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With the AT&T/T-Mobile Deal, Google Android Is Backed Into a Corner

AT&T's $39 billion purchase of T-Mobile, announced yesterday, will produce winners, including, as BNET's Erik Sherman argues, AT&T, but the biggest loser may be Google (GOOG) Android. The acquisition makes the Android fight against the Apple (APPL) iPhone and iPad even tougher -- and leaves Google with only one carrier to itself, Sprint.

Android pushed into second-class status
The biggest problem here is that should the deal clear antitrust scrutiny, there will be only three carriers. Only one of them, Sprint, won't carry the extremely popular iPhone and iPad.

As far as smartphones, the Google Android picture looks okay at the moment. It recently became the highest selling mobile platform, but that lead may be fragile. T-Mobile's millions of customers will probably have the iPhone within a year, and Google can expect many of those Android users to jump ship.

It looks grimmer on the tablet front. Both AT&T and Verizon launched the iPad 2 this month, selling approximately 600,000 in the first weekend and easily besting the sales of its nearest Android competitors. For instance, the Samsung Galaxy Tab has reportedly had abnormally high return rates, and the Motorola (M) Xoom, expected to launch on Sprint shortly, has already floundered on Verizon. Android isn't equipped to take on the iPad right now, and the AT&T-Mobile deal will make the quality difference even more obvious to all customers.

Tougher terms with Sprint
On one hand, Sprint needs Android phones to do well. But Google needs Sprint more than the carrier needs Google:

  • Windows Phone 7: While relatively new, Microsoft (MSFT)'s revamped smartphones may take a bigger part of the smartphone market this year. Sprint is already cultivating a healthy relationship with the tech company.
  • Feature phones: Smartphones are rising in America, but Sprint still has healthy sales of "feature phones" -- i.e., old-fashioned "dumb" phones -- in third-world countries with booming populations. Android phones, as a rule, are not considered feature phones.
  • Less negotiating with subsidies: Carriers usually subsidize the price of the phone to make it more affordable for its customers - for instance, AT&T reportedly offset the price of the original iPhone by $325. With the only other non-Apple carrier, T-Mobile, out of the picture, Sprint can negotiate harder to have Google take the financial hit, since Google knows Android phones will stand out more on Sprint than on any other carrier.
In short, Sprint has choices, but Google does not.

Photo courtesy of billaday // CC 2.0

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