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The Pulpit
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Weekly Column

When Networks Collide: AT&T suddenly doesn't like Apple so much.

Status: [CLOSED] comments (108)
By Robert X. Cringely
bob@cringely.com

AT&T CEO Randall Stephenson this week said what I have been saying since last July -- that Apple and AT&T would soon introduce an iPhone that works with AT&T's faster 3G wireless data network. I said it because I had heard last summer that AT&T was already testing 3G iPhones in Florida, but the better question is why Stephenson said it and why now? For AT&T, his announcement looks, frankly, stupid.

Here's a guy who is head of the largest telephone company in America and its largest mobile phone company. He has a five-year iPhone exclusive giving AT&T the number one selling U.S. smart phone and a huge generator of primo subscribers mainly poached from other carriers. Christmas is a month away and 1-2 million Americans have been planning to give -- or hoping to get -- an iPhone. So what does the guy do? He lets it slip that next year Apple will release a faster iPhone that will make the existing model obsolete. The only impact this can have on current iPhone sales is to stop them in their tracks, unless Apple offers a free 3G upgrade, which believe me they never intended to offer and may not.

So what's up? Was it a simple slip? Or is the guy so out of touch with reality that he doesn't realize that with a few words he has probably deferred -- maybe forever -- at least a million new customers worth to Wall Street at least $1 billion in market cap for his company?

I don't think Stephenson's statement was by accident and I don't think he is out of touch with reality. I think, instead, he was sending a $1 billion message to Apple CEO Steve Jobs.

It is no coincidence that Stephenson made his remarks in Silicon Valley, rather than in San Antonio or New York. He came to the turf of his "partner" and delivered a message that will hurt Apple as much as AT&T, a message that says AT&T doesn't really need Apple despite the iPhone's success.

It's one thing to have a private disagreement between companies but quite another to take it public in a way that costs real money.

What I believe is troubling the relationship between AT&T and Apple is the upcoming auction for 700-MHz wireless spectrum and AT&T's discovery that -- as I have predicted for weeks -- Apple will be joining Google in bidding. AT&T thought its five-year "exclusive" iPhone agreement with Apple would have precluded such a bid, but that just shows how poorly Randall Stephenson understood Steve Jobs. Steve always hurts his friends to see how much they really love him, so AT&T probably should have expected this kind of corporate body blow.

To his credit, Stephenson took the dispute to the streets this way, showing he isn't intimidated by Jobs. It was a bold and rare response for big business and was definitely unexpected by Cupertino, which won't underestimate AT&T again.

I'm not privy to any inside details here, but there are two ways I can see Jobs rationalizing his auction position and they aren't necessarily exclusive. He could claim to intend the 700-MHz auction participation as a pure investment, just a good use for the $30+ billion Apple has squirreled away.

Nah.

Or Jobs could tell AT&T that Apple is investing solely in a DATA network for which it has no voice ambitions. Maybe all MacBooks will soon get 700-MHz access cards.

This excuse rings truer, but of course it would still be a scam on Steve's part.

It would not surprise me at all if this were the case and when the 700-MHz network is finally up and running Jobs claims astonishment that the most popular data application is Voice over IP, a direct competitor to AT&T Wireless. This may be part of the reason why Apple has been so slow approving third-party iPhone applications. Wouldn't your first application be a VoIP client?

Of course to this point Apple hasn't even said it will participate in the 700-MHz auction. Apple has said nothing at all on the subject. I said it and still believe it to be true. And I'd say Randall Stephenson's remarks this week pretty much confirm I was correct.

Now AT&T is going to have to decide whether it is worth $10+ billion to fight Apple, Google, and probable third and fourth partners by bidding, itself, for the spectrum, which it wouldn't otherwise have done.

A similar decision will have to be made by Verizon Wireless, which this week applied ITS reality distortion field to trying to make us believe the second-largest U.S. mobile operator actually intends to open its wireless network to non-Verizon devices and services.

Yeah, right.

Verizon's move is straight from the playbook of the old AT&T back in the 1970s, when that company was trying to keep third-party telephone handsets from being connected to its network. If you are old enough you may remember AT&T expressed great fear back then that telephones not from its Western Electric subsidiary (now Alcatel-Lucent) would somehow "damage" the telephone network. It was the same excuse used to keep old guys like me from wearing jeans in high school.

We will, no doubt, see similar behavior from Verizon as it slowly releases network interface specifications then embarks on a certification program that will surprisingly reject as incompatible a lot of perfectly fine mobile phones. But this is months or even years away. The company's intent right now is to show the appearance of motion.

The appearance of motion: it's sad, wouldn't you say, when this is what American business has come to.

Comments from the Tribe

Status: [CLOSED] read all comments (108)

I think the word you'd prefer is "obsolescent" -- in process of becoming obsolete but still operational, although that's too severe to describe the current iPhone, which would cease to be the fastest iPhone if a 3G version came out. It will become simply "last year's model" or "the slower one." I still use a ten-year-old analogue cellphone that is definitely obsolescent. It will become obsolete next September when the local analogue network is decomissioned. I'm hoping that by then the iPhone will be available in Canada at less-than-crippling data rates.

Stuart | Dec 07, 2007 | 11:48AM

Mr. Cringley,

What do you mean Verizon's certification process is probably years away? Everyone knows Verizon is the MOST rigorous in their specification standards, which is why it takes the longest for new phones to be released by them.

Just look at the linux phone, which has been around for a while but finally released to US markets by Motorola in the form of their latest Razr phones branded V8 by T-Mobile and Sprint which began offering them in September, to Verizon's bastardization of the same Razr phone which strips the hardware of its linux OS to be replaced by their proprietary one that features the CDMA standard instead, which they are branding the Razr v9.

It's why as soon as my contract is up with VZW I plan to switch to a more forward thinking company that is not afraid of open standards.

arias | Dec 11, 2007 | 11:42AM

Are you kidding me? Why would a telecom carrier NOT want devices to work on their network? Subscribers are key. Right now, most carriers subsidize phone purchases by quite a bit in order to obtain new subscribers. The drawback to this is that they must lock them into a plan to break even. But if someone walks up and said "I have a phone, I want to pay you a monthly fee" - they would be insane not to take them.

Brian | Dec 12, 2007 | 10:56PM