Telecom Shakeup: T-Mobile Gets the Apple iPhone

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T-Mobile USA just announced that it will add the Apple (NASDAQ: AAPL) iPhone to its product lineup. 
 
T-Mobile is the fourth largest wireless provider in the country behind Verizon Wireless, AT&T (NYSE: T), and Sprint Nextel (NYSE: S). Verizon Wireless is a joint venture of Verizon Communications (NYSE: VZ) and Vodafone (NASDAQ: VOD) of the UK.
 
No service contract required
 
T-Mobile also announced that users will not need to sign up for a service contract when purchasing a phone. Voice and data will be billed on a monthly basis. The company's competitors require a 2-year commitment and offer devices at a discounted rate. 
 
A basic T-Mobile iPhone5 can be had for $100 down and $20 per month for 2 years, or $580 upfront (somewhat lower than the other players.) Monthly T-Mobile voice/data plans will cost $50 to $70, depending on data usage. Therefore, the total cost over the first two years would be in the range of $1,800 to $2,300. 
 
The same iPhone model used on other provider networks would cost $200 under a two-year contract or about $650 outright. A typical user would pay a total of $2,100 to $2,600 for the first two years, under a contract, including voice and data. 
 
So it looks like the T-Mobile plan has the potential to be slightly less expensive for most people. 
 
Industry consolidation 
 
It seems that there is a lot of jockeying for position going on in the industry. 
 
AT&T had attempted to acquire T-Mobile in a $39 billion takeover bid in 2011 that was opposed by the U.S. government based upon anti-trust concerns. The company backed out of the deal and had to pay a hefty exit fee of $4 billion. However, the failure didn't slow down AT&T all that much. The stock is up over 20% over the last two years. 
 
T-Mobile is in the process of merging with the number five wireless provider, Metro PCS. However, a respected shareholder advisory firm just recommended that Metro PCS investors vote against the deal. Time is running out, as there are several deadlines to be met over the next few weeks. 
 
Sprint and the number three Japanese wireless service provider, SoftBank, have announced plans to merge. Partly as the result of adding the iPhone to its offerings, Sprint took on a lot of debt. A $20 billion infusion from SoftBank could help reduce the burden. Sprint is currently not making a profit. 
 
The federal government is analyzing the proposed deal and has concerns about the combined company using equipment supplied by certain Chinese companies. It's possible that the technology could be used to spy on American citizens. Sprint and Softbank have stated that they would not use the equipment. 
 
There are rumors floating around that Verizon Communications is interested in buying out Vodafone's share in the wireless business, now about 45%. Vodafone shareholders may rewarded handsomely if a deal goes through. The stock has surged recently on the news, up 13% over the past month. Verizon's stock has also traded up on the news. It could be a win-win for investors in both companies. 
 
Analysis
 
T-Mobile will probably benefit by adding Apple 'fanboys' and 'fangirls' to its customer list. The company is taking on the iPhone in a bid to reverse declines in its subscriber base. It has lost 2 million customers over the past year. Verizon Wireless, on the other hand, gained about 3 million. It's possible that this trend will be reversed or slowed somewhat.
 
If it goes forward a merger with Metro PCS, they could cement their position but the deal probably won't allow them to leapfrog the others ahead of them. 
 
Verizon and AT&T might need to change the way they do business. Will the two-year contract go away? If so, that will help their customers but maybe not their bottom lines. 
 
Sprint could benefit from the SoftBank merger, which may allow it to become profitable again.
 
Apple will probably sell more smartphones and add T-Mobile subscribers to its ecosystem. In addition to the iPhone, they might also buy Macs and iPads. That would be welcome news for the Cupertino, Calif. company, the most profitable and valuable in the world today.
 
It has seen its stock tumble from a high water mark above $700 per share reached last September to as low as about $420 a share recently on concerns of reduced earnings growth and margins. Lately, the stock has traded in a range of $440 to $465. 
 
Conclusion
 
The prudent investor in the telecom industry may want to wait a bit and let things settle before making any major moves. Things might get clearer in a few weeks.
 
In the meantime, Apple may benefit after T-Mobile is added to the iPhone mix.
 
 
 


Mark Morelli owns shares of Apple, AT&T and Vodafone. The Motley Fool recommends Apple and Vodafone. The Motley Fool owns shares of 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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