Mark Fox's Weblog

Many of the people chortling about the possibility of Microsoft Word being kept from the market by a patent lawsuit mayhave a different view if the Apple iPhone is kept out of the US due to another patent lawsuit. CNN Money reports that "Pennsylvania-based BTG International Inc. claims flash memory chips from Samsung Electronics Co. (SSNHY) infringe on its patent rights and is pressing U.S. authorities to curb imports of the chips and any products containing them.
Among the devices using Samsung flash memory are iPhones."

More details at Barron's and the ITC Blog.

Rogers Wireless has announced that they are extending its “limited time” 6 GB of data for $30 a month plan until the end of September instead of the previously planned August 31st end date. The claimed reason is last week’s introduction of the BlackBerry Bold. Once this ends Rogers states there will be two replacement plans offered. Both offer less than the current plan. The CBC states that:

Rogers will introduce a $25-a-month data plan for the iPhone and other smartphones on Oct. 1 that will allow 500 megabytes of downloading per month, which will be bundled with a three-month promotion of unlimited usage. Another plan will allow one gigabyte of usage for $30. Customers must also take a voice plan, which start at $20, and pay a system access fee of $6.95.

Rogers claims that this drop in data limits from 6 GB to 1 GB a month for $30 will not affect many people as they have found that “just over one per cent of iPhone owners used more than one gigabyte of data in their first month, while about 95 per cent of owners used less than 500MB”. In fact Rogers claims that only one person has exceeded the 6 GB limit.

Hopefully as Telus introduces the BlackBerry Thunder touchscreen smartphone and provides more competition for the iPhone Rogers will reverse course. 1 GB may be greater than today’s usage but that can rapidly change in the near future as new applications are introduced. After-all people used dialup for years, imagine trying to use YouTube over a 14.4K modem.

In an interview in the National Post, Nadir Mohamed, president and chief operating officer of Rogers' communications unit stated that the backlash over Rogers’ iPhone data plans was one of perception because people really did not know how much data usage they would required. He noted:

One is, there's lots of people who don't understand if it's 400 megabytes or six gigabytes -- how many e-mails, Web pages, minutes of YouTube, you name it. People understand [voice] minutes, but on the data buckets, we're at the stage that we at Rogers need to do a much better job of explaining these things.

He also stated that not only would six gigabytes a month of data transfer be enough for nearly all users, “one gigabyte is more than enough:

I actually think that 98% of people are not going to be using six gigabytes a month in the foreseeable future. Our challenge is to ... make it easy for customers to understand one gigabyte is more than enough.

It is unclear if there are any numbers to back up these statements. AT&T and other iPhone carriers know how much data transfers occur on their networks, but does Rogers know these values and to what extent will they change with the introduction of third party applications on the iPhone? "One gigabyte is more than enough" could become the next "640K is good enough", only time will tell.

As Apple iPhone users face world-wide difficulties in activating their new 3G iPhones and upgrading the first-generation iPhones to the new iPhone 2.0 firmware, maybe Apple should have released the new firmware earlier. It would have lessened the load on their activation servers on such a busy day and acted as a trainer for people upgrading their existing iPhone to new a model.

It was too good to be true...

Following news that Apple may be diverting iPhone shipments to Europe away from Rogers Communications’ overpriced Canadian monopoly it has been learned that Apple will not be selling iPhones at its Canadian retail stores leaving this up Rogers and Fido stores. However this may also be Apple’s standard practice, the only Apple retail stores to sell the new 3G iPhone are in the United States.

The biggest news from the Apple Worldwide Developers Conference 2008 was not the announcement of the 3G second generation iPhone or a Canuck iPhone but a change in Apple's business model for the iPhone from a per-month payment from the wireless operators for each iPhone on their network to a one time upfront subsidy. With this pricing scheme Apple is slashing the price of the iPhone from $399 to $199 for a 8 GB model and introducing a 16GB model for $299. The remainder of the cost of the iPhone plus Apple's profit will come the wireless operators with AP News estimating a $200 per phone payment. The wireless operators in turn will recoup this expense from their users over time. For example AT&T's data plans for the new iPhones start at $10 a month more than those for the 1st generation iPhones which will remain in force for their remaining term.

This business model is similar to how most cell phones are sold in North America - subsidized price with the wireless operator making it up over the life of the contract. AT&T stock fell today as investors felt that earnings would be hit for several quarters as AT&T paid Apple a per phone subsidy upfront before the increased revenue from more expensive rate plans kick in. The portion of AT&T's news release describing the change is as follows:

The new agreement between Apple and AT&T eliminates the revenue-sharing model under which AT&T shared a portion of monthly service revenue with Apple. Under the revised agreement, which is consistent with traditional equipment manufacturer-carrier arrangements, there is no revenue sharing and both iPhone 3G models will be offered at attractive prices to broaden the market potential and accelerate subscriber volumes. The phones will be offered with a two-year contract and attractive data plans that are similar to those offered for other smartphones and PDAs. AT&T anticipates that these offers will drive increased sales volumes and revenues among high-quality, data-centric customers. Currently, less than 20 percent of AT&T's postpaid subscribers have integrated devices capable of voice, Web and data applications. Based on the company's experience, average monthly revenues per iPhone subscriber are nearly double the average of the company's overall subscriber base.

With a two-year contract, the price of an 8GB iPhone 3G will be $199; the 16GB model will be priced at $299. Unlimited iPhone 3G data plans for consumers will be available for $30 a month, in addition to voice plans starting at $39.99 a month. Unlimited 3G data plans for business users will be available for $45 a month, in addition to a voice plan.
In the near term, AT&T anticipates that the new agreement will likely result in some pressure on margins and earnings, reflecting the costs of subsidized device pricing, which, in turn, is expected to drive increased subscriber volumes. The company anticipates potential dilution to earnings per share (EPS) from this initiative in the $0.10 to $0.12 range this year and next, with a 2008 adjusted consolidated operating income margin of approximately 24 percent and a full-year 2008 wireless OIBDA margin in the 39-40 percent range. As recurring revenue streams build without any further revenue sharing required, AT&T expects the initiative to turn accretive in 2010.

Two big iPhone related events occurred Tuesday. Canadians finally received official word that Rogers Wireless would be carrying the iPhone later this year, but no details were given. Later in the day Fortune Magazine reported that a knowledgeable source stated that AT&T would subsidize $200 of the cost of a new iPhone for customers who sign two-year contracts. The current price of an iPhone is $399 for an 8GB model and $499 for a 16 GB model. With the upcoming 3G iPhone expected to have the same retail price, this would drop the price with a contract to as low as $199 making them much more affordable.
The New York Times Bits Tech column questions the rationale for the price drop – noting that Apple is unlikely to want the sale iPhones in its stores for more than AT&T is. Two possibly are AT&T wants to lower the cost of the iPhone but raise the price of its data plan once the iPhone gains Microsoft Exchange email capabilities and secondly it is possible that Apple could sell fully priced unlocked iPhones while AT&T sells subsidized AT&T only phones.

Best known for his copyright battles, Canadian internet expert Dr. Michael Geist of the University of Ottawa points to an important fact that maybe holding up the introduction of the Apple iPhone to Canada, the high cost of wireless service in Canada. Geist compared expected iPhone carrier Rogers to AT&T in the United States and found that AT&T is charging much less. AT&T offers 450 anytime minutes (unused minutes can be rolled over to the next month), 5000 additional night and weekend minutes, and unlimited data for $59.99 US. With Rogers you would pay vastly more for less:

• 500 minutes (Canada-wide, no rollover) - $60


• 500 additional evening and weekend minutes - $25


• 500 MB of data (no unlimited data offered) - $210

Russell Shaw ZD Net Blog has the news that Best Buy Canada’s website has a page where people can sign up to be informed about Canadian iPhone developments. There is no actual indication that you will be able to buy an iPhone through Best Buy in the future but Russell Shaw does note that Apple has only four Apple Stores in Canada and would need a retail partner to extend their reach.

This may be overreaching however, like in the US where iPhones where sold through AT&T stores the iPhone could be sold through Rogers, TELUS or whichever Canadian wireless retailer becomes Apple’s partner.

Looks like it took four days to get an unactivated iPhone to work as a standalone device.

Jon Lech Johansen, aka "DVD Jon," who has repeatedly broken DRM encryption schemes has reported that he has been able to activate a brand new unactivated iPhone without giving any personal information to AT&T. The iPhone does not work as a phone but its iPod and WiFi capabilities do work. The previous method which involved sending information to AT&T required using an invalid Social Security number to fail AT&T’s credit check and then be assigned a Pay-As-You-Go plan. (via Boing Boing)

As described by Apple, iPhones must be activated though iTunes and associated with a new or existing AT&T account. I wonder how long until this is circumvented and they can be used as standalone devices, particularly by those living outside the United States or in an area without AT&T wireless service. In January the list was all of Vermont and:
"all or large portions of Alaska, Colorado, the Dakotas, Idaho, Iowa, Kansas, Maine, Minnesota, Montana, Nebraska, Nevada, New Hampshire, upstate New York, Oregon, Utah and Wyoming, among other places"

Through at $499 for 4GB and $599 for 8GB versus less than half that for a iPod Nano with the same memory maybe the less geographically fortunate people will wait for the next generation of the iPods which will likely have the iPhone’s touch interface.

Gizmodo has a summary of the first wave of iPhone reviews in a tabular format. The verdict is that the phone is a breakthrough in ease of use and lives up to nearly all of the expectations around it but does suffer in some areas. In software support its close architecture means you get only the features Apple provides. Physically, the battery is sealed in the unit and therefore can be swapped on the fly and there is no memory expansion slot. Thoughts about typing on its virtual keyboard range from “A nonissue .. because of smart software” to “Frustrating, especially at first”.

Then there is the main drawback, the cell phone network you must be on to use it apparently sucks when used in data mode. AT&T (formerly Cingular) is the iPhone’s exclusive carrier for several years and the reviews state that its EDGE data network is “excruciatingly slow” and “Feels like dial-up”. Two reviews use the word “pokey”.

I wonder if this drawback will scare off any because, because much of the advantages of an iPhone over an iPod is its wireless internet connectivity. Meanwhile Canadians don’t have to worry, no iPhones for us yet.