Apple's iPhone "wrecking" the cell industry

[AppleInsider]

While many iPhone owners hail Apple as saving them from greedy cellular carriers, an analyst now says the company has overturned AT&T and the entire wireless industry -- and not always for the better.

Analyst Craig Moffett of Bernstein Research likens the relationship between Apple and AT&T as that between the former and music labels dating as far back as 2001, when Apple first had to ingratiate itself with labels as it incorporated music CD ripping into iTunes. Apple at first won important concessions and praise from its partners, only for them to regret it later as the iPod maker's popularity left these companies at the supposedly smaller company's mercy.

When it comes to carriers, particularly AT&T, the researcher sees them as just now realizing the bad bargain they'd struck for themselves. As late as this spring, AT&T has continued to praise the iPhone as virtually saving the company from the US economy's fallout by driving customers to its network and encouraging them to spend more on data plans. But with the launch of the iPhone 3GS in June and the 3G congestion problems in the months leading up to the handset's debut, AT&T was increasingly cast as Apple's anchor -- keeping a good device locked to a carrier that doesn't enable features like MMS and tethering.

"Apple has stolen the march, and in the process has recast AT&T from hero to villain," Moffett says. "At Apple’s June developer conference in San Francisco, where Apple unveiled its new [iPhone 3GS], AT&T was roundly jeered at every mention by the more than 5,000 application developers in attendance... even Apple itself seemed uncomfortable talking about its U.S. partner."

The attack is such that Apple has all but taken control of the partnership, according to the analyst. Now, the Cupertino company has "radically tilted" the normal balance of power against AT&T and cellular networks as a whole. If Apple preferred another carrier, many iPhone owners would switch to preserve the experience they already have; an incentive that forces carriers to keep the handset maker happy. At times, though, it also has the caustic effect of suggesting an conspiracy at the carrier to limit useful services, such as voice over IP calls, when cost or technical reasons are the real motivators.

And while the US government may be close to investigating exclusivity deals as possibly anti-competitive, Moffett argues that Apple's presence in the marketplace has actually helped competition by forcing companies to keep reasonable service rates and let apps dictate business rather than network services. Government intervention could paradoxically hurt the industry by telling providers how much they could discount a phone and hardware developers which networks they would have to support. Leaving Apple to pursue its usual path with corporate partners is considered the best route as it may keep those firms honest.

"In short, the iPhone seems to be doing just fine at wrecking the wireless business without the government’s help," the analyst notes.

[Kolchak]

Another year and I'll be with the iPhone pack. When Steve introduces the next generation iPhone (iPhone 4GL?) at next year's WWDC to work on Verizon's LTE network coming in the second half of 2010, I'm in. I actually hate both Verizon and AT&T, but Verizon is definitely the lesser of two evils.

[solipsism]

Originally Posted by Kolchak

Another year and I'll be with the iPhone pack. When Steve introduces the next generation iPhone (iPhone 4GL?) at next year's WWDC to work on Verizon's LTE network coming in the second half of 2010, I'm in. I actually hate both Verizon and AT&T, but Verizon is definitely the lesser of two evils.

Prepare for disappointment.

[Virgil-TB2]

This is a bullsh*t analysis. It says that AT&T is being cast as "the bad guy" but it doesn't mention that this is only valid if AT&T is not in fact the bad guy but only being cast as such. The actual reason they look bad is that they *are* under-performing and also gouging customers. They also oversold the capabilities of their network and when they finally get traffic driven to them by a product like iPhone their claims about how good the network structure is are proven to be false.

The same thing happened with the music industry. All Apple has done is use innovation to drive the customers into the arms of their partners. The customers they always said they wanted. If they can't handle the results I can't see how that's Apple's fault.

[Zweben]

Originally Posted by AppleInsider

"Apple has stolen the march, and in the process has recast AT&T from hero to villain," Moffett says.

Nonsense. AT&T brought that entirely upon themselves through incompetence. Apple gave AT&T the opportunity to be the hero and AT&T failed their customers by being late on MMS and tethering and failing to adequately prepare for the huge increase in data usage that they should have seen coming from miles away.

Personally I don't care about any of the things they've dropped the ball on lately so I'm not clamoring for a new carrier, but I can totally understand why people are displeased with them.

[amadeuz4]

As soon as Apple moves to another carrier, I'll drop AT&T like a hot potato. I don't care if I'm in the middle of a contract with them or not, I'll gladly pay the $175 to get our of this lousy service. "Fewest dropped calls"... "Raising the bar".... what bullshit that is. If I could get an iPhone on Sprint or Verizon, I would be unbelievably happy.

[Hoss]

You just get the feeling that Apple held back the really good stuff for next year's carrier war. AT&T will be toast on a level playing field. Consumers win!!!

[davesmall]

This author is so far off the deep end. Whoa!

AT&T and all of the other cellular providers imagine an Internet with a toll booth at every entry point, on every device, and at every node or junction. Consumers want an internet with unlimited everything, one monthly charge per customer (not per device), no mention of terms like: Contracts, Kilobytes, Roaming Charges, Cancellation Charges, etc.

What's really happening here is that Apple is giving the customers what they want but AT&T (and the other networks) are giving the customers the shaft (or to be nice, exactly what the customers don't want). The Cable companies like Comcast are certainly no better.

[g3pro]

Originally Posted by davesmall

This author is so far off the deep end. Whoa!

AT&T and all of the other cellular providers imagine an Internet with a toll booth at every entry point, on every device, and at every node or junction. Consumers want an internet with unlimited everything, one monthly charge per customer (not per device), no mention of terms like: Contracts, Kilobytes, Roaming Charges, Cancellation Charges, etc.

What's really happening here is that Apple is giving the customers what they want but AT&T (and the other networks) are giving the customers the shaft (or to be nice, exactly what the customers don't want). The Cable companies like Comcast are certainly no better.

You mean that Apple is giving customers what they want.... such as forcing customers to take data plans which cost $30+ per month which kicks back to Apple, along with the other subsidy that AT&T is extorted to give Apple?

[solipsism]

Originally Posted by amadeuz4

As soon as Apple moves to another carrier, I'll drop AT&T like a hot potato. I don't care if I'm in the middle of a contract with them or not, I'll gladly pay the $175 to get our of this lousy service. "Fewest dropped calls"... "Raising the bar".... what bullshit that is. If I could get an iPhone on Sprint or Verizon, I would be unbelievably happy.

You’ll also have to buy another iPhone.

As for Verizon, they are still not very “Apple friendly”, which means, they are not very willing to let any vendor control their own HW, control their own repairs (Apple Stores not through Verizon Stores), control their own call center for technical support or control their own App Store. Perhaps they would make concessions for Apple, but historically it doesn’t look good.

Plus, consider that Apple is locking horns in China for certain control for over 2 years now when they could have had the iPhone selling to the 58 Trillion (slight exaggeration) Chinese mobile phone users so I don’t think that the 50M potential Verizon users are going to make them relinquish their control of the iPhone. I think will Apple stick with carriers it can control and dominate.

• http://gigaom.com/2009/07/13/verizon...u-hear-me-now/

[Capnbob]

Originally Posted by Kolchak

Another year and I'll be with the iPhone pack. When Steve introduces the next generation iPhone (iPhone 4GL?) at next year's WWDC to work on Verizon's LTE network coming in the second half of 2010, I'm in. I actually hate both Verizon and AT&T, but Verizon is definitely the lesser of two evils.

Don't hold your breath - 2011 at best - the Verizon 4G network will be worthless unless the phone has full CDMA/EVDO failover/fallback. Could happen if China negotiations go that way, but they don't appear to be.

I agree with others that AT&T has made itself the villain. I just got a 3GS and have far more dropped calls than with the 2G iPhone. 3G data is pitiful in the city (SF), though pretty great down the Peninsula.

The term "Wrecked" is from an analyst and what do analysts care about - stock prices (and maybe sometimes shareholders who buy through their firms). If you hold AT&T stock, you might agree that Apple has the potential to "wreck" the carrier. Remember, the whole strategy of the carriers is to add value (and revenue) to the wireless pipe - like Comcast tries with video/phone/broadband and new features e.g. on-demand/dvr/hd etc. If Apple is the one driving the added value and reaping the rewards, then the carriers get commoditized - no turn-by-turn monthly fees, no music download fees, no app revenue, etc. If and when we eventually get full network portability, there will be a race to the bottom in terms of prices for wireless network access. Look at base prices for broadband access in non-US deregulated markets, or basic mobile phone service in more competitive markets than the US - way cheaper than here where the big 2/3 wireless carriers and cable/telco cartels are still effectively price fixing.

Still AT&T's problem, still mostly their fault...

[rgbfoundry]

This article is totally written from the mobile provider perspective. Apple has forced so much innovation into the industry, they can't be faulted. Visual voicemail? It's available because at&t said they'd do it. The BlackBerry Storm and every other "catch-up" handset? The Palm Pre? All there because Apple forced the industry to innovate.

I can see how they might feel strapped over a barrel. They're going to have to work harder to impress us. Boohoo. Better get started or Apple will lease spectrum and steal everyone's iPhone users.

[OC4Theo]

The truth is that US carriers like AT&T, Verizon and Sprint are very backward in technology compared to foreign companies. If it wasn't for Apple, we will still be dealing with Asian technology from 2-3years back. For years, the US government in other to protect STUPID Motorola, will not allow current phone offerings from Japan and Korea into the US. Since iPhone came, that barrier has been broken.

Americans should be grateful for Apple. If AT&T severs its relationship with Apple, their business will decrease up to 50% within 2 years. AT&T needs Apple more than Apple needs AT&T. And the same goes for any carrier out there. Right now, Apple is in the control seat and will dictate how this game will be played for a long time to come.

[franktinsley]

If Apple "wrecks" the cell phone industry like they "wrecked" the music industry it will only be because it too HAD IT COMING!

[Morky]

Originally Posted by g3pro

You mean that Apple is giving customers what they want.... such as forcing customers to take data plans which cost $30+ per month which kicks back to Apple, along with the other subsidy that AT&T is extorted to give Apple?

Do you think Apple is forcing mandatory data plans or AT&T? Even if it is Apple in part, they don't set the network pricing. The real stinker is AT&T charging an extra $30 for tethering (when available). $30 (total) wouldn't be bad if your 3G could replace your home internet connection.

[mpantone]

This analysis is confusing and odd.

iPhone carriers in other parts of the world seem to be adjusting well. If I understand correctly, there are six carriers in Australia that support the iPhone. Competition is healthy and customers have a wide variety of ways to acquire the phone with various length contracts, hardware subsidies, etc.

If anything, it's AT&T wrecking itself.

[backtomac]

Originally Posted by Virgil-TB2

This is a bullsh*t analysis. It says that AT&T is being cast as "the bad guy" but it doesn't mention that this is only valid if AT&T is not in fact the bad guy but only being cast as such. The actual reason they look bad is that they *are* under-performing and also gouging customers. They also oversold the capabilities of their network and when they finally get traffic driven to them by a product like iPhone their claims about how good the network structure is are proven to be false.

The same thing happened with the music industry. All Apple has done is use innovation to drive the customers into the arms of their partners. The customers they always said they wanted. If they can't handle the results I can't see how that's Apple's fault.

I agree with your view, but would add the that the analyst is looking at it from the telco's perspective. From their point of view, I can see how the iPhone, and Apple, are a mixed blessing. They just haven't anticipated the volume of data that iPhone users would consume because no other device was as easy and productive to use.

Apple doesn't sit still and the telcos don't seem to be able to keep up with the pace that Apple prefers.

[bigmike]

1. Apple needs to lower the costs of it's plans to make people happy and get more customers.

2. AT&T needs to be prepared technically for any new business venture they join.

Apple and AT&T need to learn some lessons and let's hope they will.

[solipsism]

Originally Posted by Morky

Do you think Apple is forcing mandatory data plans or AT&T? Even if it is Apple in part, they don't set the network pricing. The real stinker is AT&T charging an extra $30 for tethering (when available). $30 (total) wouldn't be bad if your 3G could replace your home internet connection.

That is probably a complex answer. When the original iPhone arrived the unlimited data plan was only $20 with the profit sharing setup, well below the norm which was $40-50 across the major carriers. This might have been Apple’s idea, but regardless, it’s something that has taken hold in the US for the more expensive, higher-end devices like the Storm and Pre. I’m certain this trend will continue.

[solipsism]

Originally Posted by backtomac

From the telco's perspective […] I can see how the iPhone, and Apple, are a mixed blessing.

That is the probably the basis of the original article, though it was somewhat lost in the way the author wrote it.

Originally Posted by bigmike

1. Apple needs to lower the costs of it's plans to make people happy and get more customers.

AT&T prices the plans. I don’t see why Apple would have a problem with AT&T lowering the price of their plans so long as Apple gets their money. After all, that would mean even more people buying the iPhone.

[bobborries]

AT&T made huge profits on the first iPhone, but didn't invest new hardware and still havn't upgradded. They don't push the iPhone in their stores, with crappy service, and low bandwidth it seems they're trying to kill it. Why does Apple put up with this BS?

[whatisgoingon]

Hasn't resulted in price going down for data...in fact, AT&T raised the price last year.
Hasn't resulted in price going down for text messages.
Hasn't resulted in price going down for voice.
People who purchased their iPhone 2 years ago, who have fulfilled their contract with AT&T, still have to pay the same charges, even though they have completed subsidizing the cost of their iPhone. And neither Apple nor AT&T will unlock the iPhone.
Hasn't resulted in arbitrary limitations on what you can do with your iPhone to maximize revenue for AT&T (no VOIP, no SlingBox video, but NFL and MLB is OK).

The only things that have been disrupted:
-ringtones are down to $1 (or is it $2, that you have to first buy the song, then the ringtone?) down from the even more outrageous amount AT&T is charging for them on other phones
-same for music
-same for phone apps

[solipsism]

Originally Posted by bobborries

AT&T made huge profits on the first iPhone, but didn't invest new hardware and still havn't upgradded.

Can you provide proof of this? Note: there is plenty of proof to counter your claims that AT&T “didn't invest new hardware and still havn't upgradded."

[mrsteveman1]

The line in the article about the government dictating subsidy rates and networks is crap. I don't want them to do either one of those, and they aren't planning to so far as i can tell.

I want them to stop telling me which carrier i must use regardless of technical capability, and i want them to stop locking the phones in an attempt to enforce that restriction. If i must sign a contract to get the subsidy rate, fine. You want 24 months of service payments from me, fine, but you don't need to lock the phone to do that.

[NasserAE]

Originally Posted by solipsism

That is probably a complex answer. When the original iPhone arrived the unlimited data plan was only $20 with the profit sharing setup, well below the norm which was $40-50 across the major carriers. This might have been Apple’s idea, but regardless, it’s something that has taken hold in the US for the more expensive, higher-end devices like the Storm and Pre. I’m certain this trend will continue.

If you remember back in January 2007 SJ said that the iPhone will automatically connect to your Wifi to help you save on your data plan. My guess is that when Apple and Cingular (AT&T now) original iPhone agreement did not include a data plan. It is most likely that Cingular was going to offer iPhone buyers the standard $15 data plan as an option but Apple or AT&T changed their minds and decided on the mandatory data plan, which worked well for them.

[lightstriker]

Post deleted for continuous offensive language.

[solipsism]

Originally Posted by NasserAE

If you remember back in January 2007 SJ said that the iPhone will automatically connect to your Wifi to help you save on your data plan.

Do you know at what minute he stated that? I Googled for it and came up short and I also don’t recall that statement, though it was 2.5 years ago.

[AjitMD]

Originally Posted by solipsism

You’ll also have to buy another iPhone.

As for Verizon, they are still not very “Apple friendly”, which means, they are not very willing to let any vendor control their own HW, control their own repairs (Apple Stores not through Verizon Stores), control their own call center for technical support or control their own App Store. Perhaps they would make concessions for Apple, but historically it doesn’t look good.

Plus, consider that Apple is locking horns in China for certain control for over 2 years now when they could have had the iPhone selling to the 58 Trillion (slight exaggeration) Chinese mobile phone users so I don’t think that the 50M potential Verizon users are going to make them relinquish their control of the iPhone. I think will Apple stick with carriers it can control and dominate.

• http://gigaom.com/2009/07/13/verizon...u-hear-me-now/

I agree with you that Apple has to have 100% control over the iPhone, otherwise the bulk of the profits flow to the carriers. In turn the carriers would use too many restrictions and sell the features piece meal. Even then, I find the data plan at $30/mo onerous, plus charging extra for SMS. The voice plan is expensive, especially if the customer uses excess minutes. Overseas roaming is too hi.

[jpellino]

Did this analyst miss in business school?

Apparently he was absent on "competition" day as well as being sick for "disruptive technology" day.

[Judgegavel]

AT&T has the best phone service in my area, its actually the only carrier that gets full reception at my house. Bare in mind I'm in a densely populated borough of NYC. Sprint and Verizon are both awful here (T-mobile is not bad).

Still I cant see what Apple has done as wrecking the cell industry.

[jimerl]

Originally Posted by davesmall

This author is so far off the deep end. Whoa!

AT&T and all of the other cellular providers imagine an Internet with a toll booth at every entry point, on every device, and at every node or junction. Consumers want an internet with unlimited everything, one monthly charge per customer (not per device), no mention of terms like: Contracts, Kilobytes, Roaming Charges, Cancellation Charges, etc.

What's really happening here is that Apple is giving the customers what they want but AT&T (and the other networks) are giving the customers the shaft (or to be nice, exactly what the customers don't want). The Cable companies like Comcast are certainly no better.

that is the truth of it. in pc's, mobile music and mobile phones (cell is technologically obsolete, someone please tell the media) apple has delivered a better user experience consumers choose instead of foisting a pile of 'features' on customers and then trying to convince them it's better ... and i'm going back to tail fins on grampa's caddy people.

"My last good idea was advertising," Lucifer as told to Stanley Moon.

[solipsism]

Originally Posted by AjitMD

Even then, I find the data plan at $30/mo onerous, plus charging extra for SMS. The voice plan is expensive, especially if the customer uses excess minutes. Overseas roaming is too hi.

I find the data plan fees fine, especially when you consider what they were 2 years ago for unlimited (sans the iPhone). SMS and MMS are a rip off so I don’t pay for them. The government should be looking into all the carriers raising the SMS prices over time. It seems fishy to me.

I think a good marketing move would be an automatic plan bump if you go over. So if you get 450 minutes and you use 600 you get the plan bump to 700 minutes instead of being charged for an additional 150 minutes at the per minute charge. Even if the plan was a little more for the potential accounting variances it would go a long way for giving the consumer peace of mind. You read those stories of people being charged outrageous fees for SMS because their kid didn’t have a plan or the they exceeded their plan. I’d pay a premium for that.

[lowededwookie]

1st Apple will never make a CDMA phone. Most of the world is on GSM so if Sprint and Verizon is wanting the iPhone the onus is on them to change their back end structure to GSM. It's simple as that.

Also AT&T definitely is the bad guy here. I live in New Zealand and I did nothing once the iPhone 3.0 software came to get tethering and MMS (which I never cared about anyway) bar reboot my phone. If an entire country with a population of just over half of the population of Los Angeles can have all of this then why can't a network with 15 times more customers than the entire country's population not provide the same service?

The only thing AT&T has that I want is Visual Voicemail.

[echosonic]

Originally Posted by amadeuz4

as soon as apple moves to another carrier, i'll drop at&t like a hot potato. I don't care if i'm in the middle of a contract with them or not, i'll gladly pay the $175 to get our of this lousy service. "fewest dropped calls"... "raising the bar".... What bullshit that is. If i could get an iphone on sprint or verizon, i would be unbelievably happy.

ditto.

[TenoBell]

Part of the reason the original iPhone did not have 3G was because AT&T had not yet widely deployed its 3G network across the US. To spread 3G costs AT&T billions in new software and hardware. 2008 AT&T upgraded its 3G network by deploying 3.6Mbps HDSPA. 2009 AT&T is upgrading its network to 7.2 Mbps HDSPA, next year they plan to upgrade to 14 Mbps.

AT&T is also switching its 850MHz band to HDSPA that will allow better 3G reception. All of this while enduring one of the largest expansions in data usage of any carrier in the world.

Originally Posted by bobborries

AT&T made huge profits on the first iPhone, but didn't invest new hardware and still havn't upgradded. They don't push the iPhone in their stores, with crappy service, and low bandwidth it seems they're trying to kill it. Why does Apple put up with this BS?

[AjitMD]

It is important to keep in mind that the initial 3G tech that ATT uses called WCDMA/UMTS has been designed for widespread use of data on a sustained basis. It is essentially Wide Band CDMA that uses asynch tech. Voice and data packets travel over the same 5 MHZ channel. Voice has time sensitive QoS, while data can lag but maintain integrity. The problem is where there are too many data users, there is not enough room for voice transmission and voice calls drop. Furthermore, the size of the WCDMA coverage per tower shrinks as usage increases... so users at the edge can experienced dropped calls often. Power consumption control is also difficult.

The Verizon networks uses a more "primitive" tech called CDMA 2000 or 1X and EVDO. Basically the narrow band tech uses 1.25 MHz channel primarily for voice and is called 1X... it can also transmit data. However, the bulk of the data is transmitted over a separate data only EVDO 1.25 MHz channel. So voice and data do not interfere. Then there are frequency used issues as well.

The CDMA2000 tech is essentially controlled by an American company called QCOM. The WCDMA was pushed by the EU in an effort to take control of the tech from QCOM and dilute their influence and royalties. Again, it was not data friendly in practice.. new variations called HSPDA, will improve data performance. It will take a lot of money. Not sure of ATT will kick in the money.

However, ATT was the best way for Apple to max out its investment in the iPhone, since VZ did not want to play ball by Apple's rules.

[JimDreamworx]

Originally Posted by franktinsley

If Apple "wrecks" the cell phone industry like they "wrecked" the music industry it will only be because it too HAD IT COMING!

Count on Apple to disrupt the status quo!

[DougMcNerd]

Apple isn't wrecking anything. Consumers are wrecking the RIAA, MS, and AT&T. Apple is merely the tool (by virtue of providing what consumers want).

[solipsism]

Originally Posted by lowededwookie

If an entire country with a population of just over half of the population of Los Angeles can have all of this then why can't a network with 15 times more customers than the entire country's population not provide the same service?.

That is your answer! Your network covers a much smaller area while servicing a lot less people. More people and more area is not friendly to carriers. I’m not saying that AT&T has not made mistakes but this type of growth would be an issue for any US carrier.

[charlituna]

Originally Posted by solipsism

Prepare for disappointment.

i wouldn't be so quick to say that. it is possible that the next iphone will be one that has the tech to open up to more networks, and LTE might be the new standard at that point. who knows.

we've all heard that ATT loses their exclusive contract in 2010 and nothing yet about getting an extension. so it is possible that Apple turned down that request and is planning to go open market. no more SIM locks, if the carrier can and wants to service the iphone, have at all. if they want to subsidize, great. but complain to them if you don't like their rules. you wanna buy it at the apple store, no activation, full price. no other game from Apple. thank you come again.