Cheap Carriers Using Android Spell Trouble for iPhone

Each day on my way to work, I walk by a poster advertising unlimited data, text and calling with carrier MetroPCS (PCS) for $50. Ouch. I pay close to $100 per month for my Apple (AAPL) iPhone on rival AT&T (T) for essentially the same plan. That's roughly a $600 per year difference in costs.

%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%So, one would logically ask, why have I stuck with AT&T? First, I much prefer my iPhone to BlackBerry (RIMM) models available on MetroPCS (PCS) or competitor Leap Wireless. You can get far more applications on your iPhone. The iPhone is, to my mind, a much easier device to use and integrate with my laptop. But if those companies offered a phone based on Google's (GOOG) Android operating system, then I might truly consider a switch.

With Android, iPhone Finally Has a Worthy Rival

Google's offering provides a GPS navigation app, a fast-growing app store and a chance to escape from AT&T's improved but still weak network. Which is why when I bumped into a Leap executive at the recent Supernova 2009 conference in San Francisco, I asked when his company planned to roll out an Android model. He said it wasn't certain when, but Leap hoped to do it soon.

That could be really bad news not only for Apple and AT&T but also for Verizon (VZ). Why? Because looking at the adoption curve for Android and, more important, the amount of time that Android users are spending online on their handsets, Android is truly the first competitor to the iPhone in terms of bandwidth consumption and rich application use.

On Tuesday, Android crossed the 20,000-application threshold and appears to be gaining on the iPhone in terms of numbers of total applications. So, as Android phones running the same set of rich applications and having the same powerful Google-designed apps filter down from the top-tier expensive carriers to lower-priced carriers like Leap and MetroPCS, the rationale for staying on a higher-cost premium plan starts to become less obvious.

How stark is the cost differential? It's pretty huge. Leap and MetroPCS both offer unlimited data, text and voice plans for roughly $50 per month. That's with no contract and no penalty for canceling the plan, unlike AT&T and Verizon, which sock users with hefty fees of $175 and up for early termination.

Dark Spots for a Nomadic People

The absence of cancellation fee is free, but it's actually a large monetary benefit. People in this country move all the time, and the Web is replete with tales of individuals who have switched apartments and landed in a dark spot, rendering their existing cell service far less useful (particularly if that person does not have a wired telephone).

Everyone who knows Leap and MetroPCS's technology and coverage maps knows that their networks are not as amped up as those of AT&T, Verizon, Sprint and T-Mobile. So smartphone subscribers will never get the same performance for their devices.

But how good is good enough if a customer is generally happy with a device? iPhone users still endure extremely slow load times for Web pages even in cities like New York and San Francisco -- and that's after AT&T has added significantly more data capacity to the networks in those areas. (I speak from personal experience. As I type this, I'm sitting in San Francisco's Ferry Building watching my iPhone email spin as I wait nearly 20 seconds for my latest batch of messages to download).

So would I endure perhaps a 25-second wait on Leap or MetroPCS for $50 per month less and no cancellation penalty on an Android phone? Yes, and probably many other people would, too.

A New Regulatory Sheriff In Town

If enough of this dynamic appears, then it will be very, very hard for the larger carriers to maintain their pricing premiums with their existing offerings. Thus far, exclusive phone deals have been key to allowing the big guns to keep charging top dollar. But there's a new regulatory sheriff in town. Washington is already making noises that exclusive handset deals are no longer Kosher.

For its part, Google probably cares less whether the carriers can charge high rates for services. Google will make all the right noises to keep the carriers happy, but once Android really takes off and customers insist on it, then Google will likely be happy to make a shift to a model that relies far more heavily on free phone service subsidized by advertising -- just like Google's search-engine business.

Some test cases for my thesis are already appearing. T-Mobile, which is selling the Motorola Cliq Android phone, is offering a package that is unlimited everything for two lines for $100 per month, effectively a 30% to 50% discount on top-level Verizon Droid and AT&T iPhone service offerings. T-Mobile is still levying the lock-in clause, but it's nearly half-way to the scenario I'm describing.

What's more, my friend at Leap told me that when all the phone networks get to 4G speeds -- roughly two years away -- then most of the service differentials between the premium carriers and the rest of the pack will disappear. That's not a terribly long time in wireless land and a short enough window to give pause to those proclaiming the perennial primacy of the big guns in wireless data.

Alex Salkever is Senior Writer at AOL Daily Finance covering technology and greentech. Follow him on twitter @alexsalkever, read his articles, or email him at

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