AT&T's Many Missed iPhone Opportunities

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Who would have expected that Public Enemy Number One coming out of Apple's Worldwide Developer Conference would be AT&T? I mean, nobody loves the phone company, or the cable company, or the electric company. (As a kid I did love "The Electric Company," but these days as a homeowner my local utility features many more bills and much less Rita Moreno, thereby diminishing my enthusiasm.) But the outright booing of AT&T, egged on by Apple executives? I was shocked.

This is not to say that AT&T doesn't deserve the criticism. Presumably Apple chose to single out its U.S. carrier partner out of frustration with AT&T's intransigence, as a negotiating ploy, or a little bit of both. But the fact remains, Apple provided the set-up. First, by mentioning AT&T as an afterthought among carrier partners who would be offering MMS support on the day iPhone 3.0 shipped. As Apple's senior vice president of iPhone software Scott Forstall said:

Now, MMS requires carrier support as well. Twenty-nine of our carrier partners in 76 countries around the world will support MMS at the launch of iPhone OS 3.0. In the United States, AT&T will be ready to support MMS later this summer. Next.

(Image Caption: Where's Waldo?) That strange singling out of AT&T as a laggard (to use a classic Steve Jobsism) produced more laughs than boos among the audience of developers and members of the media. The boos came on a later slide, when Forstall promoted the new tethering function of iPhone OS 3.0 -- a feature announced in March that allows your computer to share the iPhone's connection to the Internet if you're somewhere without Wi-Fi. Forstall said:

Like MMS, this requires carrier support. We have 22 carrier partners in 42 countries around the world that will support this at the launch of iPhone 3.0, and more will be rolling out... later.

This time Forstall didn't mention AT&T. He didn't have to. The accompanying slide featured Apple carrier partners great and small, such as LuxGSM (Luxembourg), Telkomsel (Indonesia), VimpelCom (Russia), Telenor (Scandanavia), and Turkcell (Turkey), not to mention the European heavyweights O2, T-Mobile, and Vodafone and even much-maligned Canadian carrier Rogers. The familiar AT&T globe logo was nowhere to be seen. And thus began a cadence of boos along with plenty of derisive laughter.

Now, it's easy to throw stones from out here. For all I know, AT&T has perfectly good reasons why MMS support isn't coming until later this summer and tethering is a cypher wrapped in an enigma, smothered in secret sauce. But the company has known about these features for at least as long as the public, which would amount to three months. And Apple's pointed slides point out that it's not very happy about the situation either.

Searching for answers

And so I have to ask, what the heck is AT&T thinking? The iPhone is, in many ways, a company-defining product for AT&T's cellular branch, the former Cingular Wireless. AT&T has been flooded with new customers who have switched to the service, many despite qualms about the quality of its network and coverage, entirely due to the allure of Apple's breakthrough device. In the U.S., the iPhone is perhaps the most important single cellular handset in existence. And now a new version of the phone's onboard software is about to launch, with several new capabilities -- and AT&T is nowhere to be found.

It just doesn't make sense, and not just from the perspective of rabid iPhone fans who will download the 3.0 software update as soon as it's available Wednesday. It doesn't make business sense to me, either. Surely AT&T is aware that many iPhone buyers are early-adopters, people who embrace products that are on the cutting edge of new technologies. These are the people who will use MMS and tethering on the iPhone, if it's available.

MMS messages, if embraced by the iPhone-using community, are an opportunity for AT&T to make money, and last time I checked, AT&T was a profit-making concern, not a bunch of hippies living in a yurt. And then there's tethering, which presumably AT&T will charge an additional monthly fee for its customers to use. It's the opportunity to drop another $20 to $50 on untold numbers of monthly iPhone bills. The sooner, the better!

And of course, beyond delaying these money-making features and making the early-adopter iPhone crowd angry at them, AT&T's also incurred Apple's wrath. Now, I freely admit that this entire thing may just be the dance of two large corporations who are locked in some tough negotiations over the future of their relationship together. It's not just a negotiation about exclusivity, though presumably it is that. It's also about financial terms.

Both companies want the best deal possible, of course. But these days, Apple really has all the leverage. It's got a popular product, and AT&T must surely know that the day Verizon offers an upgraded iPhone (even if AT&T also offers that model, but especially if it doesn't!) is the day that a steady flow of its customers begin kissing it goodbye and switching to the competition. Imagine the effect on profits and even the company's stock price.

It's possible that AT&T really wants to offer these services, but is quite simply a victim of the iPhone's success, a success that terrifies the executives who are in charge of AT&T's data network. We've seen signs of this already: although the company allows other phones to run Sling Media's SlingPlayer video software, Apple (presumably with AT&T's guidance) refused to let the iPhone version of SlingPlayer work on cellular networks. The reason, I have to assume, is that nobody is really using SlingPlayer on those other platforms. But AT&T is deathly afraid that the millions of iPhone users on its network might actually use the product, and bring the network to its knees.

Perhaps AT&T is afraid that all those iPhone users with their MMS photos and videos would overwhelm the network. Not to mention the abject terror of the bandwidth that might be used via tethering. Perhaps this stalling tactic is simply to build up AT&T's network so that those features work well. But if that's the case, then the issue remains: if AT&T's network can't truly withstand the iPhone, perhaps it's not the best partner for Apple to have.

Know your customers

Floating in the background here is, of course, the anger many users are feeling about not qualifying for the lowest prices on the new iPhone 3G S. I sympathize with the anger, because it's readily apparent that many people didn't understand what the ramifications of signing that two-year subsidized contract for an iPhone 3G would be when Apple came out with a whizzy new iPhone less than a year later. The subsidization game is the national pastime of the cellular industry in the United States, and AT&T is no different.

Without getting into the upgrade anger itself, let me ask this question: Why isn't AT&T different? Being the exclusive iPhone carrier in the U.S. was a huge opportunity for AT&T. So why didn't it use the iPhone to make its customer experience different, too? Didn't AT&T realize that the iPhone audience was going to be populated with people who, by the very fact that they embraced the iPhone, tend to want to use the latest and greated piece of technology around? Didn't AT&T know that signing those people to a standard two-year obligation would directly clash with their desires for that next model in a year's time?

I am not saying that AT&T should offer users something for nothing. (Of course we'd all like a free pony.) What I am saying is, AT&T could have communicated the terms of its subsidy better, especially considering that many of its customers are Apple fans who may be used to purchasing the Next Big Thing as soon as it arrives on the scene.

And here's a thought: maybe AT&T should have offered a plan for the early adopters. Some sort of iPhone Assurance Plan, in which you'd pay extra every month in order to guarantee yourself the lowest price for new iPhone hardware once it's announced. Yes, that's a marketing trick -- moving the cost out of the phone and into the monthly bill. But it's the same trick that makes subsidized phones so much more appealing (at least, for many consumers) than expensive phones with lower monthly bills.

From the outside, there's just no way to know why AT&T does the things that it does. But given Apple's attitude, the reaction from the crowd at WWDC, and the anger out on the Internet, something is obviously wrong. It makes me wonder if AT&T, as a company, is simply incapable of changing the way it does business, even if the changes might end up benefiting it in the end.

Back in the Cingular days, the company took a chance on Apple and the iPhone, and it paid off. It's time for the company to keep taking chances and being aggressive in supporting (and, yes, marketing to) iPhone users. Because the way things are looking right now, AT&T Wireless's single greatest asset is poised to walk out the door and -- as soon as the contracts lapse -- take millions of its customers with it.

[Jason Snell is Macworld's editorial director. He has never worked for a phone company.]

This story, "AT&T's Many Missed iPhone Opportunities" was originally published by Macworld.

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