iPhone's false bargain
The Boston Globe June 22, 2008
JUDGING FROM the pre-release publicity, the $199 iPhone is a marvel of the age, but it's also a lure for people to sign with the AT&T mobile network. Despite its many charms, the iPhone continues the uncompetitive practice in which cellphone companies maintain tight controls over which phones can be used on their networks.
AT&T and Verizon, the two largest providers, say that they favor openness, but their business plans are based on control of the telephones as well as their wireless networks. That's not the case on their old-fashioned wired service, where a customer can connect any phone, fax, or answering machine. The new iPhone is a bargain only because AT&T subsidizes the prices in the expectation that it will recoup the money from a long-term service contract, minimum two years.
The cellphone companies say they sell phones below costs to attract regular customers, and perhaps this marketing technique was justified when they needed a reliable revenue stream as they built out their networks. But mobile phones have become almost as ubiquitous as their wired counterparts.
After failing to make a deal with Verizon on the first-generation iPhone, Apple turned to AT&T, where it got kid-glove treatment because of the success of the iPod music player. Apple received a monthly fee for every phone that AT&T sold. Apple, however, decided to give up the fee to help AT&T bring the cost of the new phone down to $199. Is Apple being kind-hearted? Of course not. It seeks to dominate the market for high-end cellphones and all the applications they are capable of performing.
AT&T and Verizon have become the dominant cellphone companies in the United States, and while Apple may muscle its way to an increasing share of cellular revenue, this battle of titans won't help the consumer. The big companies will divvy up the money and keep monthly wireless rates high. Since the signals move across the public airwaves, it's time the public had a greater say in how they operate.
The wired telephone monopoly only unlocked its network in the 1970s because of a federal antitrust suit. There's no need for such draconian action here. But promises of cellular openness are belied by the Apple deal.
The Federal Communications Commission should insist that the wireless telephone companies allow their customers to shop freely for their phones and let manufacturers compete for their business. Then perhaps the iPhone will be available, at a realistic price, to any consumer who wants one, and not just those willing to sign on AT&T's dotted line.
© Copyright 2008 Globe Newspaper Company.