix for iPhones during the holiday quarter as customers went for the cheaper iPhone 4 and iPhone 4S models that are $200 and $100 cheaper, respectively.

Is the primary takeaway here that consumers are trying to save money or that Apple is down to courting penny-pinchers to gain traction with the next wave of mainstream mobile gadgetry shoppers?

Let me introduce a new wrinkle to explain the lack of demand for the iPhone 5 despite its distinct advantages over earlier models. I've owned an iPhone through three generations of the defining smartphone, but I'm in no hurry to hop on the iPhone 5. AT&T (NYSE: T  ) and Verizon Wireless have grandfathered longtime customers with unlimited data plans, but that perk ends the moment that they upgrade to a 4G device. Verizon Wireless will toss you into tiered pricing unless you pay $450 more for an unsubsidized iPhone 5. AT&T caps the usage at 5 gigabytes before dramatically lowering the connectivity speed.

Sprint is the only one that continues to market unlimited data to new customers, but, yes, it's also Sprint. There's a reason why Sprint is a distant bronze medalist despite offering better deal.

Be the carrier
Apple operating a wireless carrier isn't an original premise.

Veteran wireless industry guru Whitey Bluestein told attendees at last year's Informa MVNO Industry Summit that Apple was about to start offering wireless service plans directly to iPhone and iPad users. He even pointed to patents filed in 2006 for network architecture that would pave the way for its entry into the carrier market.

It didn't happen. Apple was a market darling at the time, and an entry into the lower-margin wireless services market would've crushed the stock.

However, Apple's in a different place these days. The stock hit a 52-week low last week. Margins are already starting to contract. The wireless carrier partners that Apple was relying on in the past are haggling over subsidy rates, marketing Android devices over iPhones that result in healthier margins for the carriers, and are now -- in the case of AT&T and Verizon Wireless -- making it hard to upgrade to an iPhone 5 for longtime iPhone users.

If there was ever a time screaming out for Apple to be its own wireless carrier, that time is now.

Apple could roll out its own carrier, but the smarter bet is to snap up Sprint. As the world's richest company, Apple can afford it, as well as bankroll the necessary improvements to make it a quality carrier. Buying Sprint also means that Apple wouldn't be competing against Sprint at the low-end of the market.

Apple won't face regulatory hurdles as the country's second-largest smartphone platform buying the third-largest wireless carrier. Having its own carrier -- the only one offering unlimited data -- would also be a selling point for iPhones. If Apple takes the brazen move of limiting new Sprint purchases to Apple devices, the iPhone can position itself as a cheaper ownership proposition than Google's (NASDAQ: GOOGL  ) Android on the two larger carriers. It would also make sure that the slim chances of BlackBerry 10 or Windows Phone 8 succeeding get even more svelte.

Buying Sprint would redefine Apple's positioning, and that's a good thing at a time when the market hates Apple and everything is coming up Android.

Google's done it. Why do you think it paid up for Motorola Mobility? Why do you think it rolled out Google Fiber as its own broadband service? Sometimes you have to do some pretty unconventional things to protect one's turf. Google Android was exactly that! With Google Fiber, the dot-com darling simply didn't want Internet providers capping usage to the detriment of its flow of online advertising. Now it's Apple's turn to do something daring to protect its turf.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (13) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 12, 2013, at 7:45 PM, lionelmaye wrote:

    Another dumb article... What do you mean "the lack of demand for the iPhone 5" ??? The iPhone 5 was the best selling phone in the world last quarter and the second best was the iPhone 4S. It means that people preferred a one year old Apple product to the flagship Samsung with the bigger screen, the Galaxy SIII, which came third, more than 2 million units LESS than the iPhone 4S. I am sick and tired of the Apple bashing, especially when it is completely farfetched!

  • Report this Comment On March 12, 2013, at 8:02 PM, dbtuner wrote:

    Actually, this is not a bad idea. Why not buy Vodafone instead? You get 45% of Verizon Wireless and some good Euro and EMEA markets. It might cost $150B, but Apple has that cash or could go into debt to get it

  • Report this Comment On March 12, 2013, at 8:06 PM, fool94085 wrote:

    Why not buy Samsung and kill the competition?

  • Report this Comment On March 12, 2013, at 8:08 PM, garysund wrote:

    Everyday there is a new artical or comment on what apple should or should not do. Buy up another company, raise the dividend, have a one time huge dividend. Come out with a iwatch or itv. The fact is apple never has or never will care what anyone thinks and will never ever care about their investors good will. They do their own thing and if you are not happy don't invest with them or don't even buy the products they make. But no matter what you think or how you feel the fact is they make great products that a huge amount of the world population loves and pays lots of money for. Yes apple has a company or two that competes with them. They don't care if they own 100% of any one market. They just want to make the best possible products that a person is willing to pay a little more for. Apple stock has made some big moves up and then down. If you bought in at the high end and are still in then you are pretty upset at the moment. Nobody enjoys having a loss. But if you have not sold your stock you haven't lost. Just wait around a bit and you will see apple will be loved by investors again and the stock will soar. It might take a little more time. But as they continue to build up their cash and it gets up to 200 billion then 300 billion people will see that they know what they are doing and love them again. Mark my words.

  • Report this Comment On March 12, 2013, at 8:45 PM, Gary03mw wrote:

    I refuse to believe that any logical human would think that buying Sprint is a good move for Apple.... much less "fixes everything." Not only that, but you can't really think that only offering Apple devices on the network would be a good idea?

    Sprint is already struggling to compete with the two larger carriers who have clearly superior networks. How in the world do you think they would be able to compete if you forced all their customers to only buy Apple devices? You want to know the answer? They wouldn't. This move would kill Sprint and thus it would be a 20 billion dollar waste for Apple that in the end would only strengthen the big two carriers.

    This might be the worst idea for the use of Apples cash that I've read yet.

  • Report this Comment On March 12, 2013, at 9:38 PM, jm5150jm6 wrote:

    your MAIN problem with this hypothetic article is the fact that Softbank already bought Sprint.

  • Report this Comment On March 12, 2013, at 9:52 PM, Oril wrote:

    Here's a better idea you fool.

    Why not have apple buy all the US carriers then they can just ban all but apple products. This is America you are talking about right? Stifle the competition and ban all foreign products

    How 'American' is that?

    And here we thought the republicans lost the election.

    You fools

  • Report this Comment On March 12, 2013, at 9:57 PM, Oril wrote:

    Sprint is already losing billions of dollars a year because of the deal they made with apple.

  • Report this Comment On March 12, 2013, at 10:06 PM, Oril wrote:

    Hey garysund your post was the best one yet.i love the part about if you bought apple at the top and haven't sold then you haven't lost. Lol

    I bet you also believe that those who shorted blackberry at the bottom and haven't covered yet haven't lost either. The reality is you are both facing almost unlimited losses due entirely to your stupidity.

  • Report this Comment On March 12, 2013, at 10:26 PM, therealjoeschmo wrote:

    I must congratulate the author on writing a great piece of fiction. Imagine how the other carriers will react if Apple does go out and buy Sprint Nextel. Think AT&T and others will continue promoting iPhones?

    Apple has lots of smart people working for them. They'll find a better way to put all that cash to work

  • Report this Comment On March 12, 2013, at 11:45 PM, BSeems wrote:

    This is incorrect: "AT&T (NYSE: T ) and Verizon Wireless have grandfathered longtime customers with unlimited data plans, but that perk ends the moment that they upgrade to a 4G device. "

    I have AT&T unlimited and upgraded to the iPhone 5 (with 4G/LTE) and still have unlimited data.

  • Report this Comment On March 13, 2013, at 2:03 AM, Mapleman1414 wrote:

    lionelmaye - Apple goes by number of units shipped, falsifying their numbers on how many phones are activated where as Samsung goes by the number activated. Another reason why Samsung is better...

    tgerealjoeschmo - learn to read... Apple would sell strictly through Sprint but be able to sell cheaper upping their popularity again.

    BSeems - congrats on your unlimited data, which allows you to bd throttled to 3G speeds at any time and no FaceTime that you apple users are so fond of outside of wifi. One more thing, learn to read, again, about the Verizon bit, they said buying the phone outright to keep the unlimited which is even more stupid unless you really use a retarded amount of data, where I would say do something productive.

    Oril - 1: monopoly is frowned upon in the states. 2: Samsung wouldn't accept. 3: garysund was correct, if you haven't pulled the money out yet its not a financial loss yet... I agree with him by the way, patience is a virtue.

    Gary03mw - Apple will have the only current unlimited network, LTE towers will actually exist for sprint and their customer service would be much better. They would also be able to charge a premium for those who want the unlimited on android phones, because they will now be profiting from those phones as well. It would be a great move.

    You are all fools

  • Report this Comment On March 13, 2013, at 10:42 AM, Gary03mw wrote:

    @Lionelmaye

    1. Units shipped is a better measure. Phones can be turned off and reactivated many times. Do you know how many old iPhones are being reactivated all the time because of resells? This would fudge Apples current sales massively if they went by this metric. I'm not sure how this makes Apples or Samsungs products better though, unless you are just some fanboy...

    2. Yes, Apple would have the only current unlimited network... and? I mean Sprint currently has this and they are losing right? Why would that all the sudden change if Apple had it? I'm inclined to believe that it wouldn't. Then you would like for Sprint, of all carriers, to charge a premium for Android devices that people can get cheaper on better networks? Good luck with that one.

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