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The war between Apple and AT&T
June 9, 2009 by Beatweek
We should have known it was all too good to be true. Here was Apple using its WWDC keynote address to roll out a new iPhone “3GS” with improved speed, capacity, photo taking ability, processing speed, and even built-in video functionality, for a very reasonable $199 and $299. The existing iPhone 3G was sticking around for a mere $99. And even Apple’s laptop computers and Mac operating system were receiving substantial price cuts and feature upgrades. Even with the annoying but temporary caveats that tethering and MMS messaging wouldn’t be available on AT&T until later, nothing could change the fact that this past Monday was all set to go down as one of the more beneficial Apple product rollouts in some time.
And then the bombshell dropped.
It started when someone spotted the fine print at the bottom of Apple’s iPhone sales pitch page about “unqualified” iPhone 3G customers having to pay $499, $599, or even $699 for the new iPhone 3GS. But what initially appeared to be an absurd typo was quickly confirmed – sort of – when customers started looking up the upgrade pricing for their individual accounts and found that a 32 GB iPhone 3GS would indeed cost them $699, according to wireless.att.com. Or perhaps $499, if you believe apple.com. No matter. Word simply spread that existing iPhone 3G users were about to fall victim to the screw job of the decade, and those 3G users who’d been following the day’s news on Twitter suddenly shifted their tone from an excited “I can’t wait to upgrade to an iPhone 3GS!” to a cynical “nah, I can live with my iPhone 3G just fine” along with an outraged “when did Apple suddenly decide to let AT&T rape half the iPhone user base?”
The top trending topic on Twitter for the remainder of the day? Not “Apple” despite all of its impressive announcements. And not “iPhone” even though the new model was impressive. Nope, the top trending topic of the day, right at the top of the list, was “AT&T” and suffice it to say that none of the discussion was of the favorable variety. In an instant, AT&T went from being the iPhone’s long-time humorously unimpressive partner, one we’ve all learned to live with, to an anchor chained to the ankle of the iPhone and threatening to drag the whole platform into the depths.
You have to wonder where it all went wrong. Getting raped by cellphone carriers is nothing new for U.S. customers, as almost since the inception of the cellphone industry the carriers have been able to get away with doing more or less anything they’ve wanted to customers, as our government has done nothing to protect us from it over the years. But that’s not the way it’s worked on the iPhone platform, as anyone buying an iPhone 3G last year was going to pay the same price whether they were a new customer or upgrading from an original iPhone. And that’s certainly never the way it’s worked in the eight year history of the iPod, and to this day many if not most iPhone users see their iPhone simply as the latest iPod model that also happens to be a cellphone with a bunch of other features. While this kind of fraudulent pricing has been commonplace on other platforms, it’s been entirely to the iPhone platform – until now.
So just what was Apple thinking when they agreed to this nonsense? It’s been widely documented that AT&T is a mess overall and that its iPhone exclusivity in the U.S. is the only thing that’s been propping it up. And even the least capable of businesspeople knows that when you’re in a position of strength, when you’re the one propping up your sagging partner, when your partner needs you a lot more than you need them, you either leave things they way they are out of benevolence and future goodwill or else you renegotiate things so they’re more slanted in your favor. But Apple has instead managed to end up with the shorter end of the stick this time, left with significantly lower sales of the iPhone 3GS and an upcoming public relations nightmare that will overshadow the half a dozen positive things Apple rolled out this week, wiping out the untold millions in free advertising that the company is typically able to milk the media for in a cycle like this one.
Instead, by the time the iPhone 3GS launches on June 19th, a fair amount of existing iPhone 3G users will have decided to just stay home. But a much larger chunk of them will not have gotten word that they’re about to get screwed, and so a rather large percentage (possibly as many as half) of all the people lined up to buy a 3GS on the 19th will not only go home empty handed, they’ll exit the store screaming and swearing and making the kind of threats that’ll result in mall security having to get involved – and it’ll all play out right there in front of the TV camera crews that always gather outside Apple Stores on iPhone launch days. Because while we’ve come to expect that we’re about to get abused any time we set foot in one of those organized crime headquarters known as AT&T Stores (or any other cellphone carrier store), no one goes to the Apple Store expecting to get raped. And it’ll come as such a shock to the victims that they’ll go out of their minds right there in the store. It’s the kind of scene that’ll only be fun to watch if you’re a tabloid journalist. I don’t know about you, but fistfights between Apple employees and existing iPhone users don’t qualify as entertainment to me.
Even if Apple comes to its senses beforehand and decides to go ahead offer the iPhone 3GS to existing iPhone 3G users at normal prices come launch day, the damage will have already been done. Some existing users will hear through the grapevine that upgrade prices are fraudulent and stay home even if Apple has since rectified it. And in such case the big story of launch day wouldn’t be about how great the 3GS was but instead about how Apple screwed up the pricing and had to fix it due to public pressure.
Either way Apple loses on this one. Which is stunning, considering how they’d seemingly set themselves up for a big win. Even if they do relent on pricing, you have to wonder what made them think they could get away with it in the first place. Like any other cellphone carrier, AT&T is going to go for the short-sighted customer gouge at every opportunity. That makes Apple the only adult in the room, the one that has to prevent these kinds of self-defeating scams from seeing the light of day. And with Apple holding all the cards when it comes to offering the iPhone to additional U.S. carriers when the original exclusivity deal is up, you really have to scratch your head at the notion that Apple appears to think its only recourse is to take subversive potshots at AT&T’s incompetence all throughout the product rollout. That the pricing fraud wasn’t even addressed during the keynote suggests that Apple has no idea how to deal with it, content to cross its fingers and hope no one noticed instead of addressing it head on either by trying to spin it during the rollout or by dropping the hammer on AT&T’s toes behind the scenes beforehand.
The only thing I know for sure at this point is that Apple and AT&T are now officially at war with each other. To publicly trash your exclusive partner is to publicly trash yourself in the eyes of consumers, and Apple knows this. So there’s no way Apple chooses to hurt itself in th short term by hurling those public potshots at AT&T on Monday unless it has no intention of keeping its exclusive arrangement with AT&T one minute longer than it absolutely has to. While that might be good news for U.S. customers on other carriers who eventually want to join the iPhone revolution but haven’t had the wherewithall to migrate to AT&T, it’s bad news for those of us who will be stuck with AT&T contracts for long after the iPhone has presumably made its debut on other carriers.
If ever there was a contract worth buying ones way out of, the ones that existing iPhone customers have with AT&T just might be it once the iPhone can be used with other carriers. Let’s be as clear as possible: all U.S. cellphone carriers are evil. None of them are companies that you would ever want to do business with unless you had to. But count me among the first to jump ship to a theoretical Verizon iPhone the minute one becomes available. The irony is that due both to my yesteryear experiences as a Verizon cellphone customer and to my the recent fiascoes surrounding my current EVDO account, I hate Verizon. But what AT&T is doing here is a significant step beyond the evil we’ve come to expect from cellular companies. Its behavior isn’t merely short-sighted, it’s suicidal. There was only one thing propping AT&T up, and the company just threw that out with the rest of its slimy bathwater. AT&T is a sinking ship, and clearly Apple wants off of it, and so do I. Until the time comes, I’ll just have to limp along on AT&T with the rest of you.
But this leads to a serious question about the bigger picture for Apple. Pundits (including me) have pointed out that the people running Apple seem to have done alright, or even more than alright, in the absence of Steve Jobs. But all that comes under greater scrutiny now that we’ve seen the way in which Steve’s proteges have apparently dealt with AT&T in such a weak-willed “we own your ass and so we’ll give you whatever you want” manner behind the scenes, and in such a cowardly “we hope no one notices” manner when announcing the resulting bad deal to customers. That’s no way to run a company, and it leaves me convinced that the return of Steve Jobs to Apple can’t come soon enough.
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