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I've wanted a tethering option for my iPhone since 2007, when I waited in line to buy an EDGE-based first-generation iPhone. I upgraded to the iPhone 3G, of course, and I'm still wanting and waiting for tethering. Why? Because I'm the kind of customer who is just mobile enough to need Internet access for my laptop several times a year in places that aren't WiFi handy -- but not often enough to make shelling out for a dedicated USB dongle and service plan worthwhile.
I'm guessing that there's a good many "prosumer" iPhone owners out there who'd like a tethering ability too but aren't willing to pay the typical costs for it. Most rates for dedicated mobile broadband in the U.S. come in at about $60 a month, which prices it out of most people's pocketbooks, and that doesn't even cover the cost of a wireless broadband card or the increasingly popular dongles. Still, as a solution for those who travel frequently for business, the plan seems to work well. Sure, they tend to be capped at 5 GB of data downloads per month, but business travelers aren't supposed to be downloading movies, right?
The Cost Is the Bottleneck
From most consumers, paying $60 a month is stupid when they can get a real DSL or cable broadband service piped into their homes for half the cost. Media-hungry consumers in the right locations can spend more for bigger, faster pipes, but the point remains: $60 a month is too much for casual use.
You might think the major carriers in the U.S. are using that $60 price to stick it to businesses that don't really have any other good options -- you know, milking the cash cow. Perhaps. I've talked to quite a few telecom analysts over the years, and while most believe that $60 is profitable for the carriers, some think it's more important as a bottleneck -- a natural price point that weeds out the chaff so that only those who really need the service actually buy it.
In this case, you don't have many college kids sucking up bandwidth by downloading media. And you don't have a guy like me getting bored on a road trip and downloading a movie or two -- or going to South by Southwest in Austin and flooding the network.
The iPhone Is Already a Guzzler
If the iPhone were an automobile, it'd rank right up there with the Hummer or a big one-ton pickup in terms of the amount of data it can go through. More importantly, it would have owners who get out and drive, all the time. The number I see bandied about is that the typical iPhone user downloads and uploads about 10 times as much data as the typical user of any other smartphone. I don't doubt that's true, based on all the owners I've seen, including some grandmothers who seem to spend an awful lot of time tapping and swiping their screens. Grandmothers! What are they doing?!?
How about the 2 billion apps that have been downloaded from the App Store? Any way you cut it, that's a lot of data, and some of those apps gobble up data while they run. The point is, there are many many ways that an iPhone can suck data -- it's not just email.
Whatever the numbers, I think it's safe to say that iPhone owners use more bandwidth than most other smartphone users, and I don't think we really appreciate this issue as consumers. Look how long it took AT&T (NYSE: T) to allow MMS on the iPhone -- and this is a feature that most dumb phones have supported for years, much less other smartphones.
Still, it's not like other smartphone manufacturers aren't catching up -- or more to the point, that other mobile operating systems aren't catching up. Data-hungry mobile phones are just going to get bigger mouths.
By all rights, AT&T appears to be spending big bucks to upgrade its networks. One project in the Dallas-Fort Worth area included updates to 1,000 cell towers and the launch of additional wireless spectrum in the 850 MHz band. The cost? US$50 million. And that's just one project. At the same time, the company has been rolling out backhaul capacity solutions designed to support High Speed Packet Access (HSPA) 7.2 and the 4G LTE, which will hit in 2011.
The point: I don't doubt that AT&T is scrambling to upgrade its networks to handle massive increases in data bandwidth that it expects to see by 2011. In addition to the iPhone, consider Android and Windows Mobile-based phones. How about notebooks with data plans and new tablet devices?
No doubt, there's a storm coming, and it's not just heading toward AT&T.
AT&T's Blessed Curse
The iPhone, of course, is a blessing for AT&T -- and at the same time, it's a curse. If AT&T falters in the delivery of its service, you can bet that Steve Jobs and Apple (Nasdaq: AAPL) has a big stick written into their contract with the carrier. Apple can take a little heat for poor service in big cities now and then, but how about systemic failures? If the the intense and prolific free media attention Apple enjoys turns sour, the consistent little slaps that AT&T has been getting over the last couple of years will look like playful wrestling.
Once Verizon launches its own LTE networks in 2010, it'll share common network technology with AT&T, which means Apple could theoretically produce an iPhone that could work with both Verizon and AT&T. (Right now, in order to run on Verizon, Apple would have to manufacture a CDMA-based iPhone.)
If AT&T produces a tethering option that is so successful with consumers that the network can't handle the traffic, what happens to the iPhone customers who are just trying to check email -- never mind the tethering customers? You go from minor backlash to major backlash, from a minor opening for Verizon to a major opening, from a small trickle of possible lost customers to a freakin' flood.
The Interesting Shift
What I find interesting these days is what appears to be a subtle shift -- people are finally waking up to the realization that our mobile data consumption is growing by leaps and bounds. Heck, FCC chairman Julius Genachowski is now saying we could end up in a wireless gridlock.
Meanwhile, AT&T has announced that it'll let iPhone owners use VoIP applications like Skype over its wireless networks. Previously, this was limited to WiFi use. For most users, I suspect this isn't a big deal. If you're calling friends and family and rarely use up your minutes, why bother using Skype or Vonage? On the other hand, if you have a household of talkers, you could drop the number of minutes you need to pay for each month and save some money. What about international calls? For those who make a lot of cross-border calls, unfettered Skype can save serious money.
I'm Guessing AT&T Isn't Sure
Does anyone believe that AT&T was fully prepared for the iPhone onslaught? Does anyone believe that Jobs bothered to warn AT&T that it would be looking at a customer base that's downloading data-hungry apps every time they have to stand in line to wait for something? I'm guessing the success of the iPhone wasn't predicted to be quite so large, so quickly. Moreover, I'm betting some of the smartest minds inside AT&T, the guys who are making their business intelligence systems smoke with effort, can't figure out how much to charge for tethering on the iPhone right now.
It's quite possible that a $60 a month additional charge for tethering could be successful enough to degrade quality for iPhone users in some areas. Couple that with the consumer disappointment that would surely come from such a price, and AT&T just created a new mess as it tried to clean up the first one. It'd be like chain-reaction vomit.
An even worse solution is to come in at an appealing price -- say an additional $30 or $40. Not only are you undercutting the existing price for business users of other systems, but you're also grabbing the attention of consumers who might try ditching their home broadband in favor of iPhone tethering. If iPhone users are a little more savvy than those who use other smartphones, they'll break through the concept quickly enough and start implementing it.
If you were the person at AT&T who was in charge of this mess -- and had all the usage patterns, data, and network information at hand -- I guarantee that you'd be looking at a Gordian Knot. In this case, though, there's no immediate, bold stroke that can solve the problem.
