iPhone surcharge protest highlight carriers' loss of control

Ask smartphone users anywhere in the U.S. what they think of their wireless carriers, and you will get an earful.

Ask smartphone users anywhere in the U.S. what they think of their wireless carriers, and you will get an earful.

People generally hate their wireless carriers. Yet, in another breath, they will go on and on about how much they love their wireless device, like an iPhone or a BlackBerry. They love staying in touch from anywhere, keeping lots of content on a small pocket-sized device, browsing the Web, or listening to music.

So much love and yet so much hate. You would think smartphone consumers could find a happy medium.

The hate mostly comes down to money, and how much consumers, including businesses, have to pay for monthly subscriptions, data plans, or devices.

This week, a Twitter petition quickly garnered support from thousands ofangry iPhone users over what AT&T Inc. is planning to charge them for the new iPhone 3G S. The price could be as high as $599 for the 32GB version, depending on how much of the customer's two-year iPhone contract has expired. (The subsidized price for that model is $299.) That would be in addition to a monthly service plan, starting at $70 a month.

"Look at the outcry over that subsidy question if you want to see how the public feels about carriers, including AT&T, " remarked Christopher Fletcher, an analyst at AMR Research, in an interview after speaking at Babson College in Wellesley, Mass., on the value of mobile applications for businesses.

Fletcher takes a hard line on the many steps carriers can take to improve their relationships with customers, but did give AT&T Inc. a little credit. "In fairness to AT&T, they are underwriting the cost of the new iPhone," he noted.

AT&T probably never imagined how much public scrutiny they would face by signing up for an exclusive contract to provide wireless voice and data service for the iPhone. "The Apple faithful are a rabid bunch," Fletcher noted, with a laugh.

One objective source for how customers feel about their wireless carriers is J.D. Power and Associates, which conducts consumer satisfaction surveys on many products and services, including automobiles. This year, J.D. Power rated wireless network coverage by various carriers, but hasn't done a survey on which wireless carrier is the most beloved or most despised. "We haven't ever done a survey on which wireless carrier is hated the least," a spokeswoman said today, laughing.

While J.D. Power has not asked consumers which wireless carrier is the best, the firm announced in May that Verizon Wireless was ranked highest of the wireless carriers by 2,618 home office and small- and medium-sized business customers (of up to 500 workers).

The rankings were based on wireless performance and reliability, sales representatives, billing, cost of service, offerings and promotions and customer service. T-Mobile and Alltel also did well in the survey.

While AT&T and Sprint Nextel Inc. were rated lower, it's notable that the iPhone, offered only by AT&T, came out on top of a separate J.D. Power survey last year of 1,388 business customers on their satisfaction with their smartphones.

Fletcher, other analysts and industry executives are keenly aware that Apple Inc., in a sense, is taking on the carriers, and AT&T specifically, over which has the most sway with consumers, or "who owns the customer," as the telecom executives like to say.

Google Inc., by backing the Android operating system and other measures, is also taking on the carriers in this wireless power struggle, Fletcher said.

"In a sense, they are trying to buck the wireless operators," Fletcher said, and give more power to device makers, developers and others who influence the wireless market. The iPhone App Store, with more than 1 billion downloads, is a great example of how Apple is preventing AT&T, or any other carrier, from asserting more control over which applications a user gets, he added.

In the past, large enterprises that wanted to deploy mobile computing might ask a phone maker to add a feature like Wi-Fi, only to be shot down by the carrier that was provisioning that phone, Fletcher noted. The entry of Apple, Google and others into the market fray is changing the carrier's role and making it less likely that a carrier could dictate whether a device has Wi-Fi or not, he said.

"What's happening now is that carriers like AT&T are fighting being called a 'dumb pipe,' and trying to figure out how much value they bring to the whole equation," Fletcher said. "They have billions of dollars invested in infrastructure and workers, and at the same time are competing with each other, the cable companies and even companies like Apple," which can take its iPhone business to another carrier eventually if it doesn't approve of what AT&T is doing.

Some of the worries over how carriers will gain revenues, even if they don't completely control the cool applications and operating systems of the mobile devices they support, will come down to technology innovation, as Martin Cooper, the father of the cell phone has noted, Fletcher said.

One example of that innovation is the way that Research in Motion Ltd., maker of the BlackBerry, has bragged that its compression software reduces the data load of a typical e-mail over a BlackBerry device by 90%, when compared to the iPhone, Fletcher said. Less demand on the network from e-mail can help carriers deal with a surge in video and other data-rich applications.

Fletcher predicted the complaints by iPhone users and a range of other customers will continue as users demand more from smartphones and carriers. "Things will only get worse," Fletcher said.

One member of the audience at the Babson event who works for a network equipment supplier to carriers summed up the current climate between wireless carriers, customers and suppliers, but asked that his name not be used. "There will always be a place for carriers, but there are many different islands of interest and a variety of roles. Maybe the carriers have a PR problem. But they don't even know what they want to be when they grow up. They have a role to play, but right now it's chaos."

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