The US is about the most backwards developed country in the world in terms of
things like cell phone tech, broadband speed, etc. In Japan, a cellphone is a
total media device. People expect to play complex games on their phones, surf
the Net, and watch movies and TV shows. Same for much of Europe. They view the
devices we call cellphones with about as much regard as we'd call two Dixie
cups and waxed string a "telephone".
Among all the things that take place in government and business nowadays, I'm
increasingly paying attention to the entire telecom/media industries. The very
information we get and *how* we get it is critical, and things like monopoly
owners (CLear Channel, Rupert Murdoch), companies stifling innovation (Comcast
and others), state legislatures helping kill free wireless in cities, etc.,
really hurt us more than some people might realize. I make a point now to
follow major bills dealing with telecom issues, the actions of the FCC, and how
politicians stand on these issues.
Among the candidates for President, the one I've heard who's been most
knowledgeable and vocal about the many extremely important telecom issues being
hashed out? Dennis Kucinich.
-------------- Original message --------------
From: "Tracey de Morsella (formerly Tracey L. Minor)" <[EMAIL PROTECTED]>
The demo was not going well.
Again.
It was a late morning in the fall of 2006. Almost a year earlier, Steve
Jobs had tasked about 200 of Apple's top engineers with creating the
iPhone. Yet here, in Apple's boardroom, it was clear that the prototype
was still a disaster. It wasn't just buggy, it flat-out didn't work. The
phone dropped calls constantly, the battery stopped charging before it
was full, data and applications routinely became corrupted and unusable.
The list of problems seemed endless. At the end of the demo, Jobs fixed
the dozen or so people in the room with a level stare and said, "We
don't have a product yet."
The effect was even more terrifying than one of Jobs' trademark
tantrums. When the Apple chief screamed at his staff, it was scary but
familiar. This time, his relative calm was unnerving. "It was one of the
few times at Apple when I got a chill," says someone who was in the meeting.
The ramifications were serious. The iPhone was to be the centerpiece of
Apple's annual Macworld convention, set to take place in just a few
months. Since his return to Apple in 1997, Jobs had used the event as a
showcase to launch his biggest products, and Apple-watchers were
expecting another dramatic announcement. Jobs had already admitted that
Leopard â the new version of Apple's operating system â would be
delayed. If the iPhone wasn't ready in time, Macworld would be a dud,
Jobs' critics would pounce, and Apple's stock price could suffer.
This 4.8-ounce sliver of glass and aluminum is an explosive device that
has forever changed the mobile-phone business, wresting power from
carriers and giving it to manufacturers, developers, and consumers.
And what would AT&T think? After a year and a half of secret meetings,
Jobs had finally negotiated terms with the wireless division of the
telecom giant (Cingular at the time) to be the iPhone's carrier. In
return for five years of exclusivity, roughly 10 percent of iPhone sales
in AT&T stores, and a thin slice of Apple's iTunes revenue, AT&T had
granted Jobs unprecedented power. He had cajoled AT&T into spending
millions of dollars and thousands of man-hours to create a new feature,
so-called visual voicemail, and to reinvent the time-consuming in-store
sign-up process. He'd also wrangled a unique revenue-sharing
arrangement, garnering roughly $10 a month from every iPhone customer's
AT&T bill. On top of all that, Apple retained complete control over the
design, manufacturing, and marketing of the iPhone. Jobs had done the
unthinkable: squeezed a good deal out of one of the largest players in
the entrenched wireless industry. Now, the least he could do was meet
his deadlines.
For those working on the iPhone, the next three months would be the most
stressful of their careers. Screaming matches broke out routinely in the
hallways. Engineers, frazzled from all-night coding sessions, quit, only
to rejoin days later after catching up on their sleep. A product manager
slammed the door to her office so hard that the handle bent and locked
her in; it took colleagues more than an hour and some well-placed whacks
with an aluminum bat to free her.
But by the end of the push, just weeks before Macworld, Jobs had a
prototype to show to the suits at AT&T. In mid-December 2006, he met
wireless boss Stan Sigman at a suite in the Four Seasons hotel in Las
Vegas. He showed off the iPhone's brilliant screen, its powerful Web
browser, its engaging user interface. Sigman, a taciturn Texan steeped
in the conservative engineering traditions that permeate America's big
phone companies, was uncharacteristically effusive, calling the iPhone
"the best device I have ever seen." (Details of this and other key
moments in the making of the iPhone were provided by people with
knowledge of the events. Apple and AT&T would not discuss these meetings
or the specific terms of the relationship.)
Six months later, on June 29, 2007, the iPhone went on sale. At press
time, analysts were speculating that customers would snap up about 3
million units by the end of 2007, making it the fastest-selling
smartphone of all time. It is also arguably Apple's most profitable
device. The company nets an estimated $80 for every $399 iPhone it
sells, and that's not counting the $240 it makes from every two-year
AT&T contract an iPhone customer signs. Meanwhile, about 40 percent of
iPhone buyers are new to AT&T's rolls, and the iPhone has tripled the
carrier's volume of data traffic in cities like New York and San Francisco.
But as important as the iPhone has been to the fortunes of Apple and
AT&T, its real impact is on the structure of the $11 billion-a-year US
mobile phone industry. For decades, wireless carriers have treated
manufacturers like serfs, using access to their networks as leverage to
dictate what phones will get made, how much they will cost, and what
features will be available on them. Handsets were viewed largely as
cheap, disposable lures, massively subsidized to snare subscribers and
lock them into using the carriers' proprietary services. But the iPhone
upsets that balance of power. Carriers are learning that the right phone
â even a pricey one â can win customers and bring in revenue. Now, in
the pursuit of an Apple-like contract, every manufacturer is racing to
create a phone that consumers will love, instead of one that the
carriers approve of. "The iPhone is already changing the way carriers
and manufacturers behave," says Michael Olson, a securities analyst at
Piper Jaffray.
In 2002, shortly after the first iPod was released, Jobs started
thinking about developing a phone. He saw millions of Americans lugging
separate phones, BlackBerrys, and â now â MP3 players; naturally,
consumers would prefer just one device. He also saw a future in which
cell phones and mobile email devices would amass ever more features,
eventually challenging the iPod's dominance as a music player. To
protect his new product line, Jobs knew he would eventually need to
venture into the wireless world.
If the idea was obvious, so were the obstacles. Data networks were
sluggish and not ready for a full-blown handheld Internet device. An
iPhone would require Apple to create a completely new operating system;
the iPod's OS wasn't sophisticated enough to manage complicated
networking or graphics, and even a scaled-down version of OS X would be
too much for a cell phone chip to handle. Apple would be facing strong
competition, too: In 2003, consumers had flocked to the Palm Treo 600,
which merged a phone, PDA, and BlackBerry into one slick package. That
proved there was demand for a so-called convergence device, but it also
raised the bar for Apple's engineers.
Then there were the wireless carriers. Jobs knew they dictated what to
build and how to build it, and that they treated the hardware as little
more than a vehicle to get users onto their networks. Jobs, a notorious
control freak himself, wasn't about to let a group of suits â whom he
would later call "orifices" â tell him how to design his phone.
By 2004 Apple's iPod business had become more important, and more
vulnerable, than ever. The iPod accounted for 16 percent of company
revenue, but with 3G phones gaining popularity, Wi-Fi phones coming
soon, the price of storage plummeting, and rival music stores
proliferating, its long-term position as the dominant music device
seemed at risk.
So that summer, while he publicly denied he would build an Apple phone,
Jobs was working on his entry into the mobile phone industry. In an
effort to bypass the carriers, he approached Motorola. It seemed like an
easy fix: The handset maker had released the wildly popular RAZR, and
Jobs knew Ed Zander, Motorola's CEO at the time, from Zander's days as
an executive at Sun Microsystems. A deal would allow Apple to
concentrate on developing the music software, while Motorola and the
carrier, Cingular, could hash out the complicated hardware details.
Of course, Jobs' plan assumed that Motorola would produce a successor
worthy of the RAZR, but it soon became clear that wasn't going to
happen. The three companies dickered over pretty much everything â how
songs would get into the phone, how much music could be stored there,
even how each company's name would be displayed. And when the first
prototypes showed up at the end of 2004, there was another problem: The
gadget itself was ugly.
Jobs unveiled the ROKR in September 2005 with his characteristic aplomb,
describing it as "an iPod shuffle on your phone." But Jobs likely knew
he had a dud on his hands; consumers, for their part, hated it. The ROKR
â which couldn't download music directly and held only 100 songs â
quickly came to represent everything that was wrong with the US wireless
industry, the spawn of a mess of conflicting interests for whom the
consumer was an afterthought. Wired summarized the disappointment on its
November 2005 cover: "YOU CALL THIS THE PHONE OF THE FUTURE?"
The Apple Touch
Apple has created two music phones. The ROKR, made with Motorola in
2005, respected the traditional relationships between manufacturers and
carriers. The iphone, released last summer, completely overturned them.
Even as the ROKR went into production, Jobs was realizing he'd have to
build his own phone. In February 2005, he got together with Cingular to
discuss a Motorola-free partnership. At the top-secret meeting in a
midtown Manhattan hotel, Jobs laid out his plans before a handful of
Cingular senior execs, including Sigman. (When AT&T acquired Cingular in
December 2006, Sigman remained president of wireless.) Jobs delivered a
three-part message to Cingular: Apple had the technology to build
something truly revolutionary, "light-years ahead of anything else."
Apple was prepared to consider an exclusive arrangement to get that deal
done. But Apple was also prepared to buy wireless minutes wholesale and
become a de facto carrier itself.
Jobs had reason to be confident. Apple's hardware engineers had spent
about a year working on touchscreen technology for a tablet PC and had
convinced him that they could build a similar interface for a phone.
Plus, thanks to the release of the ARM11 chip, cell phone processors
were finally fast and efficient enough to power a device that combined
the functionality of a phone, a computer, and an iPod. And wireless
minutes had become cheap enough that Apple could resell them to
customers; companies like Virgin were already doing so.
Sigman and his team were immediately taken with the notion of the
iPhone. Cingular's strategy, like that of the other carriers, called for
consumers to use their mobile phones more and more for Web access. The
voice business was fading; price wars had slashed margins. The iPhone,
with its promised ability to download music and video and to surf the
Internet at Wi-Fi speeds, could lead to an increase in the number of
data customers. And data, not voice, was where profit margins were lush.
What's more, the Cingular team could see that the wireless business
model had to change. The carriers had become accustomed to treating
their networks as precious resources, and handsets as worthless
commodities. This strategy had served them well. By subsidizing the
purchase of cheap phones, carriers made it easier for new customers to
sign up â and get roped into long-term contracts that ensured a reliable
revenue stream. But wireless access was no longer a luxury; it had
become a necessity. The greatest challenge facing the carriers wasn't
finding brand-new consumers but stealing them from one another. Simply
bribing customers with cheap handsets wasn't going to work. Sigman and
his team wanted to offer must-have devices that weren't available on any
other network. Who better to create one than Jobs?
For Cingular, Apple's ambitions were both tantalizing and nerve-racking.
A cozy relationship with the maker of the iPod would bring sex appeal to
the company's brand. And some other carrier was sure to sign with Jobs
if Cingular turned him down â Jobs made it clear that he would shop his
idea to anyone who would listen. But no carrier had ever given anyone
the flexibility and control that Jobs wanted, and Sigman knew he'd have
trouble persuading his fellow executives and board members to approve a
deal like the one Jobs proposed.
Sigman was right. The negotiations would take more than a year, with
Sigman and his team repeatedly wondering if they were ceding too much
ground. At one point, Jobs met with some executives from Verizon, who
promptly turned him down. It was hard to blame them. For years, carriers
had charged customers and suppliers for using and selling services over
their proprietary networks. By giving so much control to Jobs, Cingular
risked turning its vaunted â and expensive â network into a "dumb pipe,"
a mere conduit for content rather than the source of that content.
Sigman's team made a simple bet: The iPhone would result in a surge of
data traffic that would more than make up for any revenue it lost on
content deals.
Jobs wouldn't wait for the finer points of the deal to be worked out.
Around Thanksgiving of 2005, eight months before a final agreement was
signed, he instructed his engineers to work full-speed on the project.
And if the negotiations with Cingular were hairy, they were simple
compared with the engineering and design challenges Apple faced. For
starters, there was the question of what operating system to use. Since
2002, when the idea for an Apple phone was first hatched, mobile chips
had grown more capable and could theoretically now support some version
of the famous Macintosh OS. But it would need to be radically stripped
down and rewritten; an iPhone OS should be only a few hundred megabytes,
roughly a 10th the size of OS X.
Before they could start designing the iPhone, Jobs and his top
executives had to decide how to solve this problem. Engineers looked
carefully at Linux, which had already been rewritten for use on mobile
phones, but Jobs refused to use someone else's software. They built a
prototype of a phone, embedded on an iPod, that used the clickwheel as a
dialer, but it could only select and dial numbers â not surf the Net.
So, in early 2006, just as Apple engineers were finishing their yearlong
effort to revise OS X to work with Intel chips, Apple began the process
of rewriting OS X again for the iPhone.
The conversation about which operating system to use was at least one
that all of Apple's top executives were familiar with. They were less
prepared to discuss the intricacies of the mobile phone world: things
like antenna design, radio-frequency radiation, and network simulations.
To ensure the iPhone's tiny antenna could do its job effectively, Apple
spent millions buying and assembling special robot-equipped testing
rooms. To make sure the iPhone didn't generate too much radiation, Apple
built models of human heads â complete with goo to simulate brain
density â and measured the effects. To predict the iPhone's performance
on a network, Apple engineers bought nearly a dozen server-sized
radio-frequency simulators for millions of dollars apiece. Even Apple's
experience designing screens for iPods didn't help the company design
the iPhone screen, as Jobs discovered while toting a prototype in his
pocket: To minimize scratching, the touchscreen needed to be made of
glass, not hard plastic like on the iPod. One insider estimates that
Apple spent roughly $150 million building the iPhone.
Through it all, Jobs maintained the highest level of secrecy.
Internally, the project was known as P2, short for Purple 2 (the
abandoned iPod phone was called Purple 1). Teams were split up and
scattered across Apple's Cupertino, California, campus. Whenever Apple
executives traveled to Cingular, they registered as employees of
Infineon, the company Apple was using to make the phone's transmitter.
Even the iPhone's hardware and software teams were kept apart: Hardware
engineers worked on circuitry that was loaded with fake software, while
software engineers worked off circuit boards sitting in wooden boxes. By
January 2007, when Jobs announced the iPhone at Macworld, only 30 or so
of the most senior people on the project had seen it.
The hosannas greeting the iPhone were so overwhelming it was easy to
ignore its imperfections. The initial price of $599 was too high (it has
been lowered to $399). The phone runs on AT&T's poky EDGE network. Users
can't perform email searches or record video. The browser won't run
programs written in Java or Flash.
But none of that mattered. The iPhone cracked open the carrier-centric
structure of the wireless industry and unlocked a host of benefits for
consumers, developers, manufacturers â and potentially the carriers
themselves. Consumers get an easy-to-use handheld computer. And, as with
the advent of the PC, the iPhone is sparking a wave of development that
will make it even more powerful. In February, Jobs will release a
developer's kit so that anyone can write programs for the device.
Manufacturers, meanwhile, enjoy new bargaining power over the carriers
they've done business with for decades. Carriers, who have seen AT&T eat
into their customer bases, are scrambling to find a competitive device,
and they appear willing to give up some authority to get it.
Manufacturers will have more control over what they produce; users â not
the usual cabal of complacent juggernauts â will have more influence
over what gets built.
Application developers are poised to gain more opportunities as the
wireless carriers begin to show signs of abandoning their walled-garden
approach to snaring consumers. T-Mobile and Sprint have signed on as
partners with Google's Android, an operating system that makes it easy
for independent developers to create mobile apps. Verizon, one of the
most intransigent carriers, declared in November that it would open up
its network for use with any compatible handset. AT&T made a similar
announcement days later. Eventually this will result in a completely new
wireless experience, in which applications work on any device and over
any network. In time, it will give the wireless world some of the
flexibility and functionality of the Internet.
It may appear that the carriers' nightmares have been realized, that the
iPhone has given all the power to consumers, developers, and
manufacturers, while turning wireless networks into dumb pipes. But by
fostering more innovation, carriers' networks could get more valuable,
not less. Consumers will spend more time on devices, and thus on
networks, racking up bigger bills and generating more revenue for
everyone. According to Paul Roth, AT&T's president of marketing, the
carrier is exploring new products and services â like mobile banking â
that take advantage of the iPhone's capabilities. "We're thinking about
the market differently," Roth says. In other words, the very development
that wireless carriers feared for so long may prove to be exactly what
they need. It took Steve Jobs to show them that.
Contributing editor Fred Vogelstein ([EMAIL PROTECTED]) wrote
about Facebook in issue 15.10.
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