Friday, April 2, 2010

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?"


  1. These "insightful observations" betray your ignorance. Firstly, this initial release of the iPad is wi-fi only. Why would AT&T advertise that? Secondly… even if the 3G version was available, they CAN'T advertise them. Apple doesn't allow them to advertise the iPhone. Why would you think Apple would be more flexible with the iPad?

  2. People say Apple is a crappy partner. But they're not; they've refused to throw AT&T under the bus. If you remember the iPhone launch in 2007, a reporter asked about VoIP, and Jobs said that AT&T is working on it. Stephenson agreed. Here we are in 2010, and nothing. Don't we all think that Jobs thinks AT&T is lazy, even lazier than Adobe?

  3. The 3g version of the iPad is only a few weeks away. Nothing is stopping AT&T from touting it as a great product. As far as limits on AT&T's advertising the iPad, that's silly and wrong. AT&T has had huge displays for the iPhone in stores, and displays it on it's website. Hell, Sprint's last ad for it's 4G featured it's superior iPhone service. If AT&T wanted to cuddle up to the iPad, I'm sure Apple would let them. You really think Apple would refuse if AT&T offered current iPhone customers two months of free iPad service to promote the 3G version? You think Apple would complain if AT&T announced it was working on new enterprise apps to service the iPad? Or an upgraded version of it's stupid $9.95 a month map app?

    Even if there was some limit on AT&T's free speech from Apple, then AT&T should have simply shut up about it, rather than Stephenson trying to dismiss it in widely ridiculed remarks (and not just by me). Everyone was scratching their heads trying to figure out why he was saying something so likely to be proven wrong.

    Even if, for some reason, he was stupid enough to believe what he said, he shouldn't have said it. It came off petty and perplexing. So the most likely explanation is that he is afraid of the iPad and trying to downplay it it's significance to AT&T's bottom line.

  4. While AT&T sucks ass and is run by morons, and you do make some valid points, you're pushing each of them way too far. The iPad is great, and I'll be getting one at some point, but it NOT an iPhone replacement. I can make calls on a desktop computer but it is not an iPhone replacement.

    As for AT&T advertising the iPhone, displays in the store are undoubtably vetted and created by Apple and provided to AT&T. Apple decides how their products are advertised (for obvious reasons) and deriding AT&T for not taking initiative where they don't have the option is a bit silly.

    AT&T needed the iPhone and continues to need it to stay competitive. Apple is making companies billions, they just have to be smart enough to know what to do with those billions. If AT&T had a brain they would invest in infrastructure and quality customer service and it would help rid them of their dependence on a specific vendor and they would control their own destiny. Because of their incompetent management they are now deeply intwined with Apple's plans. Fortunately Apple is showing the carriers how to become more valued by getting rid of some of the carriers poor lock in practices that results in enslaved and unhappy customers.

  5. agree with uncle ben..(not sure whose uncle he is, but i agree)
    the first two comments, well one comment and one ignoramus, just don't deal with reality, the main reality being stephenson's concern about stockholders getting their feathers ruffled. although i have to assume the two comments came from att employees/family, they don't really understand enterprise at a very fundamental level, and certainly not cutting edge enterprise. (not sure if they've been in att stores or online to see how much they do promote the iphone, but it still doesn't make the customer support better, sadly, in or out of store.) maybe tmobile/sprint others may have their problems but it can't be worse as i talk to lots of friends on those services. CAN'T WAIT for freedom to use other services!

  6. Apple should use its massive profits to buy AT&T's mobile division and make it the finest mobile carrier ... just as it made the Mac the finest microcomputer.

  7. When AT&T has a 3G iPad in their hands to market and sell, you'll see it "advertised" (perhaps more like mentioned) on their website. Until then, it's just silly to think they would be pushing a product that: a) isn't even available yet, even a "few weeks" away, b) it's a data device only, while their bread and butter is phones, so don't expect them to heavily tout it (even if they are able to). They don't heavily tout any other data-only devices as it is. c) The data plans are a nice bonus to their profits, but I agree with their observations… the 3G models just aren't going to see significant usage. Unlike the iPhone, no one is going to whip these out of their pockets to check sports scores or movie times, or whatever else.

  8. The problem is, if Stephenson is right and customers prefer to use wi-fi with the iPad, it's all the more reason for AT&T to try to push for them to get 3G service, just in case. Why not try to convince people to buy something they won't use? That's salesmanship.

    So what could AT&T be doing now before the 3G version is available? Offering incentives to try to get people to wait and buy a 3G version. Two months free! Why not? This doesn't require a lot of advertising, just execs saying, "Hey, wait. You might love the iPad so much, you'll use it on the road. Wait a couple weeks for the 3G. It's going to be great." Also, AT&T offers incentives for people who have multiple phones under AT&T contracts, why didn't it rush out to say iPhone customers will get a $5 discount on iPad service?

    Stephenson's comments did nothing but try to assure investors that AT&T's iPhone business isn't going away, which seems to indicate he's afraid some people might think it is. He's also saying, "Don't look behind the curtain," as to the compromises AT&T made in it's business plan to offer no contracts and "unlimited" data at much lower rates for the iPad. Lastly, he's probably terrified the iPad will generate so much traffic on the 3G systems that it will seriously cut into service and create more bad press. So he hopes 3G sales aren't good. This is classic AT&T. They float out ideas of what they want to happen in the world, as if their PR flacks can help make it happen, regardless of reality. "No, the iPad won't overwhelm our networks." (We hope.) "Tiered pricing is inevitable." (We hope.) "Net Neutrality doesn't mean anything." (We hope.) "4G isn't better than 3G." (We hope.)

    As far as people whipping out iPads on the road, I think you'll find there are more than a million or so geeks that will drag them everywhere. And I suspect there are plenty of them that will insist on buying the most expensive one's even if they don't use 3G a lot. I predict by Christmas the iPad 3G will be creating major headaches in AT&T's already screwed up network.

    As far as it being a replacement for the iPhone, I think people underestimate how much (some) customers hate monthly contracts. There are people who get no contract phones just out of principle. And there a people who really can't afford an extra $50 a month for the luxury of an iPhone. The iPad will make a tempting choice for those people. And what about teenage boys and girls who's parents give them a choice: iPad or iPhone, can't have both. I suspect a lot of teenagers will choose the iPad for their backpack.

    The iPad is probably going to replace a lot of laptops as people's go to computers. With VoIP software there will be a lot of people asking why they also need to carry a cell phone (especially if it costs $100 a month). I did a blog post earlier about a geek who doesn't "like to talk on the phone" and prefers e-mail. Are there enough of those people to effect AT&T's bottom line on iPhone sales? Maybe.

    The larger point is AT&T doesn't get it. There is no "profit" in burying it's head in the sand and hoping the iPad isn't a success. It will be. AT&T needs to fix it's network, fix it's pricing, and embrace the new reality. It should take seriously that the iPad provides an alternative to an iPhone and try to encourage customers through deals to keep both. It needs to figure out how to make it's 3G network work great on an iPad, so people will pay the month fee. Otherwise, they are going to be cut out of the future.

    But as they say, if you can't say something nice, then just shut up.

  9. "So what could AT&T be doing now before the 3G version is available? Offering incentives to try to get people to wait and buy a 3G version."

    You keep assuming that AT&T has a lot of say in how they market Apple's stuff. They don't. There has never been an AT&T ad (on television at least, not in print either that I know of) that touts the iPhone directly because they are not allowed to. You won't see one for the iPad either. This is Apple's party, and no one else's. If AT&T openly tried to tell people to not buy the iPad yet, Apple would NOT be happy at all.

  10. AT&T can't promote it's iPad service? It's not Apple's party. Everyone is in on it. Just one of hundreds of examples, Hyundai is promoting it's new Equus luxury car (not available for months) by saying it comes with a free iPad instead of a manual.

    Is Apple going to sue Hyundai because people might wait until they buy the car before the get an iPad? If Hyundai can get in on the iPad PR blitz with a car that isn't even out yet, I'm sure AT&T could have, if it wanted to.

    Dozens of major corporations are ready to go with iPad content, apps and promotions. Even if they couldn't advertise them (which they do) they are being talked about in the press. Here's a good round up:

    Here's some specific examples:

    AT&T had the inside track on the new iPad, was in negotiations with Apple long before anyone else, and it couldn't come up with a single iPad app to promote? A single promotional tie in? Maybe some buttons?

    Sounds like you have some inside information that Apple wants to control AT&T press, or maybe wanted it to hold off on promoting the 3G version. Okay, maybe AT&T's relationship with Apple is so strained right now, they don't communicate well and it's not worth the trouble. But if AT&T really wanted to team up on a promotion, I sure it could have been made to work. And it's baffling why AT&T doesn't offer some kind of App for the wi-fi version.

    But again, in any case, if you can't say anything nice: shut up. Instead, Stephenson went out of his way to dismiss the iPad's significance to AT&T. It came off as disconnected and petty.

  11. "But again, in any case, if you can't say anything nice: shut up. "

    LOL! I'm sorry… I didn't realize that I wasn't being nice by disagreeing with your observations. I would have thought that a "critic" who's saying a lot of un-nice things about their target could handle some criticisms in return. It takes all kinds….

  12. uncle bob works for micro soft hater

  13. No, I meant Stephenson should have shut up about the iPad if he didn't have anything nice to say. You're welcome to criticism me, even if you're probably a AT&T paid blogger troll.