iphone_att I ran across an interesting article about the effect Apple is having on the wireless business. The conventional wisdom has been that AT&T and Verizon are abusing their market power when they enter into exclusive arrangements with handset manufacturers. A letter from four senators got the FCC looking into the exclusive handset deals, and the Department of Justice has started an “initial review” that potentially could lead to antitrust action.  Realistically, it’s only AT&T’s exclusive right to sell the iPhone that causes concern, although there are similarly restrictive deals for the Palm Pre (Sprint) and devices built on Google Android (currently T-Mobile). When AT&T signed its deal with Apple, it looked like a master stroke that instantly made AT&T relevant and cool.

The article concerns an analyst’s research note arguing that Apple has already wrecked the wireless industry and destroyed the carriers’ power, causing a huge disruption that will play itself out over the next few years. It has become obvious with the iPhone that customer loyalty is almost exclusively given to the device, not to the carrier. AT&T’s reputation is suffering now precisely because it is perceived as the villain that prevents iPhone users from getting the full value of their devices. AT&T’s network is getting crushed by the iPhone’s appetite for data; each new model of iPhone and each cool app increases the load on AT&T’s inadequate bandwidth and makes more people angry with AT&T.

. . . Apple has stolen the march, and in the process has recast AT&T from hero to villain. At Apple’s June developer conference in San Francisco, where Apple unveiled its new 3G “S” iPhone, AT&T was roundly jeered at every mention by the more than 5,000 application developers in attendance. Bloggers at the conference were all a-Twitter (so to speak) about their frustrations with dropped calls and slow data connections. Even Apple itself seemed uncomfortable talking about its U.S. partner.

With breathtaking swiftness, the technology press has painted AT&T to be the (evil) gatekeeper, with sub-par network quality and a hidden (evil) agenda aimed at preventing innocent and only oh-so-well-intentioned technophiles from simply exercising their God-given rights, like Skyping wireless voice (free), embedding high bandwidth video in MMS texting services (free), or bypassing that $40 per month laptop card by tethering their laptops to their iPhones (free, of course). . . .

Something more profound than just short term economics is afoot. Apple has radically tilted the strategic playing field away from the network operator in favor of the device manufacturer. Remarkably, Apple has so thoroughly stolen the customer relationship – who would argue that Apple iPhone customers’ first affinity is to the device rather than to the network – that the network is not only irrelevant, it is rather a source of derision.

Today there’s an interesting flap that might shed some light on whether Apple will continue to be perceived as a force for good separately from bad old AT&T. Apple decided not to permit an app to be sold for the iPhone designed by Google for easy use of the Google Voice system. Using Google Voice for long distance calls and text messages bypasses some of AT&T’s charges, so it’s obvious why AT&T would pressure Apple to close it down. But why would Apple agree?

The thing that really bothers me about the move is that Apple is now actively stifling innovation. Google Voice is the kind of service that can actually have a positive impact on your life, and not in a frivolous, entertainment-related sense. It makes it easier to connect with people, and to manage those connections. Apple can point to the App Store’s 50,000 applications all it wants, but how many of them could truly be called groundbreaking? Are they really putting a dent in the universe? . . . It’s becoming clear that Apple is doing its best to keep many of the iPhone’s most game-changing apps away from users.

AT&T’s contract with Apple to sell the iPhone will be renegotiated next year, with Verizon waiting in the wings for a chance to upset the current arrangement. It should be interesting to watch.

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