How the Iphone Zapped

How the iPhone Zapped

Carriers

by ANTON TROIANOVSKI | DEC. 21, 2011

Americans are glued to their mobile devices, obsessively calling, texting,

emailing and downloading applications. So why is the U.S. wireless

industry in such straits, as shown by AT&T Inc.'s crucial but failed plan to

buy T-Mobile USA?

A big reason is that carriers are losing power to the device and software

makers riding the smartphone boom.

An advertisement for Apple's iPhone 4S at a Sprint Nextel Corp. store in Palo

Alto, Calif.

They're saddled with rising capital costs while much of the profit growth

continues to accrue to Apple Inc., manufacturers using Google Inc.'s

Android software, and companies making popular wireless apps. And

carries haven't figured out the most profitable way to charge consumers

for their greater use of data.

In short: Device makers and app developers are having the fun, while the

carriers are doing the grunt work.

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The wireless industry has always been capital intensive, but the recent

move to build faster and more reliable networks to support a deluge of

data has weighed on these carriers.

Now that AT&T's pursuit of T-Mobile is over, those two companies are

expected to join the rest of the industry in mulling expensive deals for

rights to the airwaves—a game that's become a lot more difficult in recent

weeks after Verizon Wireless spent nearly $4 billion purchasing spectrum

rights from four different cable companies.

The U.S. wireless industry spent $24.9 billion on capital investments like

networks and infrastructure in 2010, the highest annual total since 2005,

according to industry trade organization CTIA.

But in 2010, AT&T and Verizon Wireless were the only companies to earn

a return on their wireless network investments greater than their cost of

capital, according to Bernstein Research.

At the same time, the rapid rise of Apple's iPhone franchise reflects many

of the challenges the telecom industry faces even as...