Media Wonk

iPhone could crack the wireless walled garden - June 25, 2007

Solid pieces today in the New York Times and San Francisco Chronicle about the dawn of the iPhone era.

Both correctly flag the aspect of Apple’s entry into the mobile phone market that is likely to have the greatest long term impact on the business as well as content owners (assuming Apple’s strategy is indeed successful): breaking the wireless carriers’ stranglehold on the customer relationship and on the features and functionality of handsets.

Most cell phones in the U.S. are sold by the wireless carries--typically at subsidized prices--rather than by handset manufacturers. By limiting the models of handsets they support, the carriers are able to limit the capabilities built into the phones to those the carrier can charge subscribers a premium to use. Handset makers may want to introduce a new feature, but if the carrier doesn’t want it generally doesn’t get into the phone.

Not so with the iPhone. Apple is selling the devices itself, at prices it is setting. Under the deal between Apple and AT&T, the carrier won’t be allowed to sell iPhones and will have minimal branding on the devices.

More important, Apple will establish its own customer relationship with users and will leverage the iPhone’s Wi-Fi capability to deliver video content directly, rather than through the AT&T’s EDGE network.

If Apple’s iPhone strategy is successful, and handset makers (or resellers) ultimately are able to add and support feature themselves, apart from the carrier, it would give content owners a new pipeline for reaching mobile devices. That could be critical in terms of defining business models for delivering that content.

Whether content owners would really be better off with Apple in control of that second pipeline is another question.

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