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.

The best part of a global show like Mobile World Congress is that you get tuned in to how the rest of the world lives. When it comes to mobile phones, most Americans expect to carry one phone and sometimes will carry a Blackberry for e-mail and regular handset for phone calls. After watching one person after another pulling out a never ending variety of handsets over the course of the day, I started polling people as to how many handsets they were carrying.

The typical person from EMEA or Asia was carrying a minimum of three phones. One person pulled out four, jokingly said (I think) that he had one for each wife. The typical explanation was a Blackberry for e-mail, an iPhone for applications, and then a Nokia or three depending on countries (and marital status). This could explain the relative health of the mobile phone space.

As for iPhones, universally, they were jail broken (manually “adjusted” to allow it to used on any mobile carrier’s network). People looked at my AT&T iPhone with a mixture of pity and disgust usually reserved for naive children. Invariably, they would show me a great application, then shake their head and say that I can’t get it because my phone was “on network.”

Social networking on mobile phones seemed to be in the early adopter phase. While I saw plenty of tweets and Facebook updates, I did not see many people using their phones to deliver them.

As the next major wireless show, CTIA, starts in less than a month, we will report back if there is a major difference in phone habits from the U.S. based attendees in Las Vegas.

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.

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.