At Long Last, T-Mobile Gets the iPhone

There you have it, folks. Nearly six years after Apple (AAPL +3.26%) launched the original iPhone, it has finally completed its domestic carrier lineup: T-Mobile will at long last get the iPhone. The lack of Apple's smartphone has long been a major weakness in the No. 4 carrier's device portfolio, one that was leading to massive subscriber losses to larger rivals that offer the device.

The iPhone will now be available on all four of the largest domestic wireless carriers, in addition to some of the regional ones that it has partnered with over the past year. Expanding carrier partnerships has been critical for Apple's domestic iPhone sales. Following the first several years of exclusivity with AT&T (T 0.04%), the company would quickly add both Verizon (VZ +0.17%) Wireless and Sprint Nextel (S +0.00%) in 2011. As you can see, those carrier partnerships have pitched in quite a lot, judging by their activation figures.

Sources: SEC filings and conference calls. Calendar quarters shown.

While T-Mobile is smallest of the big four, we're still talking about 26.1 million branded customers that can now easily get their hands on the device. When you include wholesale connections, that figure rises to 33.4 million.

Of course, T-Mobile's union with MetroPCS (PCS +0.29%) is nearly a done deal now, clearing all necessary regulatory hurdles and leaving just shareholder approval. It just so happens that the shareholder meeting to vote on the proposed merger takes place on the same day that T-Mobile customers get their hands on the iPhone. MetroPCS has never been an iPhone carrier, either, and chances are that MetroPCS investors will be all too happy to hook up with T-Mobile and the iPhone.

Living up to its promise, T-Mobile's iPhone offering is quite different from the subsidized $200-on-contract model that's become the industry standard.

Not-so-brave new world
T-Mobile is envisioning a brave new world without subsidies and service contracts, and the rest of the industry is keeping a close eye on how it fares. My bet is on "poorly," judging by what happened in Spain, but only time will tell. At the same time, T-Mobile's new strategic structure isn't actually as dramatically different as you'd think.

Instead of offering a subsidized smartphone with a service contract that includes pricier service fees to recoup the subsidy, T-Mobile is splitting up that total payment into a cheaper service fee alongside an installment plan to pay for the device. The total can still be less and result in savings, but ultimately consumers are still paying for those pricey devices one way or another. T-Mobile's way is just a little more straightforward.

T-Mobile is also marketing its data plans as "unlimited," but is clear that it will throttle speeds to 2G levels after the included 500 MB of "high-speed data" is used up. Adding more high-speed data will cost extra. That will put it in marketing competition with Sprint, who also markets its data plans as unlimited. But keep in mind that T-Mobile and Sprint dramatically lag AT&T and Verizon with LTE coverage, which is a key feature of the iPhone 5.

Missing money
Importantly, despite T-Mobile's bold proclamation of abandoning subsidies, there's evidence that suggests that perhaps it is in fact sending some dollars to Cupertino. T-Mobile customers can get an iPhone with an upfront payment alongside 24 monthly installments.

However, if you compare the total amount that a customer is paying, there's still a gap between Apple's retail pricing -- a gap normally covered by carriers in the form of subsidies.

Sources: T-Mobile and Apple. Entry-level 16-gigabyte model pricing shown.

The total pricing for the iPhone 4S adds up fine with no assistance needed from T-Mobile, but the iPhone 4 and iPhone 5 pricing doesn't sum up to Apple's demands. That strongly implies that T-Mobile is actually offering a small subsidy on those devices.

Apple's subsidy concession is typically only $25, so it usually brings in $625 from the traditional carriers like AT&T, Verizon, and Sprint for an entry-level flagship ($200 from the customer and a $425 subsidy). Even if we assume it's offering this same concession, then that still leaves T-Mobile on the hook for $45 to $50.

It's not realistic to think that Apple is simply selling iPhones to T-Mobile for less, because that would directly undermine its relationships with the larger, more important, and subsidizing carriers that it's built its domestic fortress on. Risk the subsidized status quo with the top three in order to give the No. 4 a disruptive chance that translates into less iPhone profits? No way.

It's similar to Leap Wireless, whose Cricket brand offers a no-contract iPhone 5 for $500 ($450 after a mail-in rebate right now). Leap's just hoping consumers don't buy new iPhones and immediately cancel service, and T-Mobile will be hoping the same thing.

I'll stop short of saying T-Mobile is lying, but the math here simply doesn't add up. Maybe T-Mobile just isn't telling us everything.