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.

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.

The news from Mobile World Congress 2009 had a lack of  breakthrough technology announcements. Rather, the show’s focus was on upgrades, and execution (read, sales). The biggest  news was around application stores to compete with Apple’s App Store. In fact, so many companies announced application stores, that it appeared that GSMA had included in an application store press release in its Exhibitor package.  Even Billing/OSS vendor Amdocs got in on the action. Of course, announcing a store is easy. Filling it with applications that people regularly download is another story, probably one for Mobile World Congress 2010.

On the networking side, the news centered around LTE, a technology that will be used to migrate mobile carrier networks to 4G.  Verizon Wireless named Alcatel-Lucent and Ericsson as its primary vendors for its initial LTE network.  LTE is an acronym for Long Term Evolution. True to the name, its deployment is not imminent. This was underlined by key supporter, Vodafone, which announced at the show that it moved back its anticipated deployment date until 2012.

As for the show itself, attendance dropped under 50,000, which was significantly down from recent years. Still, other Telecom trade shows would be ecstatic if they attracted 47,000 official attendees. Lower attendance also meant less people hanging around stands with nothing to do but looking at their Blackberries. The no shows also meant that the number of people better matched the size of the show floor and city. Gone were the 30 minute bathroom lines and most people were able to find rooms in town.

Rather than showcasing the latest and greatest, people came to Barcelona to do business. According to GSMA, 50% of the attendees was C-level.  Accordingly, people that I spoke to unanimously felt that the quality of meetings were very high.

Still, next year will be the real test of the success of this year’s Mobile World Congress. Most companies locked in their 2009 participation in 2008 before the current financial crisis. Strong renewals will mean that the quality over quantity approach is a sustainable business model.

I promised lots of reporting from the show. Accordingly, I have two other Mobile World Congress posts coming up. One will be about social media at Mobile World Congress. The other will be about the difference in mobile phone ownership between the United States and the rest of the world.