Talking about a revolution - Apple iPhone   |  November 17, 2008  

Apple is using the iPhone to rewrite the rules of the mobile marketplace 

By Jim Harris

There is a wireless revolution occurring. It has been forced on the industry by Apple and the shift is as profound as the move from DOS to Windows.

Before the Apple iPhone, wireless carriers dictated the mobile features and cellphone specs to the handset makers. But Apple turned that around: when it launched the first-gen iPhone in the U.S. it selected a single partner, Cingular, and in return for exclusivity, negotiated an unlimited data plan. (Cingular was since bought by AT&T.)

This worked for both sides: Cingular was hungry for the exclusive market share and early-adopter customers, and Apple needed a partner that would agree to do what no other wireless carrier ever had: provide unlimited bandwidth contracts. Apple wanted its iPhone users to have a completely different wireless experience, one that would ruin them for the old days of text-based limited-bandwidth plans.

Huge profits
And it worked: Apple said it sold one million 3G iPhones worldwide on the three-day launch weekend in July 2008. Each iPhone contract is worth more than US$2,000 to a wireless carrier, so Apple generated US$2 billion in future revenue for its wireless partners over one weekend. iPhone users deliver double the revenue of AT&T’s average subscriber, and a study by Rubicon Consulting found 47 per cent of iPhone users switched carriers to get one.

Combined, these facts are moving the market: within three years I predict all mobile manufacturers will offer units with large touch-sensitive screens, graphical user interfaces and video capacity.

Using the iPhone
The Rubicon study also found that the iPhone displaced notebook use for a quarter of users. That is hugely significant because it points towards a future in which the smartphone becomes an all-in-one device. Why carry a three-pound luggable when a four-ounce device will do? Smartphones will simply plug in to an external monitor and keyboard and presto, a PC replacement. This will happen as soon as these devices get more powerful and come with larger flash-based storage.

Also interesting: 80 per cent of the time iPhone owners are using the device, they are browsing the Web. Most mobiles are too slow and have terrible browsers, resulting in a poor Web experience. But by focusing on Web-based and video-on-demand applications, the iPhone is driving the adoption of the mobile Web. And that opens consumers to doing more business while on the move: more buying and selling on eBay, easier stock trading, etc. It will impact everything.

Provider challenge
But this activity comes at a price. The iPhone is a bandwidth hog, and the dirty little secret in the wireless industry is that networks can’t handle this type of traffic load. At a Goldman Sachs conference in September, AT&T’s CTO John Donovan admitted that video traffic, negligible in 2005, now consumes 40 per cent of the company’s wireless bandwidth. Reportedly, the average iPhone user consumes 10 times as much monthly bandwidth as a BlackBerry user (100MB vs. 10MB) and just seven per cent of AT&T’s subscribers are generating 35 per cent of its traffic. That means as iPhone sales increase linearly, bandwidth demand increases exponentially. So the iPhone is forcing carriers to spend billions upgrading wireless networks; AT&T is investing US$5 billion a year.

The first-generation iPhone was launched in the U.S. in June 2007, and by the end of the year it accounted for more Web traffic than any other mobile device in the U.S., and was number two globally, according to Irish firm StatCounter.

Rogers, perhaps learning from the AT&T experience, steadfastly refused to offer an unlimited data plan for the iPhone.

Here’s what’s certain: video and the mobile Web will drive wireless bandwidth expansion and this will change how we use handhelds. This shift wouldn’t have happened without Apple, because the carriers would never have voluntarily offered to spend billions upgrading their wireless bandwidth.

Jim Harris is the author of Blindsided, a number one international bestseller published in 80 countries. Jim is sought after as a speaker at conferences and seminars around the world. E-mail him at jimh@jimharris.com.