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AT&T’s massive iPhone blunder

Some numbers:

Getting the iPhone exclusive could be the best thing that AT&T has ever done for their wireless business.

And what have they done with that great fortune so far?

Well, one thing they haven’t done is adequately expand their capacity. Cellular networks have been able to add major features (such as web browsing, conference calling, photo- and video-MMS, media streaming, and tethering) quickly in the past because an incredibly tiny percentage of people would ever figure out how to use them. The networks were hardly touched for anything except voice calls and SMS. Most people didn’t buy smartphones, and those who did rarely used anything beyond a regular phone’s data capabilities except email. They hardly even browsed the web because mobile browsers were so awful.

The iPhone has dramatically changed that. iPhone owners actually use the data network far more than owners of other devices because the functionality is finally accessible and pleasant to use, and many iPhone buyers have never owned another smartphone — they came straight from dumb flip-phones.

So while the iPhone has been a boon to AT&T — not only did they get a huge influx of customers, but iPhone users spend twice as much as AT&T’s average on their monthly bills — the additional network burden is significant. As soon as these trends became apparent to AT&T (easily within 2 months of the original iPhone’s 2007 release), they should have scrambled to expand their data-network capacity.

Instead, they sat on their asses and enjoyed the extra profits. AT&T has always been a “cherry-picking” network, building out coverage and upgrading speeds only when absolutely forced by competitors, and then only doing the bare minimum and only serving the most profitable areas.

Their mistake was in the assumption that AT&T was getting a bunch of new, loyal customers. In reality, iPhone owners are loyal only to the iPhone. The carrier is just a required utility given a few pixels in the corner to show their name. That’s it. We’re as loyal to AT&T as we are to our electric company.

The same passion that drove all of these customers to abandon the excellent Verizon network for this awesome device is also pushing them to demand more functionality and more bandwidth. iPhone users pay twice as much as flip-phone users, but AT&T can’t just pocket the difference — we have high data needs that we expect to be served for that additional money.

And now, the network is so strained and AT&T is so slow-moving that they’re holding Apple back, cramping the iPhone’s growth, and leaving them vulnerable to competing devices on better networks.

AT&T was given a great fortune with the iPhone exclusive, but they’ve completely failed to do anything to hold onto it. As soon as there’s a better option, they’ll lose a big portion of iPhone users who feel no loyalty to them because they’ve done absolutely nothing to deserve any.

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