When ATT cut the deal that made it the exclusive U.S. distributor of Apple’s iPhone, the carrier bet correctly it would attract millions of new subscribers. What it didn’t bargain for: the huge demands the device would impose on ATT’s network. Thanks largely to the iPhone’s ability to surf the Web, play videos, and run all manner of software-based tools called apps, by some estimates ATT now handles more than twice as much smartphone traffic as any other U.S. carrier. Or mishandles, as the case may be. In areas where the devices are most common, such as San Francisco and New York, the iPhone often drops calls or fails to deliver Web access at speeds implied in Apple ads.
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The shortcomings leave ATT under pressure to make its network iPhone-ready or risk losing its edge in smartphones. The company is almost sure to lose the exclusive partnership with Apple, possibly as early as next year. That would open the door to ATT losing millions of customers as iPhone owners depart to rival carriers such as Verizon Wireless. More important, ATT would have wasted a golden opportunity to become the clear leader in the multibillion dollar market for wireless Web access. Nobody is in the same boat we’re in, says ATT Chief Technology Officer John Donovan. We’re shaping the landscape for the whole industry, and I relish the opportunity to be the first to figure it out.
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Odds are against ATT. Many of its 60,000 cell towers need to be upgraded. That could cost billions of dollars, and ATT has kept a lid on capital spending during the recession — though it has made spending shifts to accommodate skyrocketing iPhone traffic. Even if the funds were available now, the process could take years due to the hassle and time needed to win approval…