AT&T iPhone Mess
AT&T has stumbled into a quagmire. When it secured exclusive rights to support Apple’s iPhone on its wireless network in June 2007, investors hailed the deal as a masterstroke. Here was stodgy, safe AT&T positioning itself to gulp profits from a cutting-edge technology. But AT&T and Apple vastly underestimated the iPhone’s appeal. At launch, Real Steve Jobs said he’d be happy if the device could grab 1% of the global cell-phone market, or about 10 million units for 2008. Instead, Apple has sold at least 42.4 million—25.1 million in 2009 alone, 14% of the global smartphone market. AT&T, which markets the iPhone in the U.S., simply can’t handle the traffic.
Making matters worse is the proliferation of “apps,” those bandwidth-sucking programs that make smartphones so much smarter. According to Apple, iPhone users have downloaded at least 140,000 different apps a total of 3 billion times. Watching broadcasts of Major League Baseball games and studying the globe via Google Earth on a palm-size device feels like a promise from the future, but the networks delivering all this data are still just catching up with the present. “We expected this was going to open up a new level of engagement, and we knew we’d be successful in the market,” says AT&T Operations President John Stankey. “We missed on our usage estimates.” Case in point: It’s not atypical, he says, for 80% of a college football crowd to be using their iPhones.
The rise of iPhone Nation—with its media-savvy and data-greedy citizenry—has left AT&T with a tough set of options. It could significantly upgrade its network to handle all the new demand, but that would cripple profits. It could charge more for network access or limit what customers can do on their phones, but that would enrage the all-you-can-eat subscriber base as well as Net Neutrality types who seek to prevent telecom companies from dictating customers’ options. It could permanently halt iPhone sales in overcrowded markets, but that would bring more mockery, not to mention place AT&T in the unusual position of denying consumers access to a product it doesn’t even make.