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August 29, 2007

The Missed iPhone Story

By Tom Wheeler, Managing Director, Core Capital Partners

One wag observed that more has been written about the iPhone (News - Alert) than was written about Hitler’s invasion of Poland. Amidst the forests that fell and the barrels of ink expended on Steve Jobs’ baby an increasingly far-reaching breakthrough of this far-reaching device has been overlooked.

AT&T (News - Alert) is provisioning a mobile device that bypasses the AT&T wireless network! The heresy of it all!
The iPhone can access WiFi networks, even when it is in range of the traditional AT&T wireless network. What happened? Did Steve Jobs weave such a spell that the AT&T executives forgot they ran a network and made money when people used that network? The more I think of it, the more the unthinkable becomes not only good for subscribers, but also unbelievably shrewd on the part of AT&T—yet overlooked in all the hype.
The iPhone has brought a flood of new subscribers to AT&T (reportedly almost half of purchases were new customers). Whether old or new, these consumers use it as a phone, to be sure, but the iPhone’s uniqueness is as a device for accessing information and media on the Web. Media downloads are huge files. Even with 3G networks (which the iPhone doesn’t access yet) the demand such files place on the cellular network is sizable. One wireless executive told a group of analysts that only five subscribers streaming video from a single cell sector could bring that site to its knees.
So what did AT&T do to address this network demand issue? They off-loaded that demand to another (faster) network. And, oh yes, they didn’t have to pay to build or maintain that network.
How sly; AT&T expands coverage and capacity for a network hog like the iPhone without having to spend a penny on new infrastructure. The subscriber remains AT&T’s and continues his/her monthly payments, but the company has forgone the need to pay for a network upgrade to handle the increased traffic. Far from being bamboozled by Mr. Jobs, those AT&T folks are pretty sharp: they have figured out a way to profit from “open access.”
Concurrent with the iPhone launch the policymakers in Washington were looking into this whole “open access” issue. The complaint was how subscribers were locked to a single wireless network. What that discussion missed was how the iPhone had opened AT&T subscribers to another faster and cheaper network that AT&T didn’t own. AT&T subs can go to Starbucks or any other place with WiFi (News - Alert) including their home and office, and use their iPhone without having to pay the wireless carrier for that airtime or data transfer. That’s the opposite of the carrier locking the policymakers were worrying about.
But it’s not just the iPhone where this phenomenon is appearing. This summer AT&T will offer the new Blackberry 8820 with WiFi connectivity. T-Mobile’s (News - Alert) HotSpots@Home offers WiFi access for a Nokia and Samsung device that will make voice calls over WiFi.
Perhaps we’ve stumbled into a new paradigm: as phones become more like mini computers, the more important it is to give the consumer the ability to take that phone to a WiFi network.
While everyone has been oohing and awing over the iPhone’s functionality and form factor a bigger change quietly snuck in. The traditional relationship between a wireless carrier and its subscribers was changed. For the last 25 years the philosophy has been to lock those subscribers into a specific network. Now, along comes the nation’s largest wireless carrier to change the paradigm. I am reminded what a wise man told me when the first round of new spectrum was shaking the cellular carriers’ duopoly in the mid-1990s. “It’s just more spectrum,” he said; smart business people could figure out how to live in that new world.
WiFi is “just more spectrum.” Handsets that can access both the carrier’s network and WiFi—at home, the airport, Starbucks, or from new city-wide networks—will change the consumer’s wireless experience. It’s probably a good thing to do every quarter century.

Green is the new black. At least, that’s the case in the communications industry where companies are finding that using green technology is not only good for the planet but good for business as well. Want to learn more about how being green can make money? Mark your calendar now for TMC’s (News - Alert) first annual Green Technology World Conference, Sept. 11-12, 2007 at the Los Angeles Convention Center in California. Preview the show schedule, speakers and exhibitors—then register to attend.

Tom Wheeler is Managing Director of Core Capital Partners, a venture capital firm specializing in early stage companies, including next generation wireless services. For almost a dozen years prior to joining Core Capital he was the president of the Cellular Telecommunications & Internet Association.


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