For the past five years, T-Mobile has been repeatedly spurned by the iPhone. At long last, the fourth-largest wireless carrier in the U.S. is now getting its hands on Apple's (NASDAQ:AAPL) device.
Oddly enough, the little tidbit was slipped into a press release on capital expenditures from T-Mobile's parent, Deutsche Telekom, simply adding, "In addition, T-Mobile USA has entered into an agreement with Apple to bring products to market together in 2013." It was treated like an irrelevant aside instead of a major partnership that could potentially mitigate T-Mobile's subscriber losses.
iPhones for everyone
After Apple launched the device exclusively on AT&T (NYSE:T) in 2007, the iPhone maker has slowly grown its ranks of carrier partners. The first major domestic addition was Verizon (NYSE:VZ), a particularly important deal, as it's the largest wireless carrier in the U.S. Next up was Sprint Nextel (NYSE:S), which had to commit to $15.5 billion in iPhone purchases over four years, regardless if the carrier could actually sell them or not. That covers the top three postpaid carriers.
AT&T's first-mover advantage with the iPhone has helped it remain the most popular iPhone carrier, even though Verizon boasts broader LTE coverage. So far, Sprint has sold 6.3 million iPhones over the past year, a fair chunk of the estimated 30 million units it's on the hook for.
Apple skipped over T-Mobile as it then proceeded to begin offering the iPhone on prepaid carriers like Leap Wireless' (NASDAQ: LEAP) Cricket brand and Sprint's Virgin Mobile earlier this year. Various regional carriers even got the iPhone 5 in September. Appalachian Wireless was an iPhone carrier before T-Mobile.
Doing all the legwork
The iPhone has historically never been fully compatible with the 3G frequencies that T-Mobile uses, so the 1.7 million unlocked iPhone users currently on T-Mobile's network have long had to live with slower 2G data speeds. As the smallest of the big four carriers, Apple had little incentive to go out of its way to engineer a device that worked on T-Mobile's network.
Instead, T-Mobile has been going to Apple and re-farming its spectrum in order to add support for the iPhone and bring it up to 3G speeds. The carrier has been scrambling to convert its 1900 MHz 2G network to 4G HSPA+ in order to deliver faster speeds for iPhone users. Both the iPhone 4S and iPhone 5 support the 1900 MHz band.
T-Mobile's former CEO Philipp Humm had previously said the company would be happy to offer the iPhone, but "the ball is in Apple's court."
Apple plays ball
What's most likely happened is that T-Mobile's advances are now paying off because the carrier has minimized the amount of effort that Apple would have to expend. T-Mobile has a network plan in place that will work with the iPhone, and Apple probably has to do little more than sign on the dotted line.
At the same time, it's still a win for Apple because the iPhone will soon be available on all four of the largest domestic carriers. Including wholesale and branded customers, T-Mobile had approximately 33.3 million customers at the end of the third quarter. That could translate into an incremental 4 million to 5 million iPhone units for Apple if T-Mobile plays out like Sprint did in its first year in terms of adoption among postpaid subscribers (approximately 20%).
Don't forget that MetroPCS (NASDAQ:TMUS) and T-Mobile are preparing to merge in a deal where MetroPCS scoops up the larger T-Mobile, making T-Mobile publicly listed in U.S. for the first time and giving parent Deutsche Telekom a potential exit strategy in the future. MetroPCS also lacks the iPhone, so the news could benefit MetroPCS if the merger obtains regulatory approvals.
It's also possible that " products" could include cellular-equipped iPads. Sprint also recently started selling iPads running on its LTE network. T-Mobile is starting its LTE rollout next year, which was the original purpose of the press release anyway. The company is looking to invest almost $5 billion in its network next year. That means there'd be little reason for consumers to pick T-Mobile for a cellular-equipped iPad.
T-Mobile CEO John Legere expects the deal to help cash flow and earnings in 2014. On the other hand, Apple should benefit next year.
Fool contributor Evan Niu, CFA, owns shares of Apple and Verizon Communications. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.