Is AT&T the iPhone's Weakest Link?

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Includes: AAPL, T
by: Paul Kedrosky

I keep wondering if there isn't an element of illegal tying in the two-year AT&T (NYSE:T) contract for Apple's (NASDAQ:AAPL) iPhone. After all, you are, in effect, forced to buy two-years of voice service - something of declining value, in order to obtain a music player and a web browser - two things of real value.

Simply put, a tying arrangement is an agreement by a party to sell one product but only on the condition that the buyer also purchases a different product (often known as a positive tie), or at least agrees that he will not purchase that product from any other supplier (often known as a negative tie). The product that the buyer is required to purchase in order to get the product the buyer actually wants is called the tied product. The product that the buyer wants to purchase is called the tying product. In the most basic sense, the seller has tied two products together, as if in a knot.

Why can't I have a better iPod and a nice wifi device without having to subsidize rapidly-obsoleting and declining-margin voice services from AT&T?

But it's not the Edge network that's the problem, it's that iPhones are glossy bricks until activated by AT&T, and that activation procedure seemingly has more holes than Swiss cheese.

Read on for examples:

  • Ryan McIntyre: Unwarranted credit denial
  • Brad Feld: Unwarrented credit denial
  • Tech-Recipes: Delayed email confirmation
  • Digg: ATT phone/web support is down
  • And I'm getting more and more similar stories via email
  • Further to my WSJ op ed on Friday, could there be any clearer confirmation that the carriers are flailing and doom-bound? Getting this right and smooth was crucial to Apple, and you can be sure there are some exfoliatingly angry phone-calls between Sunnyvale and AT&T HQ this long weekend.

    It gets better. In addition to locking out business customers from flipping their accounts to iPhone, AT&T continues to promote iPhone to the same customers. From an email this morning:

    Go to AT&T Wireless "Business Customers" toll-free number (866 429 7222), and listen to the hold message - they're promoting the iPhone! Promoting iPhones to customers they won't allow to use an iPhone.