New tethering services would exacerbate AT&T's existing network capacity problems, but availability of the 3G MicroCell would help to solve localized service holes for the company. The product is still confined to limited testing in just a few cities, which perplexingly do not include the two markets that are so infamous in terms of poor service that AT&T's CEO has made apologetic remarks addressing them directly: New York City and San Francisco.
The company did not respond to requests for comment on its tethering and 3G MicroCell plans, both of which were widely expected to be available by the end of this year.
Bad ink over bad links
AT&T was hit hard during the holiday season by an ad campaign from Verizon Wireless which depicted AT&T's data network as covering much less land area in the US compared to Verizon's service. The ads also targeted the iPhone specifically as being crippled by AT&T's network.
That campaign didn't appear to have much real impact on buyers, however, who continued to snap up iPhones in record numbers. Analysts have projected blowout quarterly sales of iPhones to reach close to 10 million units for the holiday period.
Still, iPhone users are keenly aware that despite AT&T's defensive response to Verizon, the company's mobile coverage is still suffering from poor or completely unavailable areas of service even within areas AT&T portrays as being well within its 3G service coverage area. Critics have frequently cited New York City and San Francisco in particular as troubled areas for AT&T, in part due to their urban density and topographic challenges, from mountains to tall buildings, and in part because of the high percentage of iPhone users trying to use the network.
Now or tether
The company's network problems help explain why AT&T failed to meet its goal of implementing an official tethering plan for the iPhone that supports the technical capabilities Apple built into the iPhone 3.0 software release this summer.
Tethering enables mobile subscribers to use their phone to provide a network uplink to their notebook computer over a USB or Bluetooth connection. iPhone users in other countries have been able to tether the iPhone for nearly six months now. AT&T supports tethering plans on other mobile devices it sells, but still hasn't activated the service for iPhone users, apparently because it knows it can't yet support any additional data demands.
The company similarly delayed the deployment of MMS features for domestic iPhone users until it could bolster its capacity to serve the millions of iPhone users it feared would overwhelm its network capacity. While MMS is limited to sending individual photos, videos and audio clips, tethering can involve large and sustained data transfers, making it a much larger issue for AT&T to address.
The company has also remained silent on any strategy to begin offering iPhone tethering services at a price high enough to limit its use to those willing to pay exorbitant fees. While it is reasonable to conclude that AT&T's network is unable to manage ubiquitous tethering demands from everyone at no extra cost, it's harder to understand why AT&T can sell tethering plans to users of other devices, but not to its iPhone customers.
Some users initially activated the latent tethering capabilities in the iPhone 3.0 software to use AT&T's network anyway. That resulted in Apple releasing a patch in an iPhone update that has since defeated the feature within AT&T's service area.
Alternatives to AT&T: frying pan to the fire
While Apple has consistently remained positive about its relationship with AT&T in public, most observers expect the company to be ready to escape from its exclusive contract as soon as its initial iPhone partnership with AT&T expires next summer, opening the iPhone to either CDMA carriers such as Verizon and Sprint with a new worldmode chipset, or expanding the iPhone's 3G UMTS capabilities to work on T-Mobile's non-standard 3G mobile frequencies. Either move would enable Apple to sell more iPhones domestically without running into the limitations of AT&T's service capacity in the US.
At the same time, other carriers have instituted artificial limitations of their own which would impact new iPhone users on their network. Verizon has begun charging an outrageous $350 early termination fee for smartphone users and recently began forcing its BlackBerry users to install and not remove an application link to Microsoft's Bing service. Verizon also has a long history of disabling Bluetooth and WiFi hardware features, disabling direct USB desktop sync, and forcing users to download or rent mobile software based on Qualcomm's BREW platform.
A primary reason why Apple and Verizon couldn't work out a deal for the original iPhone launch was because Verizon refused to allow Apple the control AT&T was willing to give the company. Since then, Apple's efforts to deliver a sophisticated and relatively expensive smartphone with rich desktop syncing, a dedicated and original software marketplace not managed or limited by the mobile provider, and an unlimited data plan has resulted in the rest of the industry scrambling to create the same thing, without much success.
Verizon has found that finding a sophisticated phone set with broad appeal is difficult to do. Other hardware makers are finding that copying Apple's App Store success is also a tremendous challenge. While the less ambitious HTC, Motorola, and Sony Ericsson have backed Google's fledgeling Android, more confident leaders like Nokia and Samsung have announced plans to create their own rival platforms, including Nokia's Maemo Linux distribution and Samsung's new Bada effort.
Palm and RIM are also working to advance their own original smartphone platforms, resulting a dramatic departure from the history of desktop PCs, where nearly all major makers were content to run an IBM-compatible DOS within just a few years of the personal computer emerging as a mass market product.
No matter how much work hardware makers put into their own platforms however, they'll face significant push back from carriers who are tenaciously working to maintain their control over the handset market, particularly in the US. Unlike other countries where unlocked phones can be used on any provider, the US is currently split by mobile carrier's technology boundaries which have helped keep phone models exclusive to a provider.
As Apple formulates its post-AT&T strategy, it will have to consider how open other carriers are to the idea of supporting a smartphone that does not work with their lucrative ringtone, software rental and video clip services such as Verizon's VCast.