Apple continues to run the iPhone show

CEO Steve Jobs confirms that Apple, not AT&T, will be the source of new iPhone apps--another sign of how Apple is changing the cell phone industry in the U.S.

The iPhone certainly is changing things. Corinne Schulze/CNET Networks

From the moment Apple announcediPhone, predictions were rampant that it would be the cell phone that would change the mobile world forever. As it turns out, the "Jesus phone" predictions were a little overblown, but indeed the iPhone has shaken the U.S. cell phone business to its core. And I'm not talking about the hardware side here; rather, I'm referring to the basic structure of the entire industry.

Thursday at the iPhone SDK event , one attendee asked an intriguing question at the end of the program. "What is the relationship with the carrier? Up until now, apps have been released through the carrier." In response, Apple CEO Steve Jobs said: "We have great relationships with our carriers, and we struck a new relationship with our carriers where Apple is responsible for the software on the phone."

It can't be stated enough just how significant that "new relationship" is and just how game changing it is. For much of its life, the process of selling a cell phone in the United States went like this. A manufacturer would introduce a handset and then offer it to a carrier. The interested carrier would test the phone for its network, strip out any features or software it didn't like or want (remember Verizon Wireless's Bluetooth-crippling days?), stamp on its logo and signature user interface, and then sell the phone at a discounted price to lure customers into a contract. Once it made the phone and sold it to the carrier, the manufacturer hardly dealt with it again. For all intents and purposes, the handset became the carrier's property and only the carrier made money off it from that point on. Not only would the carrier have an exclusive on the phone, but also the handset would be locked to that operator's network. And if customers wanted to buy new applications or services, they usually went to the carrier to do so.

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Sure, I may be oversimplifying things just a bit, but U.S. carriers ran the show on everything from the handset's design and features to its price. It's been that way for a long time and it looked like such a model would last well into the future. That is, until the iPhone came along. From the start, Apple ran this show. The company didn't cede ground to AT&T on the iPhone's design, its features, its interface, or its price. It worked with AT&T to develop the new visual voice mail system, which is unique to the iPhone. Apple even took over the handset activation process and it secured a revenue-sharing agreement where it would earn money every time an iPhone customer signs a contract.

All of this turned the normal carrier-manufacturer relationship on its head, and it's no surprise that Apple, and not AT&T, will be the source for new iPhone software and applications. For a long time, U.S. carriers were fearful of becoming "dumb pipes." In other words, instead of being just a way for customers to access applications and services, they wanted to sell those services themselves. But Apple's entry to the space is changing that. And while customers may be changing one control freak for another, it's definitely a new game.

On a final note, it's also been fascinating to see how the iPhone has caused the federal government to take a new look at phone locking. Though that practice has been entrenched in the industry for years, the hype surrounding AT&T's exclusive on the iPhone drew criticism from members of Congress last summer. And speaking of phone locking, we also have to consider Verizon's surprising announcement in November that it would start unlocking its phones this year. While the iPhone may have nothing to do with Verizon's decision, perhaps Google's Android platform is a more likely suspect, the timing is interesting.

About the author

Senior Managing Editor Kent German leads the CNET Reviews editors in San Francisco. A veteran of CNET since 2003, he still writes about the wireless industry and occasionally his passion for commercial aviation.

 

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