AT&T Is Killing the iPhone

At the risk of coming off like comedian-turned-pundit Bill Maher, I'm going to propose a new rule: Apple (Nasdaq: AAPL  ) must do whatever is necessary to buy off AT&T (NYSE: T  ) . Ma Bell is killing the iPhone.

Twice last week, the Mac's daddy debuted -- and then pulled -- a tethering application called NetShare from the digital shelves of its App Store. As of Monday, software developer Nullriver said that email problems on both ends led to the interruptions.

Really? I find that barely plausible at best. Apple has more than a few smart people on its staff. I assume the same of Nullriver. Why, then, would an exchange between automated email systems lead to NetShare being pulled from the App Store? It seems more likely to me that AT&T objected to what NetShare does.

The trouble with tethering
Tethering allows a cell phone's connections to the Web to be shared with other devices. NetShare would allow a MacBook to plug into AT&T's 3G network when Wi-Fi is unavailable. Alas, Ma Bell's iPhone usage terms prohibit exactly this sort of activity, according to trade magazine ComputerWorld.

I understand why: AT&T is subsidizing the cost of newer 3G iPhones in an effort to lock in subscribers who'll spend moola to access some of the built-in iGeekery. Why should Ma Bell let tethering be a free service when it can charge for it? You know the answer. It's the extras -- the texting, browsing, and gaming that increasingly lure in smartphone owners -- that AT&T, Verizon (NYSE: VZ  ) , and Sprint Nextel count on for revenue.

Tethering is an extra to these operators. AT&T sells it for $15 a month to customers whose use Motorola (NYSE: MOT  ) , Nokia (NYSE: NOK  ) , and Research In Motion (Nasdaq: RIMM  ) handsets, but not to iPhone users like me.

Think about the consequences of that: Apple may have just blunted innovation on the iPhone for the sake of a partner that wants to sell more stuff. It'd be unthinkable if it weren't so logical. (AT&T has also twice hung up on on free Wi-Fi for iPhone owners.)

Ma Bell is obliged to protect its revenue stream, but doesn't Apple -- long considered one of the tech industry's great innovators -- owe iPhone owners its very best software? This, after all, is the device that legendary Silicon Valley venture capitalist John Doerr calls a "platform." His firm is investing $100 million to create a wellspring of software for the iPhone.

And if it's a platform ...
Recently, Apple has been blessed with resurgent interest in the Mac at the expense of lower-tier incumbents. The company's now threatening Dell and Hewlett-Packard (NYSE: HPQ  ) for an ever-greater slice of the computer market. Credit for the comeback is due, at least in part, to Apple's other innovations -- especially the iPod and, now, the iPhone. Weakness in Windows Vista may also play a part but, mostly, it's the halo effect radiating from CEO Steve Jobs and his array of shiny gadgets.

But if we agree that the iPhone is Apple's future, isn't it supremely dumb for the company to exert anything less than absolute control over the device? Especially when it insists on exactly that level of micromanagement for everything else? (To investors' delight, I might add.)

AT&T's motives aren't what trouble me. They are, in fact, perfectly pure and spot-on for Ma Bell's own investors. Yet I shudder at the possibility that Mr. Mac's necessary motive -- to create an unlimited fountain of innovation that leads to higher sales -- may conflict with Ma Bell's raison d'etre -- to only allow innovations it can charge for.

If so, then Apple should use whatever portion of its $20 billion war chest is necessary to buy off AT&T and escape from their exclusive iPhone deal. Only then will the iPhone grow to be the pervasive platform that the company and its investors desire.

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Fool contributor Tim Beyers owned shares of Nokia at the time of publication. When not typing up articles for Fool.com, you'll find him picking growth stocks for Rule Breakers. Get a daily dose of his Foolish musings via this feed for your RSS reader. The Motley Fool's disclosure policy hung up on an autodialer last night.


Read/Post Comments (7) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 06, 2008, at 5:25 PM, billy8989 wrote:

    Ok Einstein,

    Then what other 3G GSM network is available in the US for Apple to leave AT&T for? All other networks are very limited.

    Also, ever think it's Apple? Maybe Apple doesn't want the iPhone to compete with any future laptops they may sell, that may have built-in 3G GSM. (Similar to Dell and HP laptops today)

    This article was a waste of my time, based on pointless assumptions by the author.

  • Report this Comment On August 06, 2008, at 7:47 PM, TuningIn wrote:

    Agreed. Waste of my time with an article with baseless assumptions.

  • Report this Comment On August 06, 2008, at 7:52 PM, lewisg71 wrote:

    Strange comments here. Given that the new HP iPAQ 910 does Internet Connection Sharing that offers the same functionality as tethering. AT&T does not charge for it with that device so I'm not sure why folks would blame AT&T for hindering Apple.

    The other 3G devices mentioned where AT&T charges money are devices that can not do this without special software on the PC that AT&T ends up supporting so they are a different animal altogether. A little more research would give this a lot more credibility.

  • Report this Comment On August 06, 2008, at 11:43 PM, abcdxyzz wrote:

    This guy doesn't have clue what he is talking about. I use tethering with my 3G phone and it works just fine. It is not AT&T's fault if it doesn't work for Iphone for whatever the application he tries to use.

  • Report this Comment On August 07, 2008, at 10:11 AM, TMFMileHigh wrote:

    Thanks for your comments, everyone. Two quick things. First, the article does not argue for dumping AT&T. It argues for dumping the exclusivity clause so that no single operator can hamstring innovation. Second, there are no issues of "fault" here -- NetShare was available to download, then it wasn't. Apple pulled the software, probably for the benefit of AT&T. It's a shame, really.

  • Report this Comment On August 07, 2008, at 7:27 PM, trgeorge wrote:

    I agree with everything you wrote, Tim. Good article.

  • Report this Comment On August 07, 2008, at 7:44 PM, jazzkeys wrote:

    I'm not sure why Tim would automatically assume that the app was pulled because of some objection by AT&T. Most AT&T smart phones/PPCs come with a program (from AT&T) that allows you to tether to a laptop. So I doubt that they don't want a similar program for the iphone. This article was based on a bad assumption.

    Also, why is everyone acting like Apple is bringing something new to the table with the iphone? Every feature on the iphone (with the exception of one useless one) has been also offered on most HTC phones (as well as Nokia & Sony PPCs) for years. The iphone is nothing special - it's demand is the product of great marketing and people who don't want to do any research before making purchases.

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