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AT&T, the largest provider of local, long distance telephone services in the United States, is in a great position. They are the exclusive carrier of the hottest phone out in the market, the iPhone. The iPhone has redefined what a phone can do, and should do. It’s been a game changer, that has transformed an entire industry. The fascinating thing about it is that I think we’ve only begun to grasp the kind of power this device can be. It’s been common knowledge for quite a while that the mobile phone was going to be the central platform for running our lives. The biggest barrier that delayed the inevitable were that it was virtually impossible to create programs with all the different mobile web browsers for all of the various carriers out there. There were hoards of companies, including one that demoed at the Demo conference, Bling Mobile, that aimed at making it easier to program for the mobile phone. Well, Apple blew them out of the water, and the rest is history.

I think Apple is going to take over to Google-esque proportions very soon. In the past, everyone was saying Google was going to redefine our lives, but it appears that the throne will shortly be given to Apple. Apple has a higher market cap, but everyone assumed that planet Earth would be changed to Planet Google at some point. I think the latest set of iPhones with video is another example of a game changer. The Flip Video camcorder, recently purchased by Cisco, is the leader in inexpensive video cams that can fit in your pocket. Flip Video and their direct competitors are shaking in their boots, because an inexpensive Apple cam on every phone negates any need for two separate devices. And according to Techcrunch, Apple has recently purchased a boatload of these camera modules to be inserted in every iPhone sold in the future, at very, very low price points. What must be noted is that there are still a small percentage of people that own an iPhone, but it appears that the market share is rapidly increasing, and with additional features, iterations, and functionality upgrades, the iPhone is becoming more and more of a monster.

But what does this have to do with AT&T?

Basic microeconomics will tell you that AT&T’s wireless service is a complementary good for the iPhone. When demand increases for the iPhone, AT&T rides the wave and gets an additional benefit of increased demand. But this benefit can be short-lived if, AT&T doesn’t renew the exclusive contract. AT&T currently has a very spotty service, and must do more to ensure the coverage areas are better than what they currently are. If Verizon gets the iPhone, many people will defect over, myself included. Many others have complained about their wireless EVDO cards being subpar with restrictive data plans. The clock is ticking, and expansion/diversification of revenue is an important priority along with strengthening it’s infrastructure for better overall wireless service.

Here’s what AT&T should do to to become the backbone infrastructure to the wireless mobile web (inspired by this Businessweek article):

Remember the MNVO’s from 4-5 years ago that was supposed to transform the industry? ESPN Mobile, Disney Mobile, etc all had their own special cell phones. The problem with that model is that the pricing was bad from the major carrier, to the price of the phone, to the limited benefit to the consumer. It was an epic failure.

AT&T has a tremendous opportunity to leverage the fact that they do have an exclusive arrangement with Apple to open-source it’s wireless service to any and all devices out there, with some software integration and compatibility from the Apple SDK. . We’ve learned that with the iPhone platform, it has enabled endless use cases with a powerful distribution platform. Partner with any device that can distribute documents, data, pictures,  and videos. Make every device social, and every device interactive. Price it low, and like Amazon’s S3 and EC2 pricing scale, make it cost prohibitive for any competition with the per unit pricing. You can sell everyone on the fact that your competitive advantage is the exclusive arrangement with the iPhone and cement itself as the defacto wireless provider for all mobile devices, including navigation systems, eBooks, cameras, Netbooks, etc. It will enable entrepreneurs to get a chance to build something off of your backbone.  The additional revenue generated can be used as another vehicle to fund the exclusive partnership with Apple, and layer additional services and support that will increase economic rents and opportunity for the company to diversify, especially with rapidly declining profit margins in mobile calls.

I think the difference between what Businessweek is suggesting and what I am suggesting is that AT&T should make it as open as possible for everyone to build off the backbone, not just the major companies. The success of the iPhone is not from being open to just the major companies, but letting everyone compete, which will eventually increase innovation and increase switching costs. This will be better for building customer loyalty and brand equity, instead of charging exorbitant fees for basic services like text messaging.

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