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Why AT&T Has a Lock on the iPhone

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When AT&T mishandled public relations around the iPhone for the Nth time recently - in having no formulated or ostensibly correct answer about upgrade fees for existing subscribers - I heard plenty of folks counting the days until AT&T was no longer the exclusive U.S. carrier for Apple's iPhone. (See "Call AT&T for the Best iPhone Upgrade Price," 2009-06-15.)

I don't want to say that it ain't gonna happen, because we all know that where there's a business will, there's a technology way. But there are a few big bars in the way.


Cellular Standards -- The foremost bar is that AT&T uses the GSM cellular standard, over which the vast majority of mobile phones operate worldwide. T-Mobile USA uses GSM as well. Verizon Wireless and Sprint Nextel long ago opted for CDMA, which is used by hundreds of millions of people in the United States and elsewhere, but has no future as a standard, as I'll explain.

Verizon has been much mentioned as a replacement or supplemental partner for Apple. But many folks forget that the iPhone simply can't operate on Verizon's network today. There is no technical reason why Apple cannot create a modified version of the iPhone that works on Verizon's current 2G and 3G networks.

Except that Apple's mobile chip provider is still reportedly Infineon, and Infineon has no CDMA technology in its portfolio, only GSM. (If you read Infineon's site you'll see that the company supports WCDMA, which is connected only in underlying theory to CDMA. WCDMA is an encoding standard used in UMTS, the slowest 3G flavor used on GSM networks.)

That means Apple would have to switch chip providers or add another one, which would be difficult given Apple's penchant for secrecy and how closely the company has reportedly worked with Infineon. Infineon could develop its own CDMA chips, but Qualcomm owns an enormous number of patents related to CDMA (which it invented), and it would be a complex, long-term project for Infineon to obtain the rights. That all makes it highly unlikely in the short run.

Infineon also has one software-defined product, where software can reshape the radio standards supported in the chip, but CDMA isn't on the list of supported standards.

Further, it's hard to see why Apple would start down the CDMA path at this moment, because Verizon Wireless and Sprint Nextel have both abandoned the CDMA roadmap for their 4G networks, and Qualcomm has discontinued development on its 4G standard. Verizon and Sprint use Qualcomm's 3G standard, EVDO, but both have committed to different fourth-generation network standards. (EVDO doesn't allow data and voice at the same time, which would seemingly be a non-starter for Apple.)

Of course, T-Mobile currently uses the same GSM standard as AT&T. However, T-Mobile was late to the spectrum game, and has deployed 3G only in limited cities. Further, T-Mobile acquired some spectrum that hasn't been used before for 3G in the United States, nor in other countries. T-Mobile's 3G phones support a different set of spectrum bands than those sold by AT&T for international use, and the iPhone doesn't include the band required for some of T-Mobile's 3G spectrum.


What about LTE and WiMax? AT&T, T-Mobile, and Verizon will all use LTE (Long Term Evolution), which is considered a GSM-evolved protocol - the standard has come from the GSM worldwide trade group - and has emerged to be the dominant next-generation or 4G mobile standard. LTE will have a top throughput of 50 to 200 Mbps, depending on how wide a frequency range is assigned by carriers to channels. In the United States, a real per-user speed could hit 4 to 8 Mbps in routine use, and peak at much higher rates in bursts. Companies working on LTE phones and telecom analysts don't expect handsets with LTE built in for a while - 2011 will likely be the earliest, but it could even be 2012.

Sprint has opted for WiMax, because the firm wanted to get a 4G network deployed faster for competitive reasons, and wasn't sold on LTE when it made the call. Sprint merged its holdings with Clearwire, of which it now owns a majority, and has put WiMax in four major cities so far (Atlanta, Baltimore, Las Vegas, and Portland, Oregon). Sprint's choice of WiMax makes it unlikely to work as an Apple partner, and Sprint was also the exclusive debut carrier for the Palm Pre, as well. (Again, WiMax could be added to an iPhone at some point, but the future worldwide market for WiMax seems extremely small compared to current LTE plans.)

Clearwire expects to have WiMax built out to pass 120 million people by the end of 2010, but Verizon and AT&T likely won't hit that population with LTE until well into 2011 or even 2012 with currently announced plans. After that, however, LTE will likely surpass WiMax by a vast margin.

I could see Apple taking one of two paths. One would be to stick entirely with the GSM roadmap, upgrading new iPhone models with faster HSPA standards as they appear, and adding LTE to a future iPhone as AT&T starts to deploy that standard in earnest in about two years. That buys the iPhone access to 4G networks worldwide, including Verizon's, although only for LTE.

This strikes me as most likely because it's a simple, effective plan that encompasses the majority of advanced-network users worldwide now and over the next decade. The latest reports put worldwide GSM users at 4 billion and CDMA at 500 million, roughly, although a good portion of those subscribers don't have faster than 2G network access.

The second path, which seems more fussy and thus less likely, would be for Apple to wait for both AT&T and Verizon to have significant LTE deployments that are backed up by slower and more robust CDMA/EVDO and GSM/EDGE/3G networks where LTE coverage is unavailable.

At that point, Apple could produce an iPhone that could support all those standards. The reason that Apple would need to add at least CDMA (and possibly EVDO) to work on Verizon's network is that Verizon will continue to operate its slowest 2G voice networks using CDMA for some time, perhaps another decade. First-generation analog voice service was discontinued only last year, many years after 2G voice was fully deployed. It's unlikely a Verizon customer would tolerate an LTE-only phone.

Currently, AT&T has about 80 million and Verizon about 90 million U.S. subscribers, and both carriers will continue to grow. It does seem odd for Apple to forego a potential large hunk of users in the United States, but looked at worldwide, focusing on GSM and LTE is a simpler course of action.

It's still possible that Apple has a card up its sleeve, but I don't see how that's possible without bringing in another chip maker, and firing up operations that would be highly specific to the U.S. market. Never say never with Apple, but I believe that AT&T is where the iPhone will remain for the next couple of years.

 

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Comments about Why AT&T Has a Lock on the iPhone

Jeff Carlson  An apple icon for a TidBITS Staffer 2009-06-30 15:32
What I hate about AT&T is its inconsistency. I've had no problems with coverage in the Seattle area, but I know people who have troubles in other areas.
Adam Engst  An apple icon for a TidBITS Staffer 2009-07-02 09:42
AT&T's coverage in upstate New York is pretty mediocre, but then again, that's true of most of the cell carriers. Verizon may be the best, but they're not great either.

My experience from listening to lots of online conversation is that opinions about cellular coverage are intensely personal - each person believes strongly that Carrier X is great and Carrier Y is awful, but no one agrees on who X and Y are.

Perhaps the real story here is that cellular is radio, and is inherently analog and fuzzy, in comparison with the digital networking we're more used to, where things either work or don't, and there's very little in between.
Chuck Freedman  2009-07-12 04:59
With your entire diatribe above, it's interesting that (as previously rumored) Apple even considered an initial partnership with Verizon (which they were rumored to have turned Apple down, forcing them to pursue ATT as an alternative). I really don't understand most people's bitch about ATT sucking and that Verizon is such an awesome network. I Travel often (small and large towns), and find ATT and Verizon work similarly in most areas. I've had and used other service providers and find the Majors to all be mostly consistent with their good and bad points. I can't imagine that Apple would choose to switch provider partners, however, it wouldn't be unheard of to be secretly working on an alternative hardware iPhone (can you say "Intel" chip?). However, after only a few years in the cell phone business, Apple has dominated the market and with only ONE product. So unless we see iPhone Jr. or iPhone Mini on other providers, I agree that ATT will be it for a while!
Glenn Fleishman  2009-07-12 13:41
I didn't think it was a diatribe; it opened rough (because AT&T has done a terrible job with managing news so we know what's coming and what we get), but it was just a rundown of the various reasons why AT&T is positioned to retain de facto exclusivity.
CVBruce  2009-07-21 18:43
I don't think that the comparison with the Intel-based Macs is valid. Although when Mac OS X 10.0 was introduced, it was PowerPC-only, there have always been publicly available versions of Darwin, the OS that forms the core of Mac OS X, for Intel. To my knowledge, Apple has never shown versions of an iPhone working on CDMA.