I’m going to go through the piece in order for thoroughness. First, the opening paragraph:

Earlier this month, Apple rejected an application for the iPhone called Google Voice. The uproar set off a chain of events—Google’s CEO Eric Schmidt resigning from Apple’s board, and the Federal Communications Commission (FCC) investigating wireless open access and handset exclusivity—that may finally end the 135-year-old Alexander Graham Bell era. It’s about time.

First, it’s not clear that Eric Schmidt resigned from the Apple board over the rejection of the Google Voice app – the small matter of an FTC investigation may have been a factor. In addition, there’s the fact that the two companies compete in the email, browser and now operating system markets, which meant that Schmidt was having to recuse himself from more and more discussions on the board anyway. Secondly, the FCC is very specifically investigating this particular case, not wireless open access or handset exclusivity in general, as a result of the Google Voice incident.

I have no real beef with Kessler’s next paragraph:

With Google Voice, you have one Google phone number that callers use to reach you, and you pick up whichever phone—office, home or cellular—rings. You can screen calls, listen in before answering, record calls, read transcripts of your voicemails, and do free conference calls. Domestic calls and texting are free, and international calls to Europe are two cents a minute. In other words, a unified voice system, something a real phone company should have offered years ago.

Except perhaps to say that a “unified voice system” is a bit strong – this “system” is entirely dependent on the existing phone systems offered by the “real phone companies”. Having said that, Google (or, more accurately, Grand Central) certainly provided some useful innovations and created a great service, and I’m a (small-volume) user of the service myself.

Apple has an exclusive deal with AT&T in the U.S., stirring up rumors that AT&T was the one behind Apple rejecting Google Voice. How could AT&T not object? AT&T clings to the old business of charging for voice calls in minutes. It takes not much more than 10 kilobits per second of data to handle voice. In a world of megabit per-second connections, that’s nothing—hence Google’s proposal to offer voice calls for no cost and heap on features galore.

The first sentence is important: contrary to the headline of the piece (”Why AT&T Killed Google Voice”), there are only rumors at this point, and AT&T has flatly denied that it blocked the app. The FCC investigation is seeking to answer in part the question of who blocked it, so a bit more nuance is probably in order there. But the bigger objection to this paragraph is the assertion that voice is simply a form of data, an idea Kessler returns to again and again throughout the piece. That needs a bit of examination, because it’s misleading.

While there’s a sense in which that’s true – all communication is ultimately “data” – it’s only true in the technical sense if it’s carried that way. Which it isn’t, on today’s cellular networks and most public telephone networks. Other than where voice over IP is used, voice is circuit-switched, which means it ties up an entire (virtual) circuit from end to end for the duration of a call, making it unavailable for other purposes. Data, on the other hand, is typically packet-switched, meaning that a data “connection” in fact only uses up network bandwidth when packets are actually being sent back and forth, otherwise freeing up that bandwidth for the use of others. As such, voice networks and voice calls use network capacity in a very different way from data, with different equipment required and different economics associated with them. It is therefore at best a gross oversimplification to say that “voice is data” in the current mobile market. In time, yes, we’ll evolve to voice carried over the data network, and at that point the statement will be true, but we’re a long way from that point yet.

What this episode really uncovers is that AT&T is dying. AT&T is dragging down the rest of us by overcharging us for voice calls and stifling innovation in a mobile data market critical to the U.S. economy.

For the latest quarter, AT&T reported local voice revenue down 12%, long distance down 15%. With customers unplugging home phones and using flat-rate Internet services for long-distance calls (again, voice is just data), AT&T’s wireline operating income is down 36%. Even in the wireless segment, which grew 10% overall, per-customer voice revenue is down 7%.

I’m not sure this episode uncovers anything about AT&T’s health as a company at all. While I think AT&T may be a little over-reliant on the iPhone (see more on that here), its financial results continue to be impressive. Focusing on the wireline results isn’t really relevant in the context of a piece about the wireless market, but yes, wireless voice revenues per customer are declining, because, erm, average prices are coming down, which rather goes against the grain of the piece. And it’s not clear that whatever action was taken in regard to the Google Voice application in any way stifled innovation in the mobile data market. (on the topic of wireline versus wireless revenues, this recent piece on MSN Money was a lot more insightful, but that’s not really the point here).

Wireless data service is AT&T’s only bright spot, up a whopping 26% per customer. How so? As any parent of teenagers knows, text messages are 20 cents each, or $5,000 per megabyte. After the first month and a $320 bill, we all pony up $10 a month for unlimited texting plans. Same for Internet access. With my iPhone, I pay $30 a month for unlimited data service (actually, one gigabyte per month). Is it worth that? The à la carte price for other not-so-smart phones is $5 per megabyte (one-thousandth of a gigabyte) per month. So we buy monthly plans. Margins in AT&T’s Wireless segment are an embarrassingly high 25%.

I’m not sure wireless data service is the only bright spot, but again the analysis here is odd. What is the point Kessler is trying to make here? That it’s embarrassing AT&T’s wireless margins are 25%? This from a former hedge fund manager? Is he objecting to the fact that AT&T allows you to text all you want for $10 per month when individual messages are 20 cents (in fact, it’s $20 per month)? I can’t tell what he’s objecting to here.

The trick in any communications and media business is to own a pipe between you and your customers so you can charge what you like. Cellphone companies don’t have wired pipes, but by owning spectrum they do have a pipe and pricing power.

That’s an odd statement if ever there was one. The very definition of providing a communication service is giving customers a way to communicate, which has traditionally meant a phone line (whether wireline or mobile). There’s no trick here, and the idea that the only reason for having a pipe to your customers is to gouge them seems an odd summary of the last 135 years of telecoms history. Spectrum isn’t the pipe either – the cellular networks carriers build out to make use of the spectrum are the pipes (or perhaps we should say “series of tubes“?).

Aren’t there phone competitors to knock down the price? Hardly. Verizon Wireless, T-Mobile and others all joined AT&T in bidding huge amounts for wireless spectrum in FCC auctions, some $70-plus billion since the mid-1990s. That all gets passed along to you and me in the form of higher fees and friendly oligopolies that don’t much compete on price. Google Voice is the new competition.

So, the point is there is no competition because the government forced the wireless carriers to spend billions on spectrum? Isn’t this supposed to be a piece about how the government can solve problems in the mobile industry? It’s also not clear how the spectrum fees have created a “friendly oligopoly” (note singular noun – I’m pretty sure once there are several oligopolies it stops being an oligopoly) – scarce spectrum has created the present oligopoly in the wireless market in the US, as it has everywhere else. And no industry wants to engage in price competition, especially if it has large sunk and/or fixed costs, and most would prefer to compete on features (e.g. exclusive phones). If price competition is your goal, you’re fighting a losing battle, for everyone concerned.

But now we come to one of the biggest problems with all the stories about Google Voice – the idea that it is somehow competition for the mobile phone companies when it’s running on their devices. As it currently works, Google Voice works on the basis of hooking up your existing connections (wired, wireless, whatever) to its service, not creating new endpoints. While there are workarounds, the vast majority of users see this as a way of integrating their existing endpoints into a more unified service. Since the US uses an airtime system (i.e. charging for inbound and outbound calls) for billing for mobile voice usage, every domestic Google Voice call that connects to an AT&T iPhone generates exactly the same usage and therefore the same charging as a call originated through the standard iPhone interface. AT&T is still very much in the picture here, and still making money off those calls. All that’s changed is the interface. AT&T (and even Apple) might not like the fact that the system bypasses their interface, but AT&T still gets the money, so this isn’t competition for revenue, just the UI. Others such as Skype and Truphone, which actually provide an alternative client for making calls over VoIP from the iPhone, thereby bypassing the carrier, are the true competition for AT&T in this space, but their apps are still sitting in the iTunes app store.

By the way, Apple also has a pipe—call it a virtual pipe—to customers. Its iTunes music service (now up to one-quarter of all music sales, according to NPD Market Research) works exclusively with iPods and iPhones. The new Palm Pre, another exclusive deal, this time by Verizon Wireless, tricked iTunes into thinking it was an iPod. Apple quickly changed its software to lock the Pre out, and one would expect Apple locking out any Google phone from using iTunes.

I guess this is why the stretched analogy about the pipe was introduced earlier – to somehow equate AT&T’s and Apple’s business models. There’s another factual error here – a pretty glaring one – in that Sprint, and not Verizon, has the exclusive on the Palm Pre. There’s a strange reference to “any Google phone” here too – as if it’s a theoretical possibility rather than a reality in the form of a growing number of Android devices, which as far as I know haven’t attempted to connect to Apple’s proprietary store.

It wouldn’t be so bad if we were just overpaying for our mobile plans. Americans are used to that—see mail, milk and medicine. But it’s inexcusable that new, feature-rich and productive applications like Google Voice are being held back, just to prop up AT&T while we wait for it to transition away from its legacy of voice communications. How many productive apps beyond Google Voice are waiting in the wings?

I’m not sure Kessler has really introduced any evidence on the topic of overpaying for mobile plans, but we’ll let that slide – the examples used seem to have been chosen more for their alliterative potential than for any sensible reason, but we’ll let that slide too. On to the real point here – that blocking Google Voice is somehow propping up AT&T. How so? Are we really “waiting for AT&T to transition away from its legacy of voice communications”? In what way? Didn’t Kessler say earlier that wireless data was the fastest growing area of revenue for AT&T? Isn’t the iPhone primarily about data, rather than voice? Yes, Apple desperately needs to make the approval process for apps quicker and more transparent. But I’m not sure there are lots of apps “waiting in the wings” – what would they be waiting for? There are lists of rejected apps, but many were rejected for good reasons and most later found their way onto the iTunes store in a modified form. If you’re waiting, go ahead and submit your app and see what happens.

So now the FCC and its new Chairman Julius Genachowski are getting involved. Usually this means a set of convoluted rules to make up for past errors in allocating scarce resources that—in the name of “fairness”—end up creating a new mess.

Some might say it is time to rethink our national communications policy. But even that’s obsolete. I’d start with a simple idea. There is no such thing as voice or text or music or TV shows or video. They are all just data.

The FCC is getting involved, in a very limited and specific way – by investigating the case of the Google Voice application in particular. It’s not clear under what authority they’re doing this, but since it’s just a fact-finding mission at this point that doesn’t matter all that much. Since it is just fact-finding, talk of convoluted rules seems a little premature too.

I’m also not sure how “rethinking our national communications policy” can be obsolete – doesn’t that by definition mean replacing whatever may be obsolete about the whole thing? And for all the reasons I explained above, it’s utterly over-simplifying and hugely erroneous to simply treat all voice as data today – the vast majority of voice is not data – it’s voice, with all the quality, cost, infrastructure and other implications that has. But more to the point: data, broadly speaking, isn’t regulated. Voice is. Unless you want to move to an unregulated voice market (which the carriers would love, by the way) or a heavily regulated data market, that’s an unworkable proposition.

Now, on to the specific proposals.

We need a national data policy, and here are four suggestions:

• End phone exclusivity. Any device should work on any network. Data flows freely.

Any device can’t literally work on any network, especially since we have both GSM and CDMA networks (and now also WiMAX networks) in the US. But it is already possible to take any unlocked GSM phone and attach it to the T-Mobile or AT&T networks. Verizon has also built a model for allowing devices to be attached to its network in response to the open access provisions attached to the 700MHz spectrum it acquired (thank you, Google). But that’s a separate issue from exclusivity. Exclusivity certainly has its pros and cons – it allows devices to reach market at lower prices because the carriers are willing to make concessions in return. But it means that, as a consumer, you have to pair networks and devices you otherwise wouldn’t. But this is one of the prices we pay for a relatively unregulated market – we don’t always get what we want, but we do get a lot of good stuff. We have to take the rough with the smooth.

• Transition away from “owning” airwaves. As we’ve seen with license-free bandwidth via Wi-Fi networking, we can share the airwaves without interfering with each other. Let new carriers emerge based on quality of service rather than spectrum owned. Cellphone coverage from huge cell towers will naturally migrate seamlessly into offices and even homes via Wi-Fi networking. No more dropped calls in the bathroom.

I love that Kessler uses WiFi as an example of interference-free networking. Anyone who’s tried to use WiFi in the presence of lots of other WiFi networks (e.g. in any relatively densely populated neighborhood) knows how untrue that is. Carriers have spectrum so they can provide predictable service and be able to make reasonable business plans. Would anyone roll out expensive 3G or 4G networks if they weren’t very sure they’d still have the spectrum to light them up when they were finished? WiFi is terribly suited for replacing cellular networks, which seems to be what Kessler is suggesting, even if it may be useful for extending coverage indoors (although femtocells seem to be the preferred solution for that problem in the US, without any regulatory intervention). And unless you have WiFi in your bathroom, I’m afraid there’s still a chance of dropped calls there.

• End municipal exclusivity deals for cable companies. TV channels are like voice pipes, part of an era that is about to pass. A little competition for cable will help the transition to paying for shows instead of overpaying for little-watched networks. Competition brings de facto network neutrality and open access (if you don’t like one service blocking apps, use another), thus one less set of artificial rules to be gamed.

A rather dramatic change of speed from Google Voice on the iPhone, but I’ll go with it. This has already happened, both at the municipal level and nationally through legislation. Competition for cable is coming both from the telcos (ironically) which are rolling out fiber-based networks, and through online-based offerings such as Hulu, iTunes (ironically) and Amazon. Interestingly, Kessler then employs the argument that competition provides de facto net neutrality, when he doesn’t seem to think the same argument applies with mobile networks (where there is significantly more competition and more choice than there is ever likely to be in local TV provision).

• Encourage faster and faster data connections to our homes and phones. It should more than double every two years. To homes, five megabits today should be 10 megabits in 2011, 25 megabits in 2013 and 100 megabits in 2017. These data-connection speeds are technically doable today, with obsolete voice and video policy holding it back.

I’m not sure how government “encourages” things – it can really only mandate them or ban them. The doubling Kessler talks about has actually happened over the last 15 years without any help from government (speeds available to many consumers have gone from 30kbit/s in 1995 to almost 30Mbit/s today). The highest speeds aren’t uniformly available yet, but they are spreading rapidly and available to more and more households – again, without regulation. Voice policy has nothing to do with the deployment of broadband. And video policy is one of the major drivers behind the rollout of these networks, since the telcos are aggressively rolling out TV services over their new faster networks.

Technology doesn’t wait around, so it’s all going to happen anyway, but it will take longer under today’s rules. A weak economy is not the time to stifle change.

Data is toxic to old communications and media pipes. Instead, data gains value as it hops around in the packets that make up the Internet structure. New services like Twitter don’t need to file with the FCC.

And new features for apps like Google Voice are only limited by the imagination. Mother-in-law location alerts? Video messaging? Whatever. The FCC better not treat AT&T and Verizon like Citigroup, GM and the Post Office. Cellphone operators aren’t too big to fail. Rather, the telecom sector is too important to be allowed to hold back the rest of us.

“It’s all going to happen anyway” is the best possible summary of why a heavy-handed government intervention is the wrong approach. We’ve never justified government intervention on the basis of simply speeding up something that is happening already and there are good reasons for that.

Data isn’t toxic to old pipes – it’s what’s keeping them relevant – old copper lines had new life breathed into them by DSL, and are being supplemented or replaced with fiber connections which are designed to deliver lots and lots of data (yes, including video and even voice). Data doesn’t have any inherent value: it all depends what the content is. And today’s model has consumers or advertisers paying for content on the one hand and ever bigger pipes to stream it through on the other.  Those pipes are provided by telcos, who don’t find them toxic in the slightest. And those new apps? Mother-in-law location alerts? Check. Video messages? Check. The telcos don’t need bailing out – you were arguing, Mr Kessler, just a few paragraphs ago about how high their margins are.

Look, I’m sympathetic to many of the points which are buried in the piece – above all, I don’t like the fact that the Google Voice app was blocked on the iPhone – I’d have used it on mine, and I think it was shortsighted of the AT&T/Apple combo to block it. But I don’t believe that justifies government intervention. It should spur me to either: use the web version (www.google.com/voice), which is what I have done, or find a carrier / device combo that will support it. I don’t believe the US mobile market is perfect as it stands: texting prices for individual messages are probably too high, mobile broadband is patchy, AT&T’s network coverage sometimes stinks, etc. etc. But I don’t believe any of this justifies the kind of intervention Andy Kessler talks about in his piece. Rather, I think “It’s all going to happen anyway” and players like Google can only help it on its way.

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(Warning – this is going to be a long post – skip to the bottom if you just want to read the conclusions!)

Note: I wrote this post on the evening of 22 July, whereas AT&T’s Q2 numbers were released the morning of the 23rd. A quick look through the Q2 numbers reinforces several of the points made here and doesn’t appear to contradict anything significantly. It appears the iPhone dragged down AT&T’s OIBDA margin by a couple of points – less than last time around, although that reflects the timing of the two launches in the quarters they impacted most strongly.

First, the good stuff

Let’s start with the positive aspects of the iPhone for AT&T. The obvious thing to look at is the impact on customer additions, and since very few (if any) mobile subscribers will choose an iPhone as their first device, the key metric to look at is customer wins from other carriers. Here’s a Morgan Stanley chart from late 2007 – based on their extensive surveys (all the usual caveats apply, but this is a really decent sample size and illustrates what I believe to be real trends):

(click to see a larger version)

They key message here is that after the launch of the iPhone AT&T gained positive ‘flow share’ against Verizon for the first time in the history of their survey – that is, more customers switched from Verizon to AT&T than the other way around. AT&T also gained subscribers from Sprint, but lost them to T-Mobile, which had a very good quarter too.

Morgan Stanley also asked survey respondents what they had been before they were AT&T iPhone customers:

Given that this was the end of Q3 and the iPhone launched just before the end of Q2 2007, one third were already iPhone customers. Another third were existing AT&T customers, and the last third were new to AT&T – so these represented switchers from other carriers, and 12% of AT&T gross adds in the quarter. That’s not an enormous proportion of the total, but it’s certainly a measurable impact.

Of course, we all know that subsequent years / versions have seen much larger numbers of iPhone purchases, and so the effect has been greater. The same Morgan Stanley survey repeated at the end of Q1 had different results – in part because of the much larger installed base (70% of the total), but also seeing a much higher share of gross adds coming from the iPhone:

In both Q4 of 2008 and Q1 of 2009, around a third of AT&T’s total gross adds came from the iPhone, which has clearly become a very important source of wins from other carriers to AT&T. It probably has a little over 8 million iPhone customers on its books at this point.

So that’s gross adds and wins from other customers. Secondly, there’s service revenues. iPhone customers have to sign up for not only a voice plan but also a hefty data plan. Some may sign up for text messaging or additional voice minutes on top of the minimum, but the very least a standalone iPhone customer will pay per month is $70. That’s already quite a bit higher than AT&T’s average ARPU at around $50, and AT&T’s management has stated that it sees ARPU of around 1.6 times higher on average for iPhone customers compared with its other postpaid customers. That’s a major boost to AT&T as well.

Thirdly, there’s the issue of a ‘halo effect’ from the iPhone onto the rest of AT&T’s business, the most prominent symptom of which is foot traffic to AT&T stores. It has stated that it saw significant increases in foot traffic from prior levels once the iPhone launched, and there are undoubtedly customers and potential customers who came in to look at the iPhone and ended up buying something else (something cheaper, in all likelihood!). That’s really hard to quantify, but I don’t doubt that there’s a positive effect there. In addition, AT&T’s exclusive on the iPhone creates a perception of AT&T as a purveyor of cool devices.

To sum up on the good stuff: the iPhone has been a significant source of gross adds and has had a positive impact on flow share, it brings subscribers to AT&T who have a significantly higher ARPU than its other customers, and the device has a halo effect that’s difficult to quantify but no doubt useful as a third source of benefit to AT&T from the arrangement.

Now, the bad stuff

So what about the bad stuff? This falls into several major categories:

• Subsidies and hefty cost of acquisition
• Impact on the network
• Ceding control to Apple
• Being cast as the evil gatekeeper
• Over-reliance on one device.

First, subsidies. This is a murky area but a simple comparison of the subsidised price and the non-subsidised price suggests a $200 subsidy for the 16GB version and a $300 subsidy for the 32GB version. That gels with information various people seem to have pieced together from Apple’s earnings data which suggests Apple gets around $300 from AT&T for every device sold on top of what the customer pays. That’s a hefty subsidy indeed, compared with the $150 subsidy that appears to be AT&T’s standard for other ‘PDAs and smartphones’ and $50 to $100 for cheaper phones. And it basically means AT&T is $300 in the hole from the get-go, and has to put a lot of that high ARPU into paying off that deficit, rather more so than for other devices. Divide that $300 by 24 months (the standard contract length) and you get $12.50 per month of that high ARPU that’s just paying off the device. If AT&T keeps up its current policy of letting higher-ARPU customers get a new subsidised phone every year, that rises to $25 per month. Compare that with around $6 for one of the other high end phones, which basically have the same voice plans and similarly-priced data plans (though not all will take them). That’s the most quantifiable negative impact of the iPhone on AT&T’s business – it amounted to 10 cents of EPS dilution in Q3 2008, for example. The other negatives are less easily quantifiable, but I’d argue they’re at least as important.

Secondly, the impact on the network. This one has been bubbling to the surface recently and I think it’s really significant. A good illustration is a recent PC World 3G network test. In its big analyst event in 2007 and again at subsequent events, AT&T has boasted about its spectrum depth – see this excerpt from a March 2008 presentation, for example:

It specifically states that its advanced spectrum position is a major advantage over competitors because of the superior performance with high network load and better coverage and quality it allows. But that PC World test put AT&T bottom by a long way out of the big three US carriers in reliability and throughput. Its reliability in several major markets was just 60% and in one – Orlando – it was just 52%, where reliability is defined as “the percentage of tests for a given city in which we could detect a signal, connect at a reasonable speed (faster than dial-up), and sustain an uninterrupted connection for the duration of a 1-minute streaming test”. That’s terrible! And it’s significantly worse than either of its two major competitors. Sprint, of course, has a network with plenty of capacity since it upgraded and lost a bunch of customers, while Verizon seems to have managed to keep its network investment running ahead of customer needs. (Sprint marginally edged Verizon in the tests on reliability but it was a close run thing.)

Why is AT&T’s network performing so poorly when its spectrum position was supposed to be such an advantage? Well, one reason could be the iPhone itself. There are various data points here, but among them are the following:

• Google stated in February 2008 that it was seeing 50 times more searches from iPhones than any other device
• AdMob figures from earlier this year suggest that in April the iPhone generated 43 percent of mobile Web requests and 65 percent of HTML usage.
• Net Applications reported a 0.09% browser marketshare for the iPhone Safari browser in December 2007 – already two times greater than all Windows Mobile devices put together.

It’s clear that the iPhone has a tendency to generate significantly more data usage than other devices, and this seems an entirely plausible explanation for the poor performance of AT&T’s 3G network, both in these tests and in real-world experience (as anyone who’s visited the new Yankee Stadium with an AT&T device knows, it’s virtually impossible to get a reliable connection in there despite strong signal strength – this year’s SXSW is another prominent example of the impact iPhones can have on a network.) If the iPhone really is having that serious a negative impact on AT&T’s network, it will obviously affect the iPhone customers themselves but also anyone else trying to use an AT&T device (including laptop modems) to access high-bandwidth applications, including video, file downloads and so on.

I’m going to wrap the next two bullets into one paragraph here because they’re two sides of the same coin. The perfect illustration here is the Apple WWDC keynote in May: when MMS and tethering were announced to applause, in each case when the presenter indicated that AT&T support would not come until later in the year there was a smattering of laughter (see the two relevant clips here). That was a fairly benign response, but on Twitter (just try this search – even weeks after the announcement) and elsewhere it’s been much more vituperative. iPhone users are ticked at AT&T for not supporting these features and they’re not afraid to say so. It’s a significant negative brand association for AT&T, and one it hasn’t really dealt with well. But at the root of the problem is the fact that AT&T has ceded control to the device vendor (Apple) in the way it never has for any other device. With any other device, AT&T would carefully control the release and announcement of features, but here Apple is making announcements to the whole world simultaneously and AT&T is singled out as one of the few carriers not supporting these new features. AT&T cannot prevent Apple from announcing these features and it cannot stop the egg from landing on its face when it’s not ready to support them. The degree of control ceded to Apple has put AT&T at a significant disadvantage and it has ended up becoming the ‘evil gatekeeper‘ in iPhone customers’ minds.

Lastly, AT&T’s over-reliance on a single device. Earlier, I quoted Morgan Stanley survey data to suggest that the iPhone drives around a third of AT&T’s gross adds, and that number is probably higher in quarters when new iPhone versions launch. That’s great as a driver of switching from other carriers and gross adds, which is fine for now. But it also means AT&T is heavily reliant on the device, and the risk is that it will eventually lose exclusivity over the device. It’s probably fair to say that the iPhone itself is the most significant driver for customers switching to AT&T and the iPhone, rather than anything about AT&T. Therefore, if the iPhone were available on their existing network, there would be no reason to switch. And there goes a third of AT&T’s gross adds, at least in theory. Meanwhile, that short-term impact on flow share seems to have been a bit of a flash in the pan – here’s a more recent version of that Morgan Stanley chart:

The negative Verizon flow share trend has reversed, and the AT&T trend really isn’t one at all – its numbers are bumping around around zero. Verizon seems to have recovered very quickly from the original iPhone launch (and whatever broader issues were plaguing in previous quarters) and has seen only minor blips from the subsequent launch of the iPhone 3G. So, yes, AT&T continues to gain subscribers from Sprint and T-Mobile, but against its strongest competitor it is doing worse than it was when the iPhone first launched. What if Verizon gets the iPhone? Almost all the negatives still apply but one of the largest positives goes away.

In summary

So, to summarize:

There are three major positives associated with the iPhone for AT&T:

• Subscriber additions
• Higher ARPU
• The ‘halo effect’

Conversely, there are several negatives:

• High device subsidies
• Negative network impacts
• Ceding control and brand management to Apple
• Over-reliance on a single device.

The challenge in coming to an overall conclusion here is that not all these benefits and disadvantages are quantifiable – there’s no single yardstick by which we can measure them all. But it’s clear that, along with the positive impacts of the iPhone on AT&T there are several negatives, and they’re getting worse. At this point, even those subscriber additions are merely keeping AT&T on par with its competitors rather than allowing it to gain significant ground. Meanwhile, its network is being trashed, it has heavy device subsidies to deal with, and it has gained a reputation as the ball and chain holding back the iPhone from reaching its full potential. At present, the pros and cons are at best 50/50, but should AT&T lose exclusivity the balance would definitely shift towards the whole iPhone experiment having been a negative one for AT&T. After all, exclusivity was the “quo” in the quid pro quo that the AT&T/Apple deal represented. When that ends, the benefits to AT&T largely do as well.

Some have leapt to AT&T’s defence in recent days (see this example) but the approach here seems misguided. It’s not as if anyone forced the iPhone on AT&T. In fact, we’ve known from the beginning that it was offered to Verizon first but it turned Apple down. The reason? “We just couldn’t reach a deal that was mutually beneficial” according to Verizon’s spokesman. And that sums up the problem perfectly: the iPhone had the potential to be mutually beneficial for both parties if the right deal was struck. But whereas Verizon didn’t see what Apple proposed as mutually beneficial, AT&T apparently did, or was keen enough on the idea to strike a deal that wasn’t as balanced as it might have liked. But although Verizon was roundly pilloried at the time for passing on the hottest device of the decade, it’s starting to look like a smart move at this point.

What are your views?

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In Europe, a level playing field based on regulated access to the incumbent’s network

European regulation has focused on regulated access to a single incumbent infrastructure with the goal of creating a level playing field for competitors such that they can provide services on equal terms with the incumbents’ own retail arm. This started with carrier selection and pre-selection in the voice world, and extended to local loop unbundling and bitstream access in the broadband world, finally to be followed by wholesale line rental back in the voice world. All of this – if regulated at the proper price – means a competitor can offer voice and broadband services at essentially the same cost as the incumbent without building out much infrastructure of its own at all.

In the US, a botched attempt at incentives to invest…

In the US, meanwhile, the model was set up somewhat clumsily (it didn’t help that the 1996 Telecoms Act was conceived when the Internet was a marginal force and implemented when it was clear it would be a major disruptive factor in the telecoms market). Broadband wouldn’t become widespread for several more years but would become the major thrust of regulation under the ‘96 Act. The regulation, as applied, essentially created a variety of ways for competitors to access the handful of incumbent networks in different parts of the US at regulated rates. Resale (which has equivalents in only some European countries), UNE-P (which is roughly analogous to bitstream access in Europe) and UNE-L (analogous to LLU) provided competitors with a ladder of options which they could make use of as they built out their own infrastructure. Resale would be the first rung on the ladder, and as the competitor won enough business on that basis they’d build out more infrastructure and start using UNE-P. Once that was successful they’d move on to UNE-L, having built out more infrastructure. It was like the European system with appropriate incentives.

…followed by inter-modal competition

It was a great theory, but the pricing was botched such that there were perverse incentives and many competitors got stuck on rung 1 or rung 2 rather than moving to UNE-L. Many competitors’ business models were also based on those fabulous Internet economics and thus went belly up when that bubble burst. Over time, the regulatory emphasis in the US shifted towards what is known as inter-modal competition – essentially relying on competition between competing infrastructures rather than regulated competition over a single infrastructure. The UNE-P rug was pulled out from underneath the few remaining services-based competitors, who now had to negotiate rates commercially, typically resulting in higher prices. But in most markets a cable operator and an incumbent telco duke it out for supremacy.

The resulting competitive environments are very different

The results of these two regulatory approaches couldn’t be more different. In Europe, competitors have largely had to compete on price and on the various bundles they can create around their offerings. Broadband speeds are typically in the single digit Megabits per second, with a high ratio of downstream to upstream speeds. It’s cheap, but bandwidth caps abound. Increasingly, it’s likely that competitive differentiation will have to shift to the core of the network, which is where the clever stuff will happen. Whether it’s IMS or some other technology, the key battle ground is not the access network, which is shared by all the major competitors in most countries.

In the US, meanwhile, the competition in broadband is all about the speeds. Verizon and AT&T’s fiber rollouts have enabled broadband speeds which lit a fire under the cable operators they compete against, who have returned in kind with higher speeds of their own. I live in an area where Verizon has recently made available a 25Mbit/s down, 15Mbit/s up broadband service for $65 a month (less as part of a bundled package). Cablevision, the local cable company, offers lower speeds, but they’re still much better than what most are seeing in the UK. There are no bandwidth caps (Time Warner Cable, the only company to really push in this direction, was scared off by the backlash), and there’s very little competition on anything other than speed. The access network is the source of differentiation in the US broadband market, and that’s unlikely to change. It’s only possible because there are two competing infrastructures, which itself is only possible because of the existing cable TV networks that predated the broadband market by many years.

Implications for future market development

What’s interesting is what this means for future market development. In Europe, alternative operators will continue to have to fight tooth and nail for whatever little differentiation they can find through service, bundling with other offerings, and core network enhancements that somehow improve performance or offer better integration with other services. All while being squeezed on margin because these things are all a tough sell when the basics are the same. In the US, meanwhile, we’ll see a speed race between the two sets of companies – less intense in AT&T territory (and even less so in Qwest territory) – but there nonetheless. I’d argue that this will benefit customers more because there will be real differentiation between the two on speed and constant upward movement in the maximum speeds, making possible more services. I don’t like the chances of the many alternative broadband providers in Europe, while the series of effective duopolies in the US looks likely to be a lot healthier.

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But the bigger issue is how to find useful and relevant new applications. How I discovered the ones I have on my iPhone:

• I searched for them (i.e. I already knew roughly what I wanted)
• They were profiled on the front page of the App Store
• They were covered by one of the blogs I frequent
• They are extensions of services I’m already using.

Those four methods have worked well but they’re limited. What if a genius somewhere comes up with an application that’d be perfect for me but it doesn’t get covered in the blogs, doesn’t get highlighted on the App Store, isn’t connected to any service I’m already using, and serves a need I don’t know I have? That’s not that far fetched. Even when you do know what you want – the first of my four scenarios – finding what you want in the app store is tough, because there’s so much clutter in there. Scrolling through multiple pages of app logos (with no indication of what they do) gets tiresome quickly. There are 86 pages of “Productivity” apps in the App Store, and that includes (just on the first page) everything from a wind chime app to help you get to sleep to a database application to an app for keeping track of the movies you own. It’s overwhelming and it’s not likely to help you find what you need unless you know the name of it already. Ratings don’t help, because only apps that get used a lot have enough ratings to be assigned an overall rating, so the obscure apps that might be helpful don’t benefit.

Someone on TechCrunch suggested that the App Store needs a genius feature, akin to what’s available for music. That’s probably not a bad idea: it could even be a really simple format similar to the Amazon “people who bought this also liked this” feature and it would probably be helpful. But I think there’s always going to be a problem with the sheer number of apps in the App Store, which raises the question of what a useful number might be. A tenth of the current number – around 5-10,000 – seems about right. It’s certainly far more than Palm currently has in its Pre app store, but much less than the rapidly growing iTunes App Store.

In the meantime, I guess we’ll have to keep relying on whatever mediocre tools are out there. One I’ve come across recently is a feed that lists the latest apps added to the store. It’s a little overwhelming too – no filters to weed out the trash from the good stuff (and there does seem to be an awful lot of trash). But it’s another way to slice the data. There are some more tools listed here. But overall it feels like a lost cause, and a lot more about luck than quality when you do run across something worthwhile.

Footnote:

Two of my recent favorites are (with iTunes links):

• Prowl – an extender for the Mac notification system Growl, which allows you to push notifications to your iPhone for various events on your Mac, such as new Twitter messages via Tweetie, or IM messages from Adium. Apple’s push notification servers seem to have been playing up a fair bit recently, but when it works it’s pretty effective. It would have been nice to try this out before buying, but at $2.99 I figured it wasn’t too much of a risk. It would be nice, though, if more paid apps gave you a day or so to try them out before forking over money.
• Reqall – a great to-do app I used once long ago through the web version and forgot about. The new iPhone version is very nifty, and if you upgrade to the Pro account online it does clever things with locations too. Much cheaper and for my money just as good as many of the full-featured desktop Mac to do lists.

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Sure – Google Voice offers a variety of attractive features, like forwarding calls to various phones, visual voicemail, voicemail transcription and so on. But these have been available to some extent for years. Find-me, follow-me services and simul-ring services have been available on PSTN and VoIP systems for quite some time. Visual voicemail is becoming increasingly prevalent on high-end smartphones, and voicemail transcription services are common with VoIP offerings and will become increasingly so elsewhere. The web interface for all of this is somewhat innovative, but not ultimately hugely different from VoIP offerings in the market already.

The striking thing, though, is that all this is delivered over the PSTN, and in fact relies on circuit switched telephony to work. Google Voice doesn’t provide you with a phone or even a VoIP client – it is entirely a service for connecting your existing landline or mobile phones together. Yes, there’s some VoIP in the back end tying it all together, but this is the telephony version of Google News – a nice modern-looking front end enabled in the backend by a bunch of legacy services. This is ironic, since Google has had a VoIP client for quite a few years now in the form of Google Talk and the chat function buried in Gmail. But it’s completely unintegrated with Google Voice and the two seem to be developing entirely separately.

One of the key barriers to large uptake of Google Voice is the absence of number portability: the ability to switch an existing number to the service. Without that, you’ll have to notify everyone of your new number, and remind them constantly when they keep forgetting (and pray like heck that the service works out, or you’ll be telling them all to switch back). Number portability, which some have suggested may be coming to Google Voice soon, would solve that problem. But it also raises a unique issue: with regular number portability, you’re shutting off your old phone entirely, but with Google Voice you’ll still need a number to route the calls too, since it doesn’t provide an endpoint of its own. I’m not sure most carriers are set up to allow you to port a number off their network while maintaining the phone line: in essence they’ll have to issue a new number, which they may not want to do, and which their customer service reps may not know how to do (or want to do). What then? Will Google have a massive customer service issue on its hands when it launches portability? And all this with a service that has no real revenue stream at this point?

Perhaps they’ll solve that issue long-term by adding a VoIP client so that it provides its own endpoint and you can indeed cancel the service you had previously, but then it’s become something rather different – a VoIP client, something people have resisted for all sorts of reasons (some of them quite good). And I really don’t think they want to go the ATA / primary line replacement service – not least because that gets you into taxes and fees territory. And I’m not even going to get into how they make money here when there’s no real opportunity for advertising.

Overall, though, Google Voice in many ways feels very last century – a service that merely forwards calls between various old fashioned phones with a zippy interface. It’s getting lots of buzz, but as I noted earlier this week in a tweet, any closed beta from a well known company will do that (think of Gmail). I’m not convinced this is the telco killer some are making it out to be, even with the new mobile apps.

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I’m curious as to whether our clients find any of these methods of interacting with clients useful, and if so, which Ovum should adopt and how. Are any of the other analyst blog networks out there particularly good (or bad) examples of how this should be done? And if we should start blogging through official channels, what should the content of the blog posts be? What should the emphasis be on? If Twitter, what would be useful to see there?

By definition this is a personal blog, and so I’m asking this question as an individual analyst and not as an official survey of Ovum’s clients. But I’m a big believer that we need to be doing more in this space, and I’d love to have some real feedback from clients to either reinforce that view or amend it.

If you’d prefer to comment privately, please send me an email (janovum [at] gmail [dot] com).

Since commenters are shy on this blog, please use the poll instead / as well:

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Telcos do a terrible job at innovation

Telcos are abysmal at creating new services that customers actually want. Part of the problem is that they have historically been very engineering-led, rather than marketing-led, organizations. Engineers ordered parts for the network, which offered certain features. The only decision to be made was which of these features to switch on. Telcos have been very bad at really understanding customers’ needs and creating services to meet those needs. In the old voice world, that wasn’t a big deal, since there were few competitors and they were largely relying on the same infrastructure from the same suppliers. But VoIP changed all that, and provided a view of things to come: when truly innovative players enter markets where telcos dominate, they create real disruption.

There are significant barriers to change

All the major shifts in communication in the last 20 years have come through players other than telcos – the world wide web and email were created by DARPA, IM was pioneered by Internet players such as AOL, Microsoft and Yahoo!, social networks created the next big wave of communication and so on. Telcos are nowhere to be found in that list. The major barriers are:

• telcos are still engineering driven in many ways and buy their apps from traditional players
• they have large installed bases and have defending those bases as a major strategic priority – anything that threatens to cannibalize them is therefore suspect
• the development process for new services has been so long and expensive that they can afford to place only very few big bets, making them risk averse and preventing them from straying far from their traditional services
• all their business models are based on funding new investments through new revenue streams, and mitigate the opportunity for adding new functionality that isn’t paid for directly. They are also not expert in advertising-funded business models.

All of this means that telcos are still bad at innovation and unlikely to get any better. The shift to software-based rather than hardware-based services, including the implementation of IMS, should assist a little in making services quicker and cheaper to roll out, and therefore allow for more experimentation and risk-taking. But a large part of the barrier is still cultural – telcos’ size, scale and history all prevent them from being as innovative or as fast-moving as web players.

The solution: outsource innovation

The logical solution is therefore to outsource R&D to some extent to third parties. That means Web 2.0 players but it also means the armies of developers – both professional and amateur – who love nothing better than to leverage APIs and/or SDKs from existing players to create new and interesting mashups and combinations of functionality to create new services. This means telcos have to make those interfaces available too, in a way that’s attractive for developers. The iPhone is the best possible example of the ideal way to motivate developers: make the end result exciting. The iPhone has tiny market share compared with most of the other mobile operating systems out there, but it captures massive developer mind share because the possibilities are so vast and because of the cool factor. Telcos need to find ways to expose their network functionality which will mimic the success of the iPhone SDK among the developer community.

All carriers need to adopt this model – some with more control than others

Telcos and their equipment suppliers are currently responsible for 90%+ of the innovation which happens in telco services, and that’s simply not going to provide the kind of innovation that’s needed today. However, with an army of developers using APIs and SDKs to create new services, telcos can tap into a much larger base of innovation, and can either allow a thousand flowers to bloom by simply taking a hands-off approach or taking a more hands-on approach and actively selecting and qualifying the most promising applications for a more carrier-endorsed release to customers. The latter approach allows more control and therefore quality assurance, but it also means the telco is once again second-guessing customers’ preferences rather than simply allowing the market to work. Each carrier will have to make its own decisions about that tradeoff. But all carriers should be adopting an open approach to innovation and leveraging all the talent available  in creating the next generation of services.

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A couple of times recently, I’ve missed this functionality on other sites – Facebook in particular. I’ve wanted to refer to other users and have some way of easily identifying them with a simple symbol so that others would know who I meant and could find them, but it didn’t exist. I find that strangely limiting. And it’s got me to thinking about how useful it would be if we had a system of universally referring to other people online in whatever setting or service so that others who follow us could easily know exactly who we were talking about and identify them, follow them and so on.

There are several problems in actually doing this. Firstly, there’s the fact that Twitter is an inherently public medium (yes, you can “protect” your Tweets, but very few users actually make use of this function). Other sites are not as public – notably, Facebook, which has many more privacy controls by default. I could refer to someone’s Facebook page but since Facebook by default won’t let me see their profile it’s of limited use – I’m none the wiser by seeing the limited information Facebook will show me. Secondly, there’s the issue that many people aren’t on either Twitter, Facebook or any other social network. That’s one we can’t really overcome except through time (and a long time, at that). But most of the people you might want to refer to in this way will be members of one or other of these sites. Thirdly, even if someone is a member of one or other of these sites, it’s not always easy to find them if we only know them in real life, or through their blog, or as a celebrity. Lastly, there’s the issue of not being able to get the username you want and not being able to condense it to something short as an easy reference point – the @ system is great partly because it’s short and instantly recognizable even off Twitter.

These problems aside, the question then becomes how we can arrive at a universal system of unique identifiers for all the people we want to refer to. One solution is that Twitter eventually gains enough support to become the de facto standard – after all, the @ symbol gives us a very useful solution. But how long will Twitter last? And how useful will it be to refer to all people through their Twitter accounts? The limited information available there makes it a poor solution. So there’s a good chance that some separate identity would be more useful – allowing you to provide more information about yourself, linking to your various online profiles, and yet still providing a short URL or other unique identifier. There are a variety of services out there that do some of this – Retaggr, Plaxo, Google Profiles and so on. But none does all of these things well enough to meet the need altogether, although Google Profiles probably have the best shot through the sheer number of people who already have a Google account for Gmail. Microformats may also have a role to play here as the web continues to evolve. 

Hopefully someone out there is thinking about this and can create a solution that will meet all these needs and more! Perhaps they’ll even combine it with a SIP URI so that you could use the identifier to communicate with people too…

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A personal experience (feel free to skip)

Our fridge broke down over the Memorial Day weekend – not the first time, but in fact the third in the last few months. Clearly time to replace it. But in the moment it was just stressful and frustrating: we have a tiny portable fridge that sits near my home office but it wasn’t anywhere near large enough to store all the food we had in our large fridge, and because the problem developed over a couple of days we had to throw out a lot of food and then deal with the inconvenience of living out of this small fridge in the basement while we figured out an alternative solution. To add to the frustration, it turns out that it’s very hard to buy a new fridge and get quick delivery – most stores will only do it in 15 days or so, which was clearly not going to work for us. So in a 3-hour window in our busy Memorial Day plans we had to hop in the car and go on a fruitless search for a new fridge – we didn’t find one, and so were in a bad mood for the rest of the day.

In the end, we bought a new fridge the following day and it was delivered on Wednesday. What little food we’d saved survived and was quickly rehoused, the freezer kept going well enough to preserve most of that food, and so by the end of Wednesday we were back to normal, more or less. At that point, perspective was easy to come by – things had not been so bad and we’d survived. Yes, it was frustrating, and yes, it was expensive – a hundred dollars’ worth of food and several hundred dollars’ of refrigerator later. But in the moment itself it was so hard to get away from the stress and frustration of what to do with all this food, where we were going to get a new refrigerator, whether we should settle for something less than ideal in the interests of getting the situation resolved quickly etc. In the moment, perspective was hard to come by, and we felt overwhelmed. After the fact, it was easier to see things in the proper light and feel less aggravated about the whole thing.

Perspective is hard to come by when we’re up to our elbows in rotten food

The long and the short of it is that when you’re up to your elbows in rotting food, it’s really hard to get a proper sense of perspective. And our working lives (and our personal lives too) are so often that way – we get tangled up in the minutiae of what we have to get done and all our time is taken up checking boxes and meeting deadlines, with very little time for something completely different. In some jobs, that might be OK – but in the vast majority of our lives, we all need to take a little time occasionally to reassess things, to get some fresh perspective, and to make sure we’re on the right track in a big picture sense, not just on deadline.

Google Wave is the perfect example

I’m writing this – at least in draft – on the evening of the day when Google Wave was announced to the world. Although it won’t launch officially for a few more months, it’s already generating huge buzz and promises to be a revolutionary communications platform. But it would never have come about without a couple of important examples of taking a fresh look. Firstly, Google has enshrined in its working practices the principle of 20% time – giving each employee an opportunity to work on something other than their day job for 1 day in 5. This pulls people out of the weeds and allows them to get a bit of perspective on bigger-picture things they could be working on.

But in addition, in this particular case, Google took a team of people who had come up with an idea – 5 years ago, in fact – and allowed them to go off and attempt to reinvent the communications experience. These were, in fact, not Google’s Gmail team or Google Talk team, but the people who created the product that eventually became Google Maps. They weren’t so entrenched in the minutiae of getting email to load faster or search to work better or putting more emoticon options in the IM product that they couldn’t see the whole thing needed an overhaul. They were physically separated from Google’s main campus in Mountain View by being located in Australia, of all places. And they came up with something truly revolutionary. I don’t think they could have done that without taking a step back and getting a fresh perspective – without looking through new eyes, in effect.

Establishing a process for gaining perspective regularly

Taking a fresh look and getting a fresh perspective is important to all of us and to our work and wellbeing. We need to step back from the coalface and see if we’re digging in the right place, or count our blessings and attempt to put our small troubles in appropriate perspective. It’s important for innovation, but it’s also important for our emotional health and our sense of satisfaction and enjoyment of what we do, to double check we’re on the right track or to make a course correction if we’re not. I haven’t yet developed a good discipline for doing this in either my work or personal life, but I’m going to be spending some time figuring out how to do it. I think it will come down to establishing a regular time to reflect and consider how things are going – to take inventory of both my work and personal life on a frequent basis. I’d love to hear any suggestions anyone else might have on how they’ve achieved this too.

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The first thing I did was pull it out of the box to see what it looked like. I was actually slightly surprised by how small it was:

It’s less than a centimetre thick, so thinner than my iPhone and quite a bit thinner than my BlackBerry Bold. And the footprint is just a hair larger than a credit card. So it definitely lives up to the “pocket-sized” description and it’s extremely portable (I stuck it in my pocket with my iPhone later on as I went to run some errands and forgot it was there). 

The next step was getting the thing up and running, and there I ran into problems pretty quickly. My main personal computer is a MacBook and so that’s the machine I wanted to use to get it started. But although in theory I was supposed to just plug it in with the supplied USB cable and then follow automatic prompts, nothing happened when I plugged the thing in. No disk image, no simulated CD, nothing. So there was no way of getting the device to do anything useful at all whether automatically or otherwise. I tried unplugging it and plugging it in again several times but no dice. This was somewhat disappointing since the box clearly states that it’s Mac OSX compatible:

If the MacBook was my only device I’d have been out of luck. Fortunately, I have a desktop PC lurking nearby I could use, and so I tried that instead. To cut a long story short:

• the first time I plugged the device in, it caused what the PC later described as “a serious error” – it was unresponsive for several minutes and I had to restart it just to get it to talk to me again.
• the second time, things went better. The device registered, drivers were installed and up popped the VZ AccessManager program that manages devices like these as well as Verizon’s aircards and USB modems. 
• I tried to register the device using the program, but the first time around it failed. The second time (once I’d found an activation item buried in one of the menus) it worked. 
• at this point, the device was finally ready for use.

I switched it on and looked for the wireless access point on my MacBook. Nothing. Refreshed: nothing. Finally, it showed up – it appears that it takes quite a few seconds for the device to be ready after being switched on – nothing too wrong with that, I suppose, once you know. 

The SSID is a long string starting with Verizon MiFi2200 followed by a unique 4-digit number (although if they sell more than 10,000 of these things I guess those numbers won’t be unique anymore). Logging in requires an 11-digit numerical password which is helpfully provided on the back of the device in case you forget or need to show it to someone else using your device.

The first thing I did was run a speed test using my laptop on Speedtest.net – results below:

That’s 1.4Mbit/s down, 360kbit/s up – not too shabby. 178ms of latency – not great, but not terrible either, and fairly standard for WWAN networks. Of course, this is based on the nearest server and so on, so your actual speed is in most cases going to be slower since most of the websites you access aren’t within 50 miles.

I hooked up a second laptop to it and ran a Hulu video on that one while I retested the speed – it came in at around 1Mbit/s, so it seems to handle multiple connected devices pretty well.

So in what situations would this be useful?

The question is, why do you need a device like this? Why not just use a USB modem or similar device that doesn’t require separate power (the MiFi does, of course)? Well, one that sprang to mind immediately was my work laptop, which is so locked down that it’s impossible to install anything on it, including the software that comes with most aircards and modems. I’ve never been able to use any of the several USB modems and aircards I’ve received from Sprint and others on my work laptop because I couldn’t ever install them. Assuming you’ve got somewhere else to get the thing up and running first, this is a nice solution – since it just looks like another WiFi network to my work laptop, it works just fine.

Beyond that fairly limited use case though, are there any others? One that immediately occurred to me (and, I think, was suggested by someone at Sprint last week) was hooking my iPhone up to it while out and about for a speed boost. Theoretically, this only makes sense if AT&T’s 3G network is slower than Verizon’s, which isn’t necessarily true, but I thought I’d give it a try. Using Speedtest.net’s iPhone application (warning: iTunes link), I ran three speed tests – one each for my home WiFi (connected to a 20Mbit/s FiOS connection), the MiFi over Verizon’s EVDO network, and the iPhone’s own 3G connection. The summary is below, in reverse order:

The details are here, in the order I described above (home WiFi, MiFi, iPhone / AT&T 3G):

Obviously, my home WiFi with the superfast backhaul was quickest. But the MiFi also beat the iPhone’s own 3G hands-down – by about a factor of 2 on the dowlink, although very similar on the uplink. Why is this the case? Possibly the particular place where I tested the two networks has better Verizon than AT&T signal. Possibly the design of the MiFi gets a stronger signal than the iPhone. I don’t know for certain, but I won’t complain about that doubling in speed. (Slightly off-topic, I also wondered whether the iPhone’s WiFi capabilities are capped at 10Mbit/s – I regularly get very close to 20Mbit/s when testing my home connection over a laptop).

I took the device with me when I went out to run some errands and discovered that a dead spot in AT&T’s network at the local mall (ironically right by the Apple store) was no longer a problem – I had the MiFi on in my pocket while I checked email and Tweeted from my iPhone and had none of the normal connectivity problems. Use case found.

In theory, there are others too – the marketing materials from Verizon suggest family roadtrips, construction sites, college students in study groups, insurance agents on the road and conferences. All are reasonable suggestions, though most would be just as well served by a USB modem. 

Conclusions

In summary, I found that:

• The MiFi provides good speed – even an improvement over the native 3G on my iPhone, and plenty of downstream speed to get work done on the road
• The activation process was cumbersome and would have been a show-stopper if I only had my MacBook. I wonder why an activation process involving installed software and drivers is even necessary – the thing never needs to connect to my laptop after that anyway – why not just let me activate it online and avoid all that hassle?
• There will be some use cases for some people – but probably not for everyone, and that’s fine. USB modems will be just peachy for many people and some people don’t need a mobile broadband connection at all
• I haven’t had it long enough to worry about this or really be able to comment on it yet, but compared with a USB modem I can imagine that remembering to recharge might be a pain.
• The device is truly extremely portable, to the extent that you could chuck it in the same pocket as your phone without an issue and would probably forget it was there (as I did).

Thank you Verizon, for sending me a trial device. I’ll be using it quite a bit over the next couple of months until I have to give it back. It’s probably also worth noting that the underlying device is the same as the Sprint device that also launched recently, so most of what I say here would go for Sprint’s version too – including, most likely, the network performance, which should be similar on Sprint’s EVDO.

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