AT&T's Beleaguered Network, the iPhone and the End of Exclusivity

Carl Weinschenk

Two of the more interesting mini-dramas to watch during the next six months or so involve how quickly AT&T loses its iPhone exclusivity and what price, if any, the carrier pays for the problems it is having serving subscribers who own the Apple device.


The New York Times paints a stark portrait of AT&T's dismal performance with the iPhone. The paper says that the company's network is overstressed and that the iPhone is reminding people -- those old enough -- of the days of dialup modems. The situation is worst in New York City and San Francisco.


Things probably have gotten so bad for AT&T's iPhone sojourn because of poor timing. The iPhone came out not long before the economy cratered. Despite the recession, wireless data use grew dramatically. I've blogged a few times recently about the impact of these countervailing trends. On one hand, people are cramming loads of data onto wireless networks. That's great. What isn't is that the recession caused carriers to stretch the soup in several areas, including capacity upgrades. It makes sense that this tension would be most acutely felt by the most popular device, especially one constrained to a single network. That, of course, is the iPhone.


In a nice bit of cognitive dissonance, AT&T said it will begin offering multimedia messaging (MMS) capabilities on Sept. 25. The eWEEK story broadly touches on the fact that MMS will greatly increase the amount of data the AT&T networks will have to shoulder. There is no direct mention of how this works in the context of the current level of complaints the carrier's iPhone customers are lodging.


The reality may be that AT&T knows that the stress on its network will be alleviated simply because its exclusive deal with Apple is ending. Exactly how and when that will happen remains to be seen. The Silicon Alley Insider, for example, says that the end of exclusivity likely will come next year. The reason is that Apple's original strategy of customizing the phone only for Global System for Mobile communication (GSM) networks was a good idea when its phone business was at the starting gate. It's grown more mature since the iPhone was born, the blogger says, and there is no good reason not to offer a Code Division Multiple Access (CDMA) version of the device.


In this scenario, AT&T might not be so sad to see the exclusivity end. The truth would lie in the calculus involving the potential loss of customers due to competitors' iPhone services and the cost of upgrading the networks to adequately handle demand. It also is important to remember that since the iPhone launched, a group of attractive new devices including Palm's Pre and increasingly popular non-smartphone gadgets may make an exclusive deal with Apple seem less vital.

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