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Stealing Leverage

During today’s World Wide Developer Conference two long-awaited features were announced for the next version of the iPhone and its operating system. MMS lets you send pictures, videos, etc., in a text message. Tethering lets you use your mobile phone’s data connection as a wireless access point for the computer it is tethered to. Both features are generally taken for granted on other handsets and carriers.

But neither of these features will work on the AT&T network—the sole carrier of the iPhone in the US—at launch. This led to loud boos from the keynote audience and John Gruber of Daring Fireball twittered “AT&T stole Christmas”.

AT&T is clearly trying to take back some leverage in their relationship with Apple:

• If you are on AT&T already, either you have an iPhone or you want one.
• If you aren’t on AT&T, the only reason to switch to it is to get the iPhone.
• The iPhone is still a great device without AT&T, but AT&T is not great without the iPhone.

AT&T is charting the same course the Recording Industry stumbled into when they locked their customers into iTunes via digital restrictions management (DRM). If you weren’t paying for music, the iPod was still a great device. If you were paying for music, you wanted it to play on your iPod. The iPod was a great device if you didn’t use a recording industry-approved online music store, but an online music store with product that didn’t play on an iPod was DOA.

The success of the iPod and the lock-in effects of the DRM meant Apple had all the leverage in the relationship. To have any leverage with Apple at all, the recording industry eventually had to give up its cherished mandate for digital restrictions on all music sold online, which allowed it to prop-up Amazon’s fledgling music store with iPod-compatible music.

AT&T’s best solution would be to find another great handset to sell and so lessen their dependence on the iPhone and Apple. But there haven’t been any serious contenders yet. The Storm was essentially declared dead and not worth the money shortly after its launch. The G1 is exclusive to T-Mobile. And the much-hyped Pre is exclusive to Sprint.

Lacking such a handset, they are forced to used “stick” tactics like we saw today. And we know they are using a stick instead of having technical problems because other handsets AT&T offers have both MMS and tethering available. There is nothing magical about making these work with the iPhone.

The problem with AT&T using the stick in such a way is that it not only upsets their partner, Apple, it also upsets their customers. As soon as the iPhone becomes available on a different carrier, current AT&T customers will remember this and not have to look for a reason to switch at the first opportunity.

Update: The price of the new iPhone for existing customers is as much as $400 more than it is for new customers. I’m not sure who to blame here. This kind of small-text bullshit weakens AT&T’s position as carrier. It’s one more thing for customers to remember when the iPhone is available on another carrier and so I think this is most-likely Apple’s doing.