CTIA 2010 is now well underway. An exciting time for the wireless industry as a whole – and especially in the U.S. market – CTIA is one of the major industry events that helps set the tone for the wireless industry each year. Although I’m not attending this year, my colleague, Rob Adler, is in the trenches this week at the show. And as I keep up with the continuous flow of news from the show, I can’t help but wonder what this year’s general conclusion will be.

The way I see it, this is a critical time for the wireless industry – the overarching issue of bandwidth is one each service provider, application developer and consumer is well aware of – and one which everyone is trying to address. In Kevin Fitchard’s article yesterday, “CTIA: De la Vega asks app developers to share the mobile broadband burden,” he references CTIA Chairman, De La Vega’s keynote address which Fitchard says, “for the first time, he asked application developers and Internet services companies to share the burden of bridging that demand-capacity gap. New spectrum and 4G technologies like long-term evolution will solve only part of the problem, de la Vega said, while an applications market more conscious of the network’s limits, developing services optimized for mobility can do just as much to ease congestion.”

With many companies trying to conquer the three screen approach, mobile video on the rise, and new handsets that are trying to keep up with the iPhone’s popularity level, this isn’t an issue that will fade away anytime soon. As De La Vega pointed to in his speech, it’s only one that we can be more conscious of. Service providers are racing to roll out new 4G networks and services to enable the mobile infrastructure needed to keep up with the times. So will the buzz surround these new networks, or will it all be about optimizing our current networks? Only time will tell. There will be plenty more to read – and write about – from this year’s show… be sure to follow @Robadler for live updates.

Recently I attended the Food & Wine Festival at Epcot. While Florida was graced with a cold front, making it enjoyable to walk around without suffocating from humidity, I encountered major network issues with my iPhone.

Not to beat a horse to death, but come on AT&T! Text messages were slow coming through, applications didn’t run smoothly, phone calls were choppy despite having several bars of service and opening web sites – forget about it!? So, not only did the mass amount of people at Epcot make it hard to keep a comfortable bubble of personal space, but they kept me from Tweeting!

CNET recently published an article, “Is the iPhone Hurting AT&T’s brand?” in which Rob Adler, vice president at Vantage, was quoted as saying, “AT&T can say that there is nothing wrong with their network all they want,” he continued. “But when someone is experiencing dropped calls and no access to the 3G network every day, they take it very personally. And it is very frustrating.”

Frustrating enough that after seeing the “iDon’t” ads from Verizon Wireless and reading this article from The New York Times though, I’m starting to wonder if people will sacrifice the Apple brand for Verizon/Google/Motorola Droid.

Just like the Mac vs. PC commercials, Droid’s ads continue to poke fun at Apple. While I wouldn’t give up my Mac at home, frankly, these AT&T network issues are quite a drag and joining Matt Marshall as a soon-to-be Droid user isn’t sounding too shabby! Consumers want reliability in any product they purchase. If you pay $200-$300 for an iPhone, plus the elaborate service plan each month, you want a network that works – and AT&T just isn’t cutting it these days.

Recently, the Wall Street Journal reported that AT&T is looking to extend its exclusive deal with Apple to sell in the United States until 2011. This news is not particularly surprising considering the company’s business model for the popular handset.  AT&T’s iPhone business model is like a crack addiction. It delivers a short term high, then sinks into an addiction and ends badly.

The High:Selling iPhones for less certainly helps increase Apple’s sales volume and AT&T’s short term bottom line. There were 1.6 million new iPhone subscribers on AT&T’s network in Q1 2009, with 40% of  those customers new to AT&T. According to the New York Times, iPhone customers are particularly valuable because their average bill is 60 percent higher than the company’s overall customer base. The Times estimates that iPhone exclusivity generates $700 million per year in operating profits.

The Addiction: Where’s the problem in millions of profitable new customers?  As I discussed in AT&T’s Value to iPhone Users: Negative $400/phone?!, these customers are really Apple’s  with little loyalty to AT&T.  AT&T’s business model is based on subsidizing the cost of the iPhone and making its profits from high monthly fees over the life of a 2 year contract. The Wall Street Journal estimates that it has spent upwards of $1.3 billion to discount the iPhone.  So the company relies on higher service fees that is supported through exclusivity.

Given this business model, you would expect that AT&T would make its customers feel like they get great value and service from the carrier to mitigate the effects on the eventual loss of exclusivity. Unfortunately, they do exactly the opposite.  Despite claims of the fastest 3G network,  a Gartner research study found that AT&T customers often receive half the advertised data rate.  Contact from AT&T is pretty much limited to the bill and text messages upselling higher priced services. The popular applications come from Apple and not AT&T. So customers get cheap phones and applications from Apple, and poor service and high fees from AT&T. Not surprisingly,  iPhone customers love Apple. AT&T? Not so much.

 It Ends Badly:  So, what happens when the exclusivity ends? On this issue, iPhone customers fall with three categories: customers who will leave AT&T as soon as they have an alternative, customers who might stay with enough incentives, and AT&T employees. Without customer loyalty, the company will take a significant revenue hit both from lost customers and additional subsidies and lower monthly frees that will be required to keep existing customers.

So AT&T is left with two expensive choices. To feed the addiction caused by its business model, it can pay Apple dearly to extend the exclusivity. Also, Apple will likely hold AT&T’s feet to the fire regarding expensive service upgrades to its 3G network.  Still, this only  staves off the inevitable. Eventually, exclusivity will end. At that time, profits will drop through defections to other providers and lower monthly fees. Cutting corners on communications combined with a poor business model always is very expensive.

The value of AT&T’s service on the iPhone has been set at negative $400/per phone. This valuation is not from over-entitled iPhone users. It comes from AT&T and Apple.

Recently, AT&T and Apple started selling iPhones without a service contract for a $400 premium. Given the recent high profile problems at the SXWSi trade show and complaints from the media, apparently the two companies feel there is a market for iPhone users willing to pay a premium to not have their world delivered by AT&T.

Why This is News: Apple is coming out with a new generation of the iPhone, and wants to clean out the existing inventory. Typically, when a handset model is about to be replaced, the price drops significantly. Sometimes, the buyer even gets paid to take the phone (with a  contract).  It is interesting that rather than discounting the handset, AT&T and Apple think they can clear out inventory at a premium by losing AT&T. In a bad economy, this speaks volumes about AT&T’s perceived value.

Why This Matters: Presently, AT&T has the exclusive right to sell iPhones in the United States. But its exclusivity will eventually end. AT&T  should be using its exclusivity period to build customer loyalty and ensure that they keep customers once they have the choice of carrier.  Best case scenario for AT&T would be happy customers  that would want to stay with AT&T even if it did not have the iPhone.  However, it would probably be good enough if customers thought that AT&T was an important part of the the iPhone experience that they will stay with AT&T when they upgrade their iPhone.  If  customers are not loyal to AT&T, it risks a serious price war on the cost of the handset and monthly service on newer versions of the iPhone.

The Bottom Line: Right now, it seems clear that customer loyalty lies with Apple.  AT&T has announced upgrades and investments in its network that will become available later in 2009. Only Apple and AT&T know when the exclusivity period ends.  So perhaps, AT&T will clean up its act before the end of that period.

But, I suspect that its real ace in the hole is the fact that even after the expiration of the exclusivity period, customers  will only have a limited number of choices for wireless service providers. Moreover, the other three 3G service providers are likely to follow a similar short-term business model when they sell the iPhone.  As typically happens when marketing and customer service are ignored, it won’t end well, as we will see my next post: This is the iPhone’s Business Model on Crack.

Traveling for 2 weeks on business taught me a lot about my iPhone.  The big lesson from my recent European trip is that the iPhone is not a viable mobile phone for business use. Here are a few simple changes for iPhone 3.0 that could go a long way to making the iPhone an effective business tool.

E-mail:This is the part where recovering Blackberry users usually gripe about the lack of a physical keyboard. But having tried the Android, combining a full screen and keyboard leads only to confusion and a fat phone.  The fix here is much simpler. Simply allow use of the e-mail keyboard in landscape (wide) mode. This will allow more space between the keys and avoid fat finger mistakes.  Typing on a touchscreen is slow enough. Typing every third word twice is unbearable.  Landscape capability already is offered is Safari. There also is an application called TouchType, however you need to work in the application and then upload to e-mail.

Keyboard Short Cuts: Cut and paste has to be at the top of the list. The ability to avoid typing large tracts of text would go a long way to alleviate the worst pain from the small keyboard.  A few standard Blackberry features would also help.  An option to delete the previous text from a reply e-mail is a really handy method of avoiding adding multiple names from scratch.  Also, the Blackberry feature where holding a letter capitalizes it would speed typing.

Background Processing: When the iPhone first came out, it was considered amazing that web applications could even be performed on a mobile phone.  However, the recently announced Palm Pre has upped the ante with  the ability to run multiple functions simultaneously. Apple has resisted adding this capability, claiming it would drain the battery.

The battery is the Achilles heel of the iPhone. If you see someone who walks in the room looking at foot level, he is an iPhone user looking for an elictric outlet or a foot fetishist. Even without using Wi-Fi, my phone can’t make it through a full day of regular use. The prospect of even less battery life inspires only dread.

While a new battery won’t be a part of iPhone 3.0, if Pre-envy is what it takes to get Apple to improve the battery on the iPhone, bring it on. Otherwise, trust me, the person holding the iPhone really is looking for an electric outlet.

Recently, I was out with a friend, who whipped out an iPhone to map our next destination. Considering the pervasiveness of the iPhone in Silicon Valley, nothing unusual there. However, 30 minutes later the same person pulled out a Blackberry to check his work e-mail. Wait, What!? I was thinking that my friend was the ultimate geek.

Evidently, my friend is not so alone on his matter. Om Malik in his review of the Blackberry Storm mentioned that he also carries both a Blackberry and an iPhone: “The reason I carry both an iPhone and a BlackBerry 8800 is because I use the first one for browsing and talking, while the other is for everything that involves text: Google Talk, Twitter, Facebook messages and of course, staying on top of a steady torrent of daily email.”

For personal computers, Apple with its “I’m a Mac and I’m a PC” ads has done a great job in creating a brand that distinguishes work from play. But in the mobile phone world, most people expect that people will only carry one mobile phone and that a single device should be able to bridge this gap.

I sampled The Storm and the GPhone to see if they could satisfy my voice, Internet and e-mail needs in one device. The keyboard of the GPhone was not very good and it did not support my Microsoft-based work e-mail. As for the Storm, I agree with Walt Mossberg who said “neither I, nor any of the several BlackBerry addicts I asked to try it out, considered typing on the Storm’s keyboard to be very similar to using the keyboard of a traditional full-sized BlackBerry.” In other words, the Storm’s virtual keyboard is not really a substitute for a real keyboard.

In the future, perhaps one of these companies will make a phone that accommodates both work and play. Over the weekend, I bought an iPhone, which is more like having a notebook in my pocket. But when I am out of the office, e-mail on my mobile device is my primary means of communication. Is the iPhone keyboard good enough for me power through the over 150 non-spam e-mails that I get per day? Right now, I am contemplating what I thought was a unthinkable: supplemenitng the iPhone with an older Blackberry with a data-only plan. So it turns out that I may be an iPhone, Blackberry and … a geek.

… until they have to talk to someone using the iPhone. I just finished a call with someone on an iPhone that was hard to hear with background noise and call was dropped twice. The CTO of ATT had to switch to a landline to do an interivew with Gizmodo.

It is not just Apple and ATT. The voice quality on Verizon, Sprint or T-Mobile is not any better. As enamored as people get with their shiny new phones, eventually they vote with their feet and fire their carriers. A recent study by one of our clients, Ditech Networks, shows the cost of churn to service providers relating to poor voice quality in 2007 was $2.4 billion.

You would think that with a cost in the billions, wireless service providers would consider this a big “Can you hear us now?” from their customers and start making improvements in voice quality. Unfortunately, the forecast is more YouTube and yelling into the phone.

Yesterday, I was talking with friends about the launch of the new iPhone 3G. The verdict? Lots of people ready to ditch their old Blackberrys.

While there probably were thousands of similar conversations around the country, what made this one unique was that it was done through Facebook, using the SeenThis?, a social convergence application by our client Loomia. One of my friends shared an article on the iPhone 3G with her Facebook friends and then the next thing I know we have 10 people talking about whether the new phone is a Blackberry killer and what new features were being supported.

It was a good day to be at the intersection of social media and the iPhone.