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U.S. Cellular Turned Down iPhone over 'Unacceptable' Terms from Apple


FierceWireless reports on comments from U.S. Cellular CEO Mary Dillon, who claims that the mobile phone carrier turned down a proposed deal to offer the iPhone because it considered Apple's terms to be "unacceptable". The decision is not final, however, and U.S. Cellular could offer the iPhone at some point in the future if a deal can be struck.
U.S. Cellular turned down Apple's iPhone because it did not make sense for the company economically, CEO Mary Dillon said on the company's third-quarter earnings conference call.

Dillon said that the carrier had the opportunity to sell the iPhone but that Apple's "terms were unacceptable from a risk and profitability standpoint." Dillon added that the potential strain on the company's network was not a factor in the decision, and that U.S. Cellular remains open to carrying the iPhone in the future.
U.S. Cellular, headquartered in Chicago, is the sixth-largest mobile phone company in the United States with over 6 million subscribers. Behind the top tier of Verizon, AT&T, Sprint, and T-Mobile USA lies a group of so-called "super-regional" carriers led by MetroPCS, U.S. Cellular, and Cricket. Interest in the possibility of these super-regional carriers being able to offer the iPhone was sparked by last month's announcement from C Spire Wireless that it had landed a deal for the iPhone. C Spire ranks at the lower end of the super-regional group, with under a million customers on its network.

Earlier this week, the Czech arm of Telefonica/O2 announced that it would be dropping the iPhone entirely after it was unable to reach a deal with Apple for the iPhone 4S. The company cited Apple's "business terms" as the reason for the discontinuation, and U.S. Cellular's disclosure today adds further evidence that some carriers simply don't see the economic advantage to offering the iPhone even as other carriers are working hard to land the device.

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41 months ago

Very foolish of them. It's their loss.


Maybe. Maybe not. If the model wasn't proving profitable for them - then it's not their loss.
Rating: 33 Votes
41 months ago
No one knows the terms Apple was discussing. Maybe Apple required a guarantee of 20 million up front - or whatever the amount was and USC just didn't want to or have that money to gamble.

Amazing how some people here immediately condemn them just because they didn't sign a deal with Apple as if it's a sin.
Rating: 22 Votes
41 months ago
That's fine. US Cellular, while being decent in customer service, is generally considered a regional "budget" option similar to Cricket. If they want everything to be free and loaded with crapware, they are more than welcome to keep selling the janky phones they currently carry.
Rating: 15 Votes
41 months ago
Yet at the same time t-mobile is probably begging for the iPhone
Rating: 14 Votes
41 months ago

Never heard of 'em.


Because you don't live near Chicago?
Rating: 10 Votes
41 months ago
If a cell carrier doesn't like the terms of service Apple must be doing something right.
Rating: 9 Votes
41 months ago

Very foolish of them. It's their loss.


I don't know much about US Cellular, but maybe they're more of a budget carrier and the subsidy they would pay for each iPhone is too high to be profitable?

I know a "budget" carrier in Canada that has some great rates & options compared to others in the country, but to get a subsidized iPhone with them you have to choose a plan that's more expensive than their usual options.
Rating: 6 Votes
41 months ago
Apple would probably like to have more carriers sign up in the US, but considering they did very well with a single carrier and now they have four carriers (three of the major ones + C-Spire) that they are likely in no rush to get all the second-tier carriers on board.

Though I think that iPhone in the pre-paid market makes sense in the longer term strategy which may mean getting more of the budget carriers to sign up in the near future.


If Apple does not do something about this soon they may never break that 60% of the industry profits barrier. :)
Rating: 6 Votes
41 months ago

I think that's a lie. From everything I've ever heard, carriers subsidize a certain about per unit, and then that's that. Apple doesn't get a cut of the monthly service provided by the carriers. I don't think anyone does.


Think all you want - but you shouldn't use the word "lie" - it's not accurate and it's a bit antagonistic. The information might not be accurate or up to date - but to imply that someone referencing something they read is a lie seems rather harsh.
Rating: 6 Votes
41 months ago

I don't know much about US Cellular, but maybe they're more of a budget carrier and the subsidy they would pay for each iPhone is too high to be profitable?

I know a "budget" carrier in Canada that has some great rates & options compared to others in the country, but to get a subsidized iPhone with them you have to choose a plan that's more expensive than their usual options.


Yeah. My bet is the biggest sticking point over the iPhone was the subsidies. It's fairly well established that the subsidies demanded by Apple for iPhones are higher than just about any other phone, and Apple is inflexible on that.

Apple, in all likelihood, wasn't demanding anything from US Cellular that they don't require of every other carrier partner worldwide.

i.e.,

[LIST]
[*]The carrier pays Apple the full $650+ price for each iPhone
[*]The carrier must offer the phones at Apple's standard $199/299 etc price points, when sold on a two-year contract
[*]The phones are sold unmodified: no carrier branding, no carrier add-on software, etc.
[/LIST]

Translation: Apple demands that the carrier pays a $450 subsidy for each iPhone sold on a two-year contract, and bars the carrier from treating the phone like a billboard (both for themselves, and via auctioning to third parties the right to have things pre-installed). Apple's policies on all these points is totally non-negotiable.

Reading between the lines that Apple's "terms were unacceptable from a risk and profitability standpoint", it seems pretty clear to me that US Cellular is not confident that they could make enough operating profit on each subscriber over a two-year period (i.e., force them to stay in a high-enough priced rate plan) to recoup that $450 subsidy.

If Apple did ask a commitment for some minimum number of iPhone sales -- I don't think this sort of requirement has ever been confirmed, but it's certainly plausible -- it would of course have been based on the current size of US Cellular's customer base. Supposing they are perceived as more of a discount carrier, they may have thought it risky to commit to (effectively) converting that proportion of their customer base to iPhone users who (to cover the subsidies) would necessarily be on relatively high-priced plans. This is probably the one area where US Cellular has a shot at talking Apple down to a lower number... but apparently, not low enough.

It's quite reasonable for Apple to ask these commitments of carriers, too: it allows Apple to plan for that number of sales, which in turn helps them maintain their rock-solid control of the manufacturing pipeline. There's costs associated with working with a new carrier partner, and Apple wants to be absolutely sure there will be enough sales to make it worth the trouble. This sort of up-front commitment also provides incentive for the carrier to actively push the iPhone through their marketing and their sales staff, enhancing the visibility and prestige of the iPhone brand.

In the end: neither side of these negotiations is wrong, or stupid, or evil. Apple knows they have the hottest phones in the world, and sticks to a hard line in their bargaining. Meanwhile, US Cellular simply can't justify the business risks that Apple asks of them.
Rating: 6 Votes

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