Apple's iPhone 4S may not be that different, but wireless industry now is

Phil Goldstein
Apple's (NASDAQ:AAPL) unveiling of the iPhone 4S has caused a seemingly a polarized reaction between those who are disappointed that it wasn't a brand-new iPhone 5 as the tech press had hyped (I'll take a little guilt) and those who take a more sober view that it's an improved device that will still sell millions.

I'm less interested in the debate over whether the phone is evolutionary or revolutionary (the conventional wisdom is that the hardware improvement is evolutionary and the software, especially the Siri voice-recognition service, is more revolutionary). The iPhone 4S and Apple's related announcements have the potential to profoundly shift the dynamics of the U.S. wireless industry.

The most obvious fact of Tuesday's announcement is that Sprint Nextel (NYSE:S) is now Apple's third U.S. carrier partner. Put aside the story of whether Sprint has paid $20 billion over four years for access to the iPhone; Sprint getting the iPhone could be a game-changer for a company that has hemorrhaged postpaid subscribers. The main advantage Sprint has over Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T) is that it will offer the iPhone 4S and iPhone 4 with unlimited data plans. That differentiator--which Sprint will likely hammer home in its marketing over the next few months--could help it win converts from other carriers who will see Sprint as the "value iPhone" provider.

(In its own marketing, AT&T will probably point out its version of the iPhone 4S will run faster than the Verizon and Sprint version--HSDPA provides faster speeds than EV-DO. However, it's unclear whether AT&T will market the iPhone 4S as a 4G device. The carrier has so far declined to comment on the topic.)

How long Sprint's unlimited data halo lasts is another matter entirely. "Even if they maintain [unlimited smartphone data pricing], and I think it's questionable that they will or should, I don't know that that's going to be sufficient to attract a lot of defectors," CCS Insight analyst John Jackson told me. After all, Verizon launched the iPhone 4 in February with unlimited data, and the launch didn't do much to dent AT&T's iPhone sales.

Sprint executives have hinted they may have to change, but CFO Joe Eueteneuer said last month that the company has "great runway room" for its unlimited plans, and Bob Azzi, Sprint's senior vice president of networks, said Sprint is able to handle the overwhelming uptick in mobile data traffic and keep unlimited plans thanks to the company's network management deal with Ericsson (NASDAQ:ERIC). If Sprint loses its unlimited plans, it may well lose its iPhone advantage as well. 

And what about all of the carriers that still don't have the iPhone, most notably T-Mobile USA? (The iPhone 4S does not support T-Mobile's AWS spectrum for 3G services.) For now, it will likely drive them further into the arms of Google's (NASDAQ:GOOG) Android platform, and perhaps Microsoft's (NASDAQ:MSFT) Windows Phone. The "evolutionary, not revolutionary" nature of the iPhone 4S could also help those platforms and the handset makers behind them. Indeed, Google and Samsung appear poised to take the wraps off the rumored Nexus Prime, which could run the new Ice Cream Sandwich version of Android.

Yet Apple also is trying to capture the low-end of the market now--not by introducing two new phones, but by making the iPhone 3GS free on AT&T with a two-year contract and the 8 GB iPhone 4 for $99 with a contract on Verizon, AT&T and Sprint. That could put pressure on Android and Windows Phone, which are aiming to go down-market. "It puts a lot of pressure on all aspects of the price point," Gartner analyst Michael Gartenberg told me. "You are really talking about some significant change here in terms of cost." That, in turn, could make Sprint and especially T-Mobile havens for low-end Android phones.  

There are few certainties in the wireless industry. But here are two: the iPhone 4S will sell millions of units until the "real" iPhone 5 comes out. And the wireless industry will see large-scale changes as a result.--Phil

P.S. Check out all our iPhone coverage:

  • Chart: iPhone 4S vs. the competition
  • Touring the iPhone 4S, in photos
  • Verizon, AT&T start marketing battle over iPhone 4S, while Sprint stays mum
  • Apple unveils iPhone 4S, adds Sprint, Siri voice-recognition software
  • Apple forgoes NFC m-payment integration with new iOS 5
  • Apple launches Siri voice-activated controls with new iPhone 4S
  • Sprint to launch iPhone 4S Oct. 14, along with AT&T, Verizon
  • Apple unveils iPhone 4S with GSM/CDMA world phone capabilities
  • Apple launching new iOS 5 on Oct. 12
  • Apple challenges carriers, others with 'Find My Friends' app
  • Apple introduces Cards messaging app with new iOS 5