AT&T’s Missed Opportunity

It's awesome, but is it cool enough to tolerate a bad cellphone carrier?

It's awesome, but is it cool enough to tolerate a bad cellphone carrier?

iPhone, iPhone, iPhone – some days that’s all I seem to hear. But underneath all the chatter I also hear this ongoing thread: “I wish Verizon had the iPhone because AT&T’s network is just plain awful”  or “I want an iPhone but not with AT&T” or in a boon for Blackberry “I wanted an iPhone but AT&T’s network blows, so I got a Blackberry on Verizon”.

Sure the iPhone is both cool and well-designed but that’s not why I hear people talking about getting when they get an iPhone. The buzz is all about the application ecosystem that runs on the iPhone. The fact that the ecosystem is driving sales for Apple is ironic because a case can be made that it was a hardware ecosystem followed by a software ecosystem that allowed the PC to flourish and eventually dominate the global desktop and server marketplace despite Apple’s superior products. 

The PC flourished despite the numerous and well publicized problems resulting from deploying DOS and Windows across disparate hardware from thousands of manufacturers. This was happening at the very time Apple had a both loyal customer base and the enviable position of controlling both the hardware and software for their products. Despite these apparent advantages Apple was forced into a small but profitable niche of producing beautifully designed equipment and tools for designers and creative people.

But that was then, and this is now. Apple’s desktop (really laptop) market share and mind share are growing in part because of the incredible success of the iPod and iTunes ecosystem – which for the first time made it easy for consumers to buy, download and use a mobile music player. This evolved into the  iPhone and the App Store helping the iPhone slowly creep it’s way into businesses and C-suites across the country causing IT departments to scramble to support a device that doesn’t have much enterprise support built into it’s DNA. 

But success builds more success and the support tools for the iPhone are getting better, allowing strapped IT department to both support and use the iPhone. One good example is  LogMeIn’s Ignition  which let’s IT departments remotely access their environment for management and file access.  Given that there has been over 1 billion apps downloaded from Apple’s App Store, Apple must be doing something right.

Just as the PC flourished in direct proportion to the number and variety of applications available for it, so too is the iPhone flourishing as more and more applications are developed and released that take advantage of the iPhone hardware and OS. When incoming medical students have to get an iPhone in order to run their medical applications and businesses like decide to produce software only for the iPhone – something is definitely changing in the marketplace.

Unfortunately AT&T isn’t taking full advantage of the incredible head start they’ve been given with iPhone exclusivity. Sure they are pulling subscribers over from other carriers, but how many more could have come over if AT&T’s network was more robust? Verizon appears to have kept the “can you hear me now” campaign going for so long because it resonates so well with consumers. In fact they keep finding new ways to extend it which means at some point it’ll jump the shark, but for now it’s all about the geeky technician in dark glasses smiling everywhere you go. By comparison AT&T’s cute response of “more bars in more places” seems tepid no matter how many different ways they dress it up. When people complain about your network because they keep dropping calls on the Acela between Boston and New York, you’ve got a problem that marketing alone won’t fix.

Of course the root cause of some of those network issues can be traced back to the architectural choices AT&T has made, or inherited, over time. AT&T’s does enjoy a particular hardware infrastructure  advantage over Verizon due to AT&T’s use of the GSM network standard. Over 80% of the world uses GSM allowing for simple global roaming  for GSM handsets and easier handset standardization.  This is important given small size of the US market is relative to the rest of the world. But this hardware advantage has been frittered away by not having enough network  capacity or coverage to handle consumer’s increased data demands. Although Verizon’s CDMA network is incredibly robust and reliable – I left AT&T for Verizon 4 years ago because I couldn’t maintain a strong signal in remote places such as San Jose, CA or Midtown Manhattan – CDMA  is a virtual orphan in the Global marketplace causing Verizon to get a limited number of handsets, those later than other carriers, and limiting Verizon’s penetration with international business travelers.

Proving the canard that there is nothing new under the sun – this technology battle is basically an updated version of the Betamax vs. VHS debate with AT&T’s GSM as the new VHS and Verizon’s CDMA as the Betamax. The VHS (GSM)standard ultimately won that battle in the consumer marketplace despite superior performance by Betamax (CDMA) and as a result enjoyed many years of competition free profits. Unfortunately AT&T won’t get to enjoy any such luxury because LTE, the new global 4G network standard, is just around the corner. To carry the analogy further, LTE, will play the role of the DVD in this technology battle demolishing the VHS, or GSM, technology.  As ever more consumers demand and use more bandwidth intensive content on their phones, 4G networks using the LTE technology will become even more important.  LTE technology is still being developed but initial testing has been done and Verizon, and many other carriers globally, will begin deploying this technology next year with the full roll-out expected to be finished in 2013.

Back to AT&T’s missed opportunity. Right now if you want to use the iPhone legally in the US you have to use their network and sign up for a 2-year data plan – I’ll leave aside the whole issue of the “unlocking” of the iPhone for now. But once AT&T’s U.S. exclusivity on the iPhone disappears – and it will if Apple wants to keep growing sales and maximize revenue – AT&T  will have a significant problem attracting new customers and retaining current customers once those 2-year contracts end.

 Think about it – if you have the hottest most desirable product in the handset marketplace today and people are still reluctant to purchase it because your network isn’t reliable enough, what will happen when they can buy that hot product elsewhere? AT&T had a chance to showcase not only a superior product but also delight customers with a robust and reliable service – which after all is the reason they signed up for cell phone service in the first place. Maybe AT&T can change hearts, minds and wallets when they move to their 4G infrastructure but I think it is more likely that they will have to cut data and voice plan prices like some of their smaller competitors already do to attract, retain and recapture customers.

What are your thoughts on the iPhone, ATT and Verizon? If you don’t have an iPhone today would you get one if Verizon offered them? -Thom

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