Carriers in a tether over iPhone capabilities

One of the more curious aspects of the iPhone phenomenon has been the disconnect between the device's capabilities and carriers' willingness to support them.

(Credit: Apple)

Nowhere has this been more evident than with the launch of the iPhone 3GS, which has had carriers on both sides of the Pacific up in arms as hordes of subscribers begin demanding access to basic services such as MMS, video transmission, and tethering.

Witness AT&T's foot-dragging over MMS, which is still not available to US customers of the iPhone as the much-criticised carrier is presumably still building up backhaul capacity to support the expected influx of pictures and videos. Witness the massive and inexplicable delay in introducing the iPhone's visual voicemail feature, which was only brought to Australia in the last month — nearly a year after the iPhone was first launched here — and is still only available from one carrier, Vodafone.

Tethering — using the phone not as a device to access carrier services, but as a conduit to connect a computer to the internet — raised an even bigger stink, inexplicably because it has been possible on other smartphones for years. Depending on your carrier, tethering was to be either banned (as at Telstra), allowed for a monthly surcharge (as at Optus), or allowed for free (as by Vodafone).

Optus eventually backed away from its tethering surcharge, sort of, but Telstra's representation of its position over tethering were even more noteworthy. Asked by journalists why Telstra wasn't allowing tethering, a company spokesperson initially said the ban was Apple's decision; Apple quickly turned the tables, saying that the ban was a Telstra decision, a position that would seem to be supported by the fact that other carriers were allowing tethering. Customers were left wondering who was actually in charge of Telstra's strategy.

The thing that's different about the iPhone, of course, is its mass-market consumer popularity: in selling by the millions, the multiplier effect means even one additional feature can significantly alter the make-up of the industry. This is not only in terms of increased capacity — as with AT&T's fears that millions of MMS-using customers will flood its networks — but also in terms of the iPhone's substitution effect.

If anybody can tether their computers to their iPhones — and not just a few scattered tech die-hards who have been doing it for years on iPhones and other devices — those devices threaten the viability of the stand-alone broadband modem business that carriers have worked for years to build up. And, just when mobile broadband was taking off — ITU figures note massive increases in demand for mobile broadband through 2007, when penetration of mobile broadband was pegged at 14 per cent in developed countries.

It would seem that carriers can no longer afford the contradiction of offering ever more-capable smartphones with ever more-crippled features.

With carriers grossing $30 and up per broadband subscription, it's hard to justify providing the same functionality to iPhone users without getting something back. This puts carriers in a tricky position: they're trying to push smartphones to encourage customers to use more data-intensive services, but trying to hold back use of those smartphones at the same time so they don't throw the proverbial baby out with the bathwater.

Telstra has the most to lose here: it remains almost painfully on-message about the capabilities of its Next G network, which it is positioning as a landline replacement as much as a mobile platform. That whole business model is predicated on selling fixed Next G modems as wireless versions of the copper local loop — but customers will lose the incentive to shell out for those services if they can come as part of a capped plan on iPhones or anything else.

Where, then, is the compromise that empowers consumers while saving carriers from outdating their own services?

Vodafone's model would seem to be the most reasonable compromise: customers can use as much of their mobile data allowance as they want via tethering, and will — from August — be able to buy additional blocks of data as they feel necessary. This not only paints Vodafone as being a smartphone-friendly carrier, but softens the sting that will come as its mobile broadband services become functionally redundant for many customers.

But what of Telstra, Optus and 3 Mobile (which has already indicated it won't charge for tethering when it launches the iPhone this month)? Time will tell whether consumers see these features as deal-breakers. However, with smartphones in general — and the iPhone in particular — now comprising an ever-greater share of the market, it would seem that carriers can no longer afford the contradiction of offering ever more-capable smartphones with ever more-crippled features.