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Why You Should Thank AT&T (Yes, It’s True)

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People love to trash AT&T (NYSE: T). Talk to any iPhone user and they’ll complain of dropped calls, voicemails gone missing, and other problems that seem inexcusable in a time when many people don’t have a home phone.

But believe it or not, for all its well-documented network and service problems, AT&T actually deserves a debt of gratitude from mobile phone users, and not just its own subscribers. It has completely changed the way the wireless industry does business in the U.S. Without AT&T and Apple (NSDQ: AAPL), we would still be using our Razr and downloading ringtones and StarTrek wallpaper. Well, that’s a little bit of an oversimplification, but here’s what I’m talking about…

If you can remember back more than two years ago, Apple was asking for a lot. It wanted a partner that would not only subsidize an expensive piece of hardware, but that would hand over complete control of the device. In those days, that was unheard of. The carrier owned and dominated the experience. If you wanted to sell mobile games or ringtones, you did it through the carrier, and after each sale, you gave a sizable chunk of the revenues back to the carrier. Carriers operated what we all called “walled gardens,” where all content not being sourced by the carrier was cut off to the consumer. To put that into today’s terms, that frequently meant NO internet access and limited choices.

The iPhone changed all that, and today all consumers are benefiting, not just AT&T subscribers. Maybe if AT&T didn’t agree to work with Apple, another carrier would have. But so much has changed over the past two years since the first iPhone — and much of it has to do with AT&T giving up control over the user experience. This may be little solace to an AT&T customer who just had to hit redial for the third time because the network failed them, but it’s worth remembering.

Why is the network so overwhelmed? Because no one, likely including AT&T, knew back then how phenomenally successful the iPhone would be. Turns out if you made it easy enough, consumers were eager to surf the web and download applications on the go. And now AT&T is paying the cost of being cutting edge. While AT&T has banned some iPhone applications, it has let almost everything go through. (Ironically, Apple is the one you have to get past). After all these years of carriers being cautious, only now we are getting a taste for why they were so reluctant to open up. Each carrier has only so much capacity, and the iPhone is pushing AT&T to the outer limit.

Today, in AT&T’s second-quarter earnings call, the carrier said traffic generated by the 9 million iPhone users on its network is overwhelming. AT&T’s CFO Rick Lindner: “Our network handles more data traffic from integrated devices than all of our competitors.” AT&T knows it has a problem. This summer, it will start upgrading its network to HSPA (short for high-speed packet access), which will improve the device’s speed and increase capacity. While it is what a carrier would call a “simple” software upgrade, completion won’t be done until 2011.

Yesterday, Apple’s COO Tim Cook defended the company’s partnership with AT&T during its call. He said Apple’s relationship with AT&T is “excellent” and “we are very happy with it.” While it may not be peachy all of the time, you have to believe him. After all, it was AT&T that took a chance on Apple and even now is helping the company to sell more phones than it can manufacture. In the second quarter, AT&T sold 2.4 million iPhones, or nearly half of the 5.2 million Apple sold in total.

So beat up on AT&T all you want, it probably isn’t fair that you are spending $100 a month for lousy service. But remember that you might not have all the advanced web-surfing capabilities and popular apps — to the extent we do today — if AT&T hadn’t plunged into the brave new world of the internet.

17 Responses to “Why You Should Thank AT&T (Yes, It’s True)”

  1. I've been downloading third party apps, media files and etc… to my WM based phones on Sprint for years.

    Yes Apple did one thing it took away the AT&T's walled garden and replaced it with it's own.

  2. Can't say I agree with this writer's assessment. I bought a samsung mm series for my sprint service THREE years ago, and for the past 3 years have enjoyed unimpeded access to the internet via opera mini and data tethering, at very good speeds I might add. In addition, I have downloaded numerous apps from google and others during that time.

    The i phone is just way cooler, and its mass appeal means more developers have written thousands more pieces of software for it than for a phone like mine. But don't shower ATT with credit for 'breaking down the walls' because that's garbage. They simply made a good investment.

  3. I completely agree with you. I hate AT&T myself for the very same reasons-dropped calls, late voicemails and the father of all – poor coverage. But they were the ones who brought in iPhone – the one phone which has changed everything about a cell phone. now its just a totally different thing.

  4. Staci D. Kramer

    I wouldn't have switched carriers to get my iPhone 3GS. It was the best available AT&T alternative when my HTC Tilt finally gave up. I hated moving away from full access to things like Skyfire, where I could watch video without an Apple filter. One reason I stuck with AT&T for years was whenever I tried other carriers for reviews, I ran into more walls or slower speeds. That said, life is glitchier now — and as frustrated as I get by AT&T, I don't think it all can be laid to the carrier. I'm pretty sure we'd be hearing/saying much the same now if we were dealing with other carriers.

  5. AT&T's coverage is horrible. They just don't want to spend money to improve it.

    Tricia forgot a fact that many of the applications may have been downloaded via Wifi or broadband through PC which does not use AT&T's wireless network.

  6. Tricia

    I just wanted to respond to people questioning whether AT&T should have seen this sharp adoption curve coming and should have planned accordingly.

    Here's some numbers to put it in perspective. Within the past year alone, iPhone users have downloaded 1.5 billion applications, which is a jaw-dropping number that has universally impressed analysts and developers. While these are global figures, we can assume a big chunk is occurring over the AT&T network.

    To put the 1.5 billion into perspective, you can calculate it out: If apps are on average 2 megabytes each that means Apple have pushed over roughly 3,000 petabytes of data. That does not take into consideration anything else — like using the apps, browsing the web or making phone calls.

    This doesn't excuse a bad network, it just puts the bad network into perspective of how fast the industry has moved in the past year or two — and particularly for AT&T.

  7. @jamie – agreed. it's not right. and it's frustrating. i was just commenting on the "AT&T was surprised that they had lots of data traffic once they had data enabled phones" remarks.

    @jordan – i believe it's pretty clear that this is an opinion piece. labeling not required.


  8. Jamie Poitra

    @ed – I believe Apple did offer the iPhone to Verizon. Verizon's CEO is on record as having turned down the offer. I suspect because they were unwilling to give Apple the freedom they wanted so they went to AT&T who apparently was willing.

    @peter – Maybe that's what AT&T was thinking but that doesn't make it right! :)

  9. Wow, I don't know what else to say. Just wow. People love the iPhone because it came from Apple, a company with an incredible track record in the last 10 years. Remember the iPod?

    And, Tricia, come-on, if it wasn't for ATT we would still be downloading Star Trek wallpapers and using a RAZR? Really? Aren't most subscribers doing that on ATT? And, wasn't it ATT who had the Motorola RAZR as an exclusive before the other carriers. And, doesn't ATT still operate a walled garden? And, isn't that walled garden a horrible mess?

    Wow, Tricia, I am constantly amazed by how poor your research and journalistic skills are. At least, this time you didn't simply report on some other report. So, bravo for showing us how inept your logic really is.

  10. Jordan

    Tricia –

    1 – AT&T's inability to get the basics of connecting and keeping phone calls from dropping is inexcusable in this day and age. Not "buts."

    2 – I have often wondered if someone should be pulling together a class action lawsuit against AT&T for its poor network, high rates and misleading advertising claims (AT&T ads state that it has the fastest 3G network, but makes no mention of its limited availability and poor reliability).

    3 – What you have written is not a news article. It's an opinion piece and should be labeled as such.

    – jordan

  11. peter cervieri

    i would say it differently. i bet AT&T predicted the increased traffic on their network. but why incur the infrastructure upgrade costs before generating revenues from the data traffic. i'm on the AT&T network with my iphone. i'm frustrated that the basics (such as making a phone call) don't work. but am i switching any time soon? no. multiply me by a few million people and AT&T has the customer base to now spend the money to upgrade their network.


  12. ed dunn

    Let's not re-write history and have selective amnesia…

    Any telephone carrier such as Verizon or Sprint would have clamored over the iPhone deal, AT&T just had nothing more than a higher bid to prevent their competitors from getting the deal.

    AT&T had one of the most locked down phones in the industry. No way to get ringtones or even wallpaper without buying an unlocked phone off eBay. They were in the forefront with Verizon to nickel and dime their customers for any sort of customization.

    And please do not ask me to thank the extra surcharges AT&T hit the customer with such as the visual voicemail as if that is not a commodity item.

    The only ones who get credit is Apple for structuring this exclusive deal and making demands for AT&T to cave in to. AT&T deserve no credit at all…

  13. mocoholic

    I think people are unduly harsh on AT&T. Seriously, who could have predicted the data consumption by iPhone users? When you think back to how much was consumed just two years ago, its a phenomenal increase that a lot of people simply take for granted. People talk now as if the iPhone was always going to be a slam-dunk, but there was a lot of uncertainty when it first came out.

  14. Jamie Poitra

    Well, I've been with AT&T so long I actually had AT&T at first then the wireless branch got purchased by Cingular which then got purchased back by AT&T. So I've been through the gamut.

    I never really had major call dropping issues until a few months after I got my iPhone 3G.

    I think the issues are in large part because the added traffic of the 3G iPhone is more than AT&T's 3G network is able to handle and so the entire 3G experience has slowly gotten worse and worse.

  15. Tameka Kee

    I have to agree. I have AT&T, and don't even have an iPhone, and I can't stand the network quality.

    Would be interesting to see if people complained as much about the network before the iPhone … or before the Cingular merger.

  16. Jamie Poitra

    True. It took some gumption for AT&T to be willing to let Apple have their go of it THEIR way. But its not much an excuse for not doing their jobs and looking forward enough to prepare for increased data traffic when launching a phone that is basically all about data.

    And that they can't seem to keep the voice side of it working either is becoming a not always funny joke.