Five Reasons AT&T Fears and Hates the iPad

On the eve of it's wide launch tomorrow, everyone is buzzing with talk about how great the iPad is. Reviews have all been raves, hundreds of thousands have been pre-sold, and lines are forming at Apple Stores. It seems everyone is excited and can't wait to get their hands on iPads.

Well, everyone except AT&T. You would think that given most of it's profits are due to it's exclusive deal on the iPhone, and it has first crack at iPad 3G users thanks to a new deal with Apple, AT&T would be gushing about the device. You would think they would be touting it in advertisements, on their webpages, and in their stores. But no, what you hear from AT&T about what is likely be the biggest tech launch of the decade is: silence and crickets.

The silence is a lack of iPad announcements (like new apps) or special deals for loyal AT&T customers. (Okay, I know there aren't any of those.) The cricket chirping came from AT&T CEO Randall Stephenson who went out of his way to dismiss the iPad as primarily a wi-fi device. This with hardly a "but it's nice, too" comment. In fact, he almost sounded like he was pouting about how the iPhone is better. Given the way AT&T is acting, you'd almost think they fear and hate the iPad. Well, they do. And they should. Here's five reasons why:

1. It's Unlocked. Steve Jobs went out of his way when he announced the iPad to point out that it was "unlocked." Yet he went on to say (as people groaned in pain) that AT&T was the only carrier that will provide service for it. So what does that mean? Since AT&T is the only carrier that will offer 3G micro-SIMs that fit into the iPad, and there are apparently technical reasons other carriers can't easily offer them, who cares if its unlocked? Aren't people still stuck with AT&T? No. The biggest problem for AT&T is that the iPad has none of the stupid contractual restrictions that were placed on the iPhone by AT&T in order for Apple to get a deal to cover it. For contractual reasons, not technical ones, the iPhone was restricted from easy VoIP apps and alternative messaging. AT&T and all the other telecoms know that traditional voice calling and SMS messaging are a thing of the past. Everything is going to be done through the internet, cheaper, faster and with better sound quality. But Apple's iPhone deal placed a lot of unnecessary restrictions on customer's ability go get around AT&T's voice and messaging charges. The iPad has none of these restrictions, and companies are already offering VoIP apps. This is a huge problem for AT&T if the iPad takes off in a big way. On top of that, there is nothing stopping people from offering alternative 3G micro-SIMs with technical work arounds. While it might not be a major carrier that has already invested in a non-compatible network, a new carrier might be able to jump into the business (perhaps offering service just in New York where AT&T is at it's worst). Also the iPad's one external connection is flexible enough that people might be able to connect an accessory that allows it to tap into other cell carrier service. The iPhone's current contract prevents that, but because the iPad is unlocked, 4G Sprint add on accessories are certainly a possibility. The bottom line? Unlocked is bad news for AT&T, no matter how you look at it.

2. It's Going to be a Traffic Monster. Mr. Stephenson's dismissal about iPad being a "wi-fi" device can't obscure a very inconvenient truth about the iPad and AT&T's new service for it. People using an iPad are going to be consuming A LOT more data than people using an iPhone. Odds are people will be surfing all day on iPads, using massive amounts of data compared to iPhones. This is a big problem for AT&T, which is why Mr. Stephenson has tried to bury his head (and investors) in the sand about it. First, odds are iPads are going to swamp AT&T's already barely functional cell towers and create even more service problems for AT&T customers and lead to even more calls for Apple to end it's exclusive deal. (And create business incentives for alternative services on the unlocked device, see #1.) Even if Mr. Stephenson is correct, and few people buy the 3G version and mostly use wi-fi connections, that's bad news for AT&T too. First, it means AT&T has been cut out of serving a popular device, and people might use it's messaging and voice features instead of AT&T's more pricy services. On top of that, high data use by even a few 3g iPad's complicates AT&T's stated goal of charging tiered pricing for data on the iPhone. For some time, AT&T has wanted to gouge iPhone users by claiming "data hogs" were to blame for all the problems in their network. But how can AT&T charge more for using data on an iPhone than on an iPad? If iPhone "data hogs" even exist they will be switching to iPads. The iPad came at a very bad time for AT&T's plans for tiered pricing. They wanted to charge for data "like water" but if data is like water, you can't charge more for it on some devices then others. If AT&T has a problem delivering enough "water" to iPhone data hogs, why did it just cut an unlimited deal for new iPad data hogs? And once people used to using the iPad on unlimited wi-fi data plans they are unlikely to accept tiered pricing on cell data plans. The unlocked nature of the iPad probably means an end to AT&T's tiered pricing dream. In fact, AT&T's best hope is the iPad is a complete bust, and people stick to using their iPhones. But that's not going to happen.

3. It Works Better with Wi-Fi. Another reason Mr. Stephenson might have said the iPad was a "wi-fi" device is that odds are people using it with AT&T's 3G service are going to be unhappy. So he was almost warning people, don't bother to get the 3G. Please. Unfortunately, once again, AT&T loses either way. I suspect that a very large percentage of people will opt for 3G enabled iPads, but then be bitterly angry about how slow AT&T's service is compared to wi-fi. This means customers will start up AT&T service, get pissed off with how slow it is, and then cancel, making AT&T look bad for investors as it quickly gains and loses customers. This will also increase demands for faster (faster than AT&T) networks. Even if AT&T is correct and iPad users don't get the 3G option, that will increase desire for larger wi-fi networks. Larger home service, more coffee shops, etc. The bottom line is that the iPad is a device that simply wants a network a lot faster and better than the one AT&T is currently able to offer. And there's no reason AT&T will be the one to provide the network people finally do flock to. The iPhone, on the other hand, just barely worked well enough on AT&T's 3G network to still be really useful. So AT&T made a ton of money off of people unhappy with AT&T. This isn't likely to happen with the iPad. People who get pissed off with AT&T service will simply dump them and look for alternatives.

4. No Contract. As mentioned before, people are unlikely to be happy with AT&T's 3G service on their iPads. That they can pop in an out without a contract is going to create a lot of problems in AT&T's business model. While customers hate long term contracts, there are legitimate reasons for cell phone companies to demand them. In the case of the iPhone, it was much more popular than imagined. Without long term contracts, it's hard to see how AT&T could have justified the capital expenditures necessary to improve their network to handle it (even badly). With the iPad, AT&T is in a real bind. Odds are, customers are going to be bitching about bad service, but even if AT&T invests in improving it, there is no promise customers will stay long enough for it to recoup it's investment. They can switch to something faster at any time. So once again, the best thing for AT&T would be if the iPad just kind of went away. Unfortunately, it's not going to.

5. It's an iPhone Replacement. The best thing about the iPhone is… not the phone part. As a phone, the iPhone is expensive to purchase, and costs a lot more per month than just about any alternative and you're stuck with crappy AT&T which has the worst customer ratings of any major cell service. In fact, the only reason to buy an iPhone, other than as a expensive status symbol, is because it's also the best small web surfing mobile computer. Oh, well, it was. Now the iPad is. The iPad is much better at doing just about everything people really needed an iPhone to do, except calling. Checking e-mail, maps, the web, etc. The iPhone is a classic example as a Jack of all trades master of none. Yes, if you only want one device in your pocket, the iPhone is it. But if you're planning any serious computer work, you usually carry an iPhone and a laptop. While the iPad is meant as an alternative to the laptop, and it is, it handles a lot of iPhone functions better than the iPhone. I can't be the only one that thinks a better combination would be a cheap disposable cell phone (with a no contract T-Mobile connection), a iPod nano, and an iPad in my backpack. This isn't to say that the iPhone is going away. But the iPad could seriously effect it's growth, especially if AT&T continues to charge a premium for servicing it. Budget minded students in particular might use the iPad as an iPhone replacement, meaning no long term contract, no voice and messaging charges for AT&T. On top of that, Apple fans who hate AT&T will finally have a meaningful way to express themselves even in advance of AT&T losing it's exclusive iPhone deal. How many people hate AT&T enough to dump their iPhone's now that the iPad provides an unlocked alternative? It will be interesting to see.

If the iPad is so bad for AT&T, why did it even make a deal to support it? Because it had no choice. All the problems above don't go away if AT&T isn't the 3G provider. In fact, they all get worse if T-Mobile or Verizon has the contract. If some customers (and many future ones) switch from iPhones to iPad's at least AT&T gets a piece of that wireless revenue. AT&T was backed into a corner and had to make Apple a competitive deal. That's why Randall Stephenson sounds as excited as a groom at a shotgun wedding. Because both barrels of the iPad are aimed at his head.

All an all, the iPad isn't good news for AT&T. But it might be good news for it's abused customers. Revenge is sweet. Thanks Apple!

UPDATE 4/3/2010: Apple's wi-fi iPad is on sale now. A search for "ipad" on AT&T's official website comes up with zero results and a soft, sad comment: "Did you mean: iphone?"