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As Apple (NASDAQ: AAPL ) hits a smartphone ceiling in emerging markets, perhaps the company has no one to blame but itself. The iPhone maker likes to stick to its guns in numerous ways, and that unwillingness to budge may be costing it opportunities.
A recent Bloomberg report outlines how Apple's strict carrier policies may be limiting its addressable market of subscribers. Apple's total number of iPhone carriers hasn't changed meaningfully in years, with approximately 240 official iPhone carriers around the world. Many carriers in important regions have yet to ink partnerships with Apple, in part due to the stringent requirements that Apple imposes on its carrier partnerships.
iWay or the highway
The company extracts incredibly high subsidies from carriers, which puts pressure on carrier margins. It also demands a much higher amount of control over the user experience; Apple is one of the few smartphone OEMs permitted to not ship devices with pre-installed carrier bloatware. On top of that, Apple frequently imposes minimum selling requirements, which could potentially put the carrier on the hook for millions of unsold iPhones.
For example, prepaid specialist Leap Wireless (UNKNOWN: LEAP.DL ) is having a hard time meeting its $800 million obligation, and estimates suggest its selling rate will be short by hundreds of millions of dollars over the next couple years. This rate has improved over the past couple months, thanks in part to some collaboration with Apple on advertising and promotion. However, even though iPhone sales are starting to turn up, Leap didn't adjust its estimates to how much it was short in its most recent 10-Q.
On the other hand, Sprint Nextel (NYSE: S ) initially signed on for $15.5 billion in iPhone purchases. Fortunately for the No. 3 domestic carrier, it appears to be slightly ahead of schedule with its own iPhone obligation, judging by its reported iPhone activations and quarter-specific iPhone average selling prices. Sprint still has 10 quarters to go.
If Apple were to relax its carrier policies a little bit, the company could reach an estimated 2.8 billion new smartphone customers, most of which are in important Asian countries.
The most prominent holdout is China Mobile (NYSE: CHL ) , the largest carrier in the world. At the end of March, China Mobile had over 726.3 million wireless subscribers, representing nearly two-thirds of all subscribers among the top three Chinese carriers. Investors have been waiting for years for Apple to hook up with China Mobile, which will hopefully happen later this year. Apple needs to score China Mobile ASAP, since the longer it waits, the longer rival platforms have to grow installed bases.
NTT DoCoMo (NYSE: DCM ) is another major Asian carrier waiting to sign on Apple's dotted line. Japan's top carrier has 61.5 million subscribers that Apple could tap into. Smaller rivals SoftBank and KDDI both offer the iPhone, and are using the device to chip away at NTT DoCoMo's lead. Apple recently became the top smartphone vendor in Japan, which is particularly impressive since the iPhone isn't on the largest carrier and also because Japanese consumers are culturally averse to foreign brands.
Those two carriers alone represent almost 800 million subscribers, a large chunk of the 2.8 billion estimated subscribers that Apple's missing out on. In contrast, Samsung pursues wide distribution and sells through almost all of the 800 worldwide carriers, according to Asymco's Horace Dediu. That's over three times the 240 iPhone carriers.
Time to loosen up, Apple.
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