The iPhone, AT&T and the battle to control the Internet

The iPhone, AT&T and the battle to control the Internet

Computerworld, MA - Jul 13, 2007

While the iPhone buzz centers mostly on its unique user interface and cool features, its greater impact could be on how its users interact with the Internet.

Apple sees the iPhone, which has already sold in excess of 300,000 units, bringing new choices to cell phone users. But for AT&T, the iPhone also a way to bring Internet usage within its cellular “walled garden,” where Internet access can be monitored and controlled. Has Apple struck a blow for freedom – or a Faustian bargain with Ma Bell?

From AT&T’s vantage point, Apple’s iPod cell phone is part of a larger strategy to control the user experience. “Our objective is to own all aspects of [communications] in the home. The iPhone is critical to this,” Randall L. Stephenson, AT&T’s newly installed chief executive, was quoted as saying in a recent Business Week story.

The land line telecommunications infrastructure is slowly disappearing into the Internet (Indeed, every Verizon customer who orders FiOS has its old twisted pair infrastructure ripped out and replaced with fiber). But in the wireless world, AT&T and other carriers see things the other way around. When viewed within the confines of the wireless walled garden, the Internet becomes a secondary service – a subset of the wireless communications infrastructure. Wireless is the way most people will interact with the Web in the future. The iPhone is a lynch pin in AT&T’s strategy to gain critical mass for the new wireless gateway.

It’s possible that the iPhone is a Trojan horse that could break down AT&T’s walled garden. But will it invade the walls and explode them – as iPhone aficionados might hope – or will the service simply envelop users and slowly begin to restrict their options?

Apple’s cost of doing business with AT&T represents a compromise in connectivity choices. The iPhone is locked so it can’t be used anywhere except on the AT&T network. It is a proprietary architecture. Any new programs developed for must be blessed by Apple – and perhaps AT&T as well. The browser doesn't support Java or Flash. And the iPhone has no instant messaging – probably because that would interfere with AT&T’s billion dollar text messaging revenue stream.

While Apple is a tough negotiator and didn’t concede entire control of iPhone and its services to Ma Bell, it’s also now a partner AT&T’s cellular business. Its agreement gives Apple a percentage of the cellular services revenue AT&T pulls in from each iPhone user.

Apple, a benevolent dictator, can dominate hand set hardware just as the iPod has in digital music. Let AT&T control access to services.

Why rock the boat?

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