Apple 's new SIM card that comes standard in its iPad Air 2 means iPad Air 2 buyers will no longer have to purchase data plans from one carrier, but can compare prices or even switch carriers straight from their iPad device. While AT&T , Sprint , and T-Mobile have all elected to participate in the program, Verizon has not. I think this is a brilliant move and here's why.
Verizon will still have the iPad Air 2
Just to be clear, Verizon will be selling Apple's newest iPad models. The difference for Verizon customers, versus its three competitors, is that Verizon will have to provide its own SIM, replacing Apple's SIM, which means that Verizon will most likely require iPads to be purchased in store.
That said, there are still quite a few unknowns as to how the Apple SIM will work with carriers. But at the surface, Verizon's decision to say "no thanks" to the Apple SIM certainly looks wise.
No sense to play Apple's game
One of the benefits to the Apple SIM is that customers, theoretically, won't get tied down to a specific carrier. In the past, iPads with cellular capabilities were mostly sold in two-year agreements, much like a postpaid smartphone.
However, by prepaying for data service, customers may have the ability to use T-Mobile's data one month and then Sprint's data the next. Given the rate at which service plan prices have declined over the last year, it would be no shock to see quite a bit of flip-flopping between carriers to capitalize on the best price.
Not to mention, by allowing customers to see data plan pricing from one screen side by side, it could immediately spark even more pricing competition. Given the choice, customers are usually going to purchase the best deal, and for Verizon, it has maintained a premium pricing strategy throughout the last year.
Instead of buying customers, Verizon offers the largest nationwide 4G LTE service, meaning customers can feel secure that their services won't be interrupted. Verizon's premium strategy has worked just fine , as it has outperformed competitor AT&T in postpaid subscriber growth by a wide margin in each of the last two quarters.
However, if Verizon were to put its pricing side by side with T-Mobile, AT&T, and Sprint, it might very well have a negative effect on subscriber growth and ultimately service revenue. Given the fact that Verizon has seen the best postpaid growth of the four nationwide carriers this year, it makes no sense for Verizon to play Apple's game.
Protecting the postpaid market
MacRumors recently reported that AT&T will prevent flip-flopping between carriers by locking down the Apple SIM following one month of service. If accurate, this means that AT&T will give potential customers one month to experiment, but once AT&T is chosen as the data provider for 30 days, there's no going back, that is unless the customer purchases another Apple SIM.
Unlike Verizon, the problem of putting prices side by side against T-Mobile and Sprint still exists for AT&T, and could have consequences despite its 30-day cap. While T-Mobile and Sprint appear open to flip-flopping between carriers, the biggest question surrounding Sprint, T-Mobile, and even AT&T is what happens to postpaid tablet net adds, and service plans that are designated to split the iPad cost into 18-24 monthly installments.
Currently, all four carriers offer some form of unsubsidized installment plan, but are contingent on whether customers are willing to purchase a data plan, and agree to a $10-$20 a month line access charge. Due to the ability of switching data providers with the Apple SIM, it seems there could be some problems in offering these popular installment deals. Even AT&T couldn't offer the installment plan for 30 days, as customers would still have the option to switch carriers.
This scenario could become a problem, as could finding a solution. However, Verizon has removed this potential hurdle by requiring its users to have a Verizon SIM card. Given the fact that 1.1 million of Verizon's 1.53 million total new postpaid subscriptions were tablets in the third quarter, this is a market Verizon most certainly wants to protect, and is doing so by not bowing down to Apple's SIM.
Foolish thoughts
Over the last few years Verizon has played all of its cards right. The company invested big in 4G LTE before its competitors, finishing its construction more than a year ahead of AT&T. While Verizon has offered some data service discounts, it has maintained a premium pricing strategy, an approach that has worked in its favor.
Naturally, there are questions surrounding the Apple SIM, and what effect it could have on Verizon. Given the reasons I discussed above, along with Verizon's history of good decision making, I'd bet that Verizon's "no thanks" response to Apple will end up being even smarter than it seems today.
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The article Why Verizon's "No Thanks" Response to Apple's SIM Is Brilliant originally appeared on Fool.com.
Brian Nichols owns shares of Apple and Verizon Communications. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
