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Ending Apple's AT&T Problem Wed 23 Jun 10

Steve Jobs needs to get other phone carriers on board--fast.

The Apple-AT&T partnership for the iPhone and iPad hasn't gone exactly as well as planned. AT&T has stumbled more than once. Most recently, there have been problems with iPhone 4 order fulfillment, including indications that customers' private data was exposed to other customers, iPad e-mail addresses were hacked and the on-going problem with dropped calls.

Arguably, some of these problems resulted from the surge of demand when the iPhone 4 came out, but it shouldn't have been unexpected, given the experience with prior product launches. Couple all of this with Verizon's very effective "map" ads, and it's clear that AT&T is not in a good place right now in terms of marketplace perception.

In talking with iPhone owners, just about everyone seems to love the phone except for one aspect, the locked arrangement with AT&T. In my conversations, admittedly not a scientific sampling, the carrier is the thing people would most like to change about the iPhone.

As real as all of these problems are, the constant media attention to yet another issue that further lowers the market perception of AT&T. And as we all know, perception can be as important as reality.

This is putting Apple in a difficult position--guilt by association, as it were. Someone inclined to buy an iPhone may be tempted to consider a competing phone due the problems with AT&T. The trade-off in the phone features and functions may be worth it to avoid dealing with AT&T.

On the surface locking the iPhone to one carrier seems rather strange. By limiting carrier choices, Apple has given competing products an easier entrance into the market. I believe that if Apple had not tied the iPhone to just one carrier, the iPhone's market share could have been even higher and would have been that much more difficult to displace as competing products come out.

Without knowing exactly why Apple decided to sole source with AT&T (and Apple isn't saying), it's hard to say categorically this was a bad decision. Perhaps there were some financial incentives, such as shared advertisements, hoped-for help in order fulfillment or some other reason.

For the time being, Apple is locked to AT&T, but it is hard to tell for how long. The exact end date of their commitmentisn't known definitively. Apple Chief Steve Jobs is coy about the relationship with AT&T. At the recent D8 conference, Jobs defended AT&T, sort of: "Remember, they're handling way more data traffic than all of their other competitors combined...Well, they have issues..."he said. Asked if there would be advantages to an iPhone on multiple U.S. cell networks, Jobs conceded "there might be," but wouldn't comment further.

Perhaps with limited options Jobs, the consummate marketer, is making the best of it by creating a "buzz"--at least we're talking about Apple, which is better than ignoring it.

All of this is a life lesson for IT leaders. If at all possible don't give up control of core components of your operations. If you must, as Apple had to because it's not a network carrier, keep your options open and I'd strongly recommend shorter contracts with multiple providers, even if it costs a little more.

Long-term, single source contracts for these core components are fine if you are willing to accept the risk of being defined by the actions (good and bad) of your partner. I'm sure Jobs and all the iPhone users would rather be talking about all the good aspects of the iPhone rather than the problems with the carrier.

Letting your partner define you is a risky proposition. Let's hope Apple ends all of this soon by giving us some better options.

This article is also posted on Forbes.com.  Feel free to join in the discussion either on this site or at Forbes.com

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