The iPhone is ready to go beyond AT&T

In the November 23 issue of Newsweek, Daniel Lyons argues that the iPhone is in danger of the same fate the befell the Mac: doomed to a small market share while another player becomes dominant. For the Mac, the other “player” was Microsoft. For the iPhone, the biggest threat is Google’s Android.

The problem, as Lyons sees it, is that Android is an open system that potentially works on any company’s hardware, just as was the case for MS-DOS/Windows. The iPhone, in contrast, is a closed system “keeping the software tightly coupled to the hardware.”

While I too have lamented the iPhone’s closed nature, I have to disagree with Lyons’ overall conclusion. The foundation of the iPhone’s appeal comes from the über-successful iPod. While the iPod might be similarly criticized as “closed,” it is never-the-less the 2000-gorilla of MP3 players. With the iPod touch as its wingman, the iPhone is similarly positioned to be follow in the footsteps of the iPod rather than the Mac.

With one exception.

I totally agree with Lyon’s concern that the iPhone runs only on the AT&T network. In the beginning, back in 2007, this hardly mattered. Starting from an installed base of zero, the iPhone was destined to take off no matter what. Any AT&T customer thinking of getting a smartphone was going to give the iPhone a serious look. For millions of other users, the desire to have an iPhone trumped everything — and they switched to AT&T.

Times have changed. AT&T continues to take hits for its relatively poor 3G network. Its refusal to activate Internet tethering on the iPhone because of its expected network impact is yet another black mark. Meanwhile, as Google’s Android phone improves, it may become less critical to switch to AT&T just so you can get an iPhone.

The result is that the potential pool of iPhone users will inevitably plateau. No other smartphone need worry about bumping into this ceiling.

What’s the solution? It’s an easy one. Apple needs to expand the iPhone’s availability to carriers beyond AT&T. The iPhone already supports a multitude of different carriers around the world. It shouldn’t be that difficult to support more than one carrier in the U.S.. Numerous others have come to the same conclusion (see this article for one example).

The hangup is more legal than technological. Apple and AT&T currently have a licensing agreement that requires that the status quo be maintained. Although both parties remain relatively mum about the details of this arrangement, there are predictions that the contract will expire as soon as next year.

When that happens, I would strongly urge Apple to drop its exclusive licensing with AT&T. No other single move would have as much positive impact on the iPhone’s future market share. By so doing, the iPhone will be well on its way to the same level of dominance now enjoyed by the iPod.

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