San Francisco - Verizon Corp., AT&T Inc. and the rest of the US wireless industry have a big boast for this year’s crop of smartphones: thanks to network upgrades, devices will be able to download as much as a gigabit of data in a single second - speeds 100 times faster than before.
But that won’t be the case for Apple Inc.’s newest iPhones, devices to go on sale later this year, leaving the company’s most important product potentially lagging behind the data performance of rival smartphones.
The reason stems from the delicate and sometimes complicated way Apple manages the supply of the components embedded in its flagship device - in this case, the modems, which handle the connection between a phone and the cellular network.
One of Apple’s suppliers, Qualcomm Inc., sells a modem capable of the 1 gigabit download speeds. Another supplier, Intel Corp., is working on a modem with the same capability, but it won’t be ready for the iPhone’s introduction, according to people familiar with Apple’s decision.
The shares fell as much as 1.6% to $152.56 in New York, the biggest intraday drop since May 17.
Apple could in theory just use Qualcomm’s chips, but it has an aversion to being dependent on a single supplier, and its relationship with San Diego-based Qualcomm is particularly thorny.
Cupertino, California-based Apple is embroiled in a bitter legal fight with the chipmaker, accusing the supplier of maintaining an illegal monopoly, and it’s seeking to loosen Qualcomm’s grip on the market for high-end smartphone modems.
That’s why Apple will stick with Qualcomm modems for some of its new iPhones while relying on Intel for others.
Until Intel is able to offer its chips with matching features, Apple won’t enable some of capabilities of the phones running with Qualcomm modems, said the people, who asked not to be identified because the plan isn’t public. Apple, Qualcomm and Intel declined to comment.
Apple’s decision clashes with the marketing plans of a cellular industry desperate to show off faster network speeds to grab market share. The top US wireless carriers - Verizon AT&T, T-Mobile US Inc. and Sprint Corp. - have declared 2017 the year of 1 gigabit speeds.
Apple used two modem suppliers - and the same technique to mask performance disparities - for last year’s iPhone 7.
But the rise of gigabit wireless networks could make the strategy more risky: iPhone users will have a unified experience, no matter what modem is inside the new device, but it could look even less speedy compared to newer gigabit-ready smartphones from other manufacturers.
The carriers will be able to boast about 1 gigabit speeds if customers use other phones.
Samsung Electronic Co.’s Galaxy S8, the main rival to the next iPhones, has Qualcomm’s X16 LTE modem and will keep up with the top speeds of the major wireless networks.
Sprint sells the gigabit-ready HTC U11 and will have a Motorola Gigabit LTE phone later this year.
Apple’s decision to introduce new technology when it wants, rather than chase whatever the market dictates, isn’t new.
The original iPhone launched in 2007 without support for 3G networks, and it was still wildly successful.
It wasn’t until 2012 that the iPhone supported LTE technology that’s the basis of 4G networks - a year after Samsung Electronics Co. added that capability to its smartphones.
Still, Apple is dealing with a market that’s crying out for innovation to revive growth.
Last year, the company’s revenue from iPhones, which generates more than 60% Apple’s $216 billion annual sales, fell for the first time.
Smartphone total market growth was just 2.5%, breaking a run of double-digit annual surges, according to industry analyst IDC.
Whether Apple’s decision will overshadow the company’s slick new design and features in the phone coming later this year, as well as its customer loyalty, remains to be seen.
Achieving 1 gigabit data speeds requires almost lab-like optimal signal conditions that seldom occur in the real world.
Nonetheless, the first carrier to claim such network capabilities will get bragging rights and an edge at selling the promise of instantaneous movie downloads and high-quality live video. It’s one area where service providers can’t afford to be seen as laggards.
The carriers are already in a fierce price battle for subscribers. As the pool of new customers has declined, most of the user gains are coming at the expense of rivals.
Sprint and T-Mobile have been taking customers from AT&T and Verizon by offering cheaper unlimited data at a time when video hungry users seek lower-cost plans to support their habits.
The ability to advertise a service that’s 100-times faster may help carriers shift consumer focus to network performance and away from cut-throat pricing.
T-Mobile promised to have the first 1 gigabit data service available in the US this year and has already started making network upgrades, Chief Technology Officer Neville Ray said in February.
AT&T has started 1 gigabit mobile service in Austin, Texas, and plans to expand to as many as 20 cities this year. Verizon will begin 5G trials in 11 markets this summer and plans to start mobile testing of 1 gigabit speeds in those cities.
Sprint has been one of the most aggressive proponents of 1 gigabit mobile speeds, promising in December that it would offer the fastest service in the industry. Sprint said it will have at least three 1 gigabit capable phones available this year -- with the exception of iPhones.
Read Fin24's top stories trending on Twitter: