Apple

(Credit: Apple)

The first day the Apple iPhone 3GS went on sale was the biggest sales day ever for AT&T, according to an internal memo sent to company employees that has since been published in various blogs.

That's right, iPhone Day 2009 beat out the two previous iPhone launch days, as well as surpassed traditionally heavy retail sales days such as Black Friday, the day after Thanksgiving, and December 26th, the day after Christmas.

The new iPhone may not have added a whole bunch of new bells and whistles, but it seems to have certainly been a crowd pleaser. It took Apple and AT&T about two and half months to sell one million phones. The iPhone 3GS hit that milestone in just the first weekend.

But it's hard to say for sure how many iPhones have been sold to date. Apple won't divulge sales figures until later this month when it reports its quarterly earnings. And AT&T has only said that it sold "hundreds of thousands" of iPhones during its pre-order process. But the company has indicated that iPhone 3GS sales were off the charts.

Of course, I may have found the one guy who went to an AT&T store to buy something other than an iPhone. Collins Osei, who had bought an iPhone 3G last year, came to the AT&T store on iPhone launch day not to buy the iPhone 3GS, but instead he wanted to downgrade to a less expensive Nokia phone.

AT&T is upgrading its network and using 850MHz spectrum to beef up its 3G wireless network, which should help alleviate dropped calls and slow network connections for iPhone 3G and iPhone 3G S users.

Apple said this week that it sold more than a million of the iPhone 3G S model worldwide this past weekend after the phone went on sale Friday. Exactly how many of those phones were activated on AT&T's network in the U.S. isn't yet known, but the addition of more data intensive iPhones is likely to put a strain on the carrier's network.

That said, AT&T spokesman Mark Siegel told the blog Gearlog on Tuesday that the company is ready for the onslaught of new iPhone users. One of the things it has been doing to prepare is upgrading its network so that it can offer 3G wireless service using its 850MHz spectrum licenses. For the most part, AT&T has been using spectrum in the 1900 MHz band to deliver its 3G services, which have become saturated, Gearlog explains. This means that as AT&T sells more 3G devices, such as the iPhone, it has been cramming more users into an ever more crowded spectrum band.

This could explain why some users have complained of dropped calls and slow Net connections using the iPhone 3G, an issue that CNET News pointed out nearly a year ago after the iPhone 3G was launched. The problem has been particularly acute in large cities, such as New York and San Francisco, where there is a concentrated base of iPhone users and where the 1900MHz spectrum is predominant.

Siegel says that upgrading equipment to allow AT&T to use its 850MHz spectrum for 3G services should help relieve some of the congestion issues. Because the 850MHz spectrum is at the low end of the frequency band, it is able to travel longer distances and penetrate walls more easily than signals on the 1900MHz band.

When asked about problems with dropped calls for iPhone 3G users a year ago, Siegel told CNET News that the company had been working to expand the portion of its 3G network that runs on the 850MHz band. Back then he downplayed the need for adding 850MHz spectrum for 3G services by saying that it "doesn't mean you can't get a good experience on 1900MHz."

Now Siegel thinks that adding 850MHz will make a big improvement, according to the Gearlog story.

"The 850, when it's turned on in individual markets, people notice a big difference," he is quoted as saying.

In addition to adding 850MHz 3G service, AT&T has also been making other improvements to its network, such as upgrading to the next iteration of HSDPA technology, which is expected to double download speeds on AT&T's network.

NEW YORK--Collins Osei, who had bought an iPhone 3G last year, came to the AT&T store Friday not to buy the latest-generation iPhone 3G S, but instead he wanted to downgrade to a less expensive Nokia phone.

Nokia 2600

(Credit: CBS Interactive)

Osei said his decision to go back to a basic-feature phone was all about cost. The iPhone and its service plan are simply too expensive, he said. Osei, who is in the middle of his two-year contract with AT&T, had his iPhone 3G stolen recently. But he said replacing it with a new one would cost too much. Instead, he picked up a Nokia 2600 for a mere $43.

But Osei's decision didn't hinge just on the upfront cost of the phone. He also said he was tired of paying the additional $30 a month data charge that is mandatory with the iPhone.

"The iPhone plan was just too expensive," he said. "They made me pay $30 extra a month for data, and I don't really need the Internet on my phone. So I went back to a regular phone. And now I'm on a plan that costs $39.99 a month."

Osei might not be the only consumer out there turned off by the high cost of the iPhone service fee. Unlike previous iPhone launch days, there was no line of people this morning waiting outside the AT&T Time Square store hoping to get the latest iPhone 3G S. In fact, it looked like more customers were leaving the store empty-handed or with other devices than those leaving with new iPhones.

AT&T's decision to allow Major League Baseball fans to stream games live onto their iPhones while restricting video streaming using another video application has one advocacy group crying foul.

With the release of the 3.0 version of Apple's iPhone operating system this week, subscribers to a popular application from Major League Baseball called At Bat will now get the chance to stream live video feeds of baseball games directly to their iPhones or iPod Touches. The first game was streamed Thursday afternoon, featuring a match up between the Chicago Cubs and White Sox.

But unlike other video streaming applications, such as SlingPlayer, the MLB At Bat live video can be accessed regardless of whether a subscriber is connected to the Internet via AT&T's 3G network or a Wi-Fi connection.

The SlingPlayer app, which allows iPhone users to redirect cable and broadcast TV from their TVs at home to their iPhones, is only permitted by AT&T to operate over a Wi-Fi connection. When the SlingPlayer application was first released last month, AT&T said that it restricted the application to Wi-Fi because streaming live broadcast TV over its 3G wireless network "violated the company's terms of use."

But now AT&T is allowing MLB to do exactly what it would not allow Sling to do, which is stream live broadcast TV over its 3G cellular network onto iPhones. So what gives? Is AT&T playing favorites?

That's exactly what Ben Scott, policy director for the advocacy group Free Press, thinks. The group issued a statement Thursday expressing its concern over what it sees as an inconsistent policy.

"We are troubled that carriers like AT&T are playing gatekeeper to the next generation of wireless Internet applications," Scott said in a statement. "No Internet service provider should be allowed to pick winners and losers online."

Free Press has long supported the notion of a free and open Internet. And the company has pushed the Federal Communications Commission to confirm that its Net Neutrality principles also apply to wireless networks. The FCC's Internet Policy Statement protects consumers' right to access any online content and services on any device of their choosing. These principles were used effectively last year to punish broadband provider Comcast for deliberately slowing some of its customers' BitTorrent traffic, a move that other broadband providers including AT&T has pointed to as evidence that no further regulation is needed to protect consumers' access to Internet applications.

AT&T has also publicly supported the notion that these Net Neutrality rules should also apply to wireless Internet access. In fact, Jim Cicconi, senior executive vice president of legislative affairs for AT&T, said as much during a panel discussion hosted by a Washington Post reporter in November.

"The same principles should apply across the board. As people migrate to the use of wireless devices to access the Internet, they...certainly expect that we treat these services the same way," the Washington Post reporter quoted Cicconi as saying in her blog post.

Free Press's Scott, who appeared on the panel with Cicconi in November, pointed out AT&T's contradiction in his statement.

"AT&T has acknowledged that open Internet principles should apply to wireless and that consumers expect unfettered mobile access," Scott said. "So why is AT&T deciding what online video its iPhone customers can watch and what they can't?"

The argument put forth by Free Press is a compelling one. And right now, AT&T doesn't have an answer or an explanation as to why the MLB streaming video would be treated differently from the Sling video. Mark Siegel, an AT&T spokesman, said the company could not comment yet until it looked into the matter further.

But earlier this year, Siegel had plenty to say about Sling and streaming video in general. As a guest on the Clark Howard radio show, Siegel compared using Sling's service over a wireless connection to sending bulk e-mail and spam, activities that he said eat up too much of the network's bandwidth. "You can't use a service called 'Slinging,' where you redirect a wireless TV signal to your phone. We do not allow that type of application on our phones," he said. "It's absolutely cool (technology), but if we allowed these kinds of services, the highway would quickly become clogged."

Indeed, streaming video eats up a lot of bandwidth. Because cellular networks are divided into cells, users in a particular cell share the available bandwidth in that cell or region. This means that streaming a lot of high-quality video over the network could potentially eat up all the available bandwidth and degrade service for other subscribers in that cell.

This is why MLB.com is using a standards-based streaming technology that will detect the speed of the network and adjust the quality of the video to the bandwidth that is available. The latest version of the SlingPlayer submitted to Apple for the App Store used similar technology that would cap the bit rate to ensure it was below Apple's and AT&T's threshold, according to David Eyler, a project manager for Sling Media, who commented for an earlier story on CNET News on this topic.

Eyler also said during that earlier interview that the explanation he had been given for not allowing the SlingPlayer to be used over the 3G network was that AT&T doesn't allow video services that redirect TV signals onto its network.

What's even more puzzling about why AT&T would allow MLB's At Bat application to be used over its 3G network and not the SlingPlayer, is the fact that the MLB application is likely to put a lot more strain on the network than the SlingPlayer App. Here's why. The MLB At Bat application is likely to have more subscribers streaming video than the SlingPlayer app. MLB.com At Bat 2009 ranks among the top 100 overall paid applications in the App Store, according to the MLB's own Web site. And the application, which costs $9.99 to download, has only been available for about two months.The new, free streaming capability is likely to encourage even more downloads.

Meanwhile, the SlingPlayer app, which costs $29.99 to download, is likely to appeal to only a niche audience, since it also requires users to have a $150 SlingBox device in their homes to redirect the TV signals to their iPhones.

But more importantly, MLB At Bat subscribers will be tuning into the same video event at the same time. And since sports fans often root for teams in their own city, there is a good chance that many fans tuning into a particular game on their iPhones will be in the same geographic area, which is exactly the kind of scenario that could bring a cellular network to its knees. AT&T struggled to keep its 3G network up and running in Austin during the South By Southwest (SXSW) conference earlier this year when there was a high concentration of iPhone users.

By contrast, SlingPlayer users are not likely to be accessing the same video content at the same time in the same exact cell or region, which is actually less taxing on a wireless network.

But this isn't the first time that AT&T has shown preferential treatment to one application over another. OrbLive, which is offered on the App Store, also redirects TV signals onto the iPhone using a Wi-Fi network or the 3G cellular network. The application is designed to allow people to stream media from a PC to the iPhone wirelessly, much like how the SlingPlayer works.

For right now, iPhone users are simply left to wonder "why?" But stay tuned for more updates. I'm confident that AT&T will have an explanation shortly.

On Monday, Apple announced at its Worldwide Developer Conferences in San Francisco that it plans to finally add data tethering to the iPhone, which will turn the device into a wireless modem to connect laptops to 3G networks.

(Credit: James Martin/CNET)

Updated at 4:09 p.m. PDT with a link to a Boy Genius report and a clarification on when AT&T expects MMS and tethering service to be ready.

iPhone users across the U.S. were disappointed Monday to learn that AT&T, the only operator in the country offering the iPhone, won't immediately support a couple of key new features in Apple's new 3.0 operating system that will be available starting next week. But AT&T says these features are coming.

On Monday, Apple announced at its Worldwide Developers Conference in San Francisco that it plans to finally add data tethering to the iPhone, which will turn the device into a wireless modem to connect laptops to 3G networks. It also announced that the new 3.0 version of the iPhone operating system will support multimedia messaging messaging.

These features have topped iPhone users' wish lists since the phone was launched two years ago. But millions of iPhone users in the U.S. will have to wait a little bit longer. That said, AT&T says the features are coming soon.

Apple's plan to allow developers to add in-app payments to applications sold through its iPhone App Store could be the next game-changing step the company takes as it charges ahead in the mobile market.

Apple announced the new feature at the iPhone OS 3.0 preview event in March. And next week at the Worldwide Developers Conference in San Francisco the company is expected to announce the release dates for the software upgrade.

While in-app commerce is only one of several new enhancements to Apple's iPhone operating system, it may be the most significant. The reason is very simple. By allowing transactions to be completed within applications, Apple is changing the economics of the mobile application market and providing developers more opportunity to make money from their applications.

And if executed well, Apple could leave its smartphone competitors in the dust.

"My sense is that this will lead to Apple increasing their lead in the market even more," said Bart Decrem, CEO of Tapulous, a small developer that creates applications and games exclusively for the iPhone. "It will be a tremendous challenge for Apple's competitors that are trying to build their own application stores to get traction with developers, because we're in no rush to work on other platforms."

There's no question that the App Store has been a huge success. Apple announced its billionth application download only nine months after the store launched. But for developers the financial rewards have been mixed. There have been some paid applications that have sold well and generated hundreds of thousands of dollars in revenue, but most developers have barely broken even.

Today most of the applications downloaded from the App Store are free. And of the ones that are actually sold, the majority sell for 99 cents a pop.

"The challenge is that it's hard to sell stuff for more than a dollar," Decrem said. "And it's really hard to make a lot of money that way, especially when the majority of the downloads from the App Store are offered for free."

The ability to add in-app purchasing should provide a greater opportunity for developers to generate some cash. As a result, developers may be likely to spend more time, money, and effort developing applications for the iPhone rather than other smartphones, such as the Android devices or Windows Mobile devices.

Electronic Arts, one of the biggest game publishers in the world, also sees big opportunities as result of the in-app commerce function. EA sells many of its games for the iPhone at premium prices around $9.99 and higher. And Adam Sussman, vice president of worldwide publishing for the game developer, said the company is already making plenty of money from the App Store. But the new in-app commerce capability could allow the company to lower the entry price of a game to expand its audience by allowing it to monetize more elements of the game.

For example, in the game Command & Conquer, EA could sell additional maps to play the game for 99 cents. Or it could offer character enhancements in role-playing games or a more sophisticated weapon to help players advance more quickly to the next level of the game. Another possibility is offering digital goods. For example, within the Sims game, players could pay 99 cents or more for clothing or other items to decorate their virtual home.

"Our belief is that the paid apps in the App Store will move away from a single download model," said Adam Sussman, vice president of worldwide publishing for EA. "The new model will involve these micro-transactions that can broaden the installed base of users and can extend the life of a particular game or application."

Software sells
One lesson that has been very clear as a result of the runaway success of the App Store is that software and applications matter just as much as sleek design and cool hardware.

Apple's smartphone competitors appear to have caught onto this lesson as evidenced by the copycat application storefronts from companies, such as Research In Motion, Nokia, Google, and Microsoft.

Apple was not the first company to offer downloadable applications for cell phones. But it was the first company to make discovering, downloading, and paying for applications easy for consumers. These were things that previous "storefronts" from mobile carriers or other third-party sources of applications were lacking.

As a result, the market for mobile applications never fully lived up to developers' expectations.

"Discoverability has always been really tough on traditional cell phones," Sussman said. "It hasn't been consumer friendly."

Apple has changed this. The App Store uses a well-established ecommerce platform, iTunes, to bill customers, which has helped make downloading and paying for applications as easy as purchasing and downloading a song. By contrast, Apple's competitors have had to build their own mechanism for discovering and paying for new applications from scratch. And as a result, virtual storefronts, such as Google's Android marketplace, have been slow to get off the ground.

"With the Android market, I think we are still waiting for the market to arrive," Sussman said. "While the platform has been released, there isn't a lot of momentum yet."

Newer smartphones, such as the one Palm is developing for the Pre, don't even have a real marketplace established yet. The Pre, which goes on sale on Sprint Nextel's network on Saturday, will launch with only about a dozen applications. Sprint CEO Dan Hesse said this is to be expected considering that the phone is just now launching. And he said he expects developers to ramp up work on new applications after the launch.

But given the established customer base of the iPhone, the fact that Apple will likely introduce new products into the iPhone family, and the added opportunities to make more money through the in-app commerce capability, it may be difficult to convince developers to spend resources on the platforms such as the Pre.

"We've told our investors that we are open to developing applications for other smartphones," Tapulous CEO Decrem said. "But right now I don't see any reason to move beyond developing for the App Store. In fact, I see us increasingly putting all our eggs in the App Store basket."

AT&T may slash the price of its iPhone service plan by $10 when a new version of the touchscreen smartphone is launched this summer, according to a story on TheStreet.com.

The article cited analyst Michael Cote of Cote Collaborative saying that there is a "strong possibility" that AT&T will drop the entry-level price of its service plan to $59 from $69. Apple is expected to unveil the latest iPhone on June 8 during the company's World Wide Developers Conference in San Francisco.

(Credit: Apple)

AT&T declined to comment for this story, and Michael Cote did not respond to an e-mail request for an interview.

The price cut would likely help make the iPhone, which now retails for $200 with a two-year service plan with AT&T, more appealing to more mainstream customers. I've been saying for quite some time that the biggest hurdle to widescale adoption of the iPhone or any other smartphone in the mainstream market is the high price tag of the service contracts.

Consumers have shown that they are willing to pay anywhere between $100 and $200 for a sophisticated smartphone device. But the monthly service charge, which starts at $69 for the iPhone, is much harder to swallow.

It puts the real cost of the iPhone 3G over the life of the two-year contract at a whopping $1,856, which includes the price of the 8GB phone and 24 months of the most basic iPhone voice and data plan. It doesn't include the activation fee or taxes and other fees associated with the account. For subscribers who need more voice minutes or unlimited texting, the price tag is even higher.

Still, a $240 reduction in the overall cost of the phone over the life of the contract could entice some cost-conscious consumers.

(Credit: United State Patent and Trademark Office, via MacRumors.com)

Apple could be providing a glimpse into some new features for future iPhones in a couple of patent applications the company recently filed.

The blog MacRumors.com reports that Apple has published two patent applications in the past few weeks that focus on features that incorporate motion and gesture user interfaces. One patent was published two weeks ago. And the other one was published Thursday.

The iPhone already has an accelerometer that allows users to shuffle songs on the iPhone by shaking it. And the motion-detecting technology has also been widely used by application developers who have incorporated the functionality into games and other kinds of apps for the iPhone. But Apple appears to be moving a few steps further in making motion an even bigger part of interacting with the iPhone.

Apple notes in the first of the patent filings that interacting with mobile devices while also engaging in another activity, such as jogging or running, can be dangerous as users might be distracted while they're trying to advance to another song or answer a phone call. The new gesturing technology would try to solve this issue. According to the patent filing:

There is a need for providing a user interface in a personal media device that minimizes either or both a user's physical and visual interactions with the personal media device, especially while the user is performing other activities that require, for example, the user's visual senses.

Apple may have some competition when it comes to selling applications for the iPhone, as developers decide to launch their own stores to hawk unauthorized apps for the device.

The Wall Street Journal reported that a developer is planning to launch on Friday a new service called Cydia Store that could sell hundreds of iPhone applications. The apps aren't available through Apple's official store, and they require "jailbroken" iPhones. Such iPhones have software downloaded that modifies the device to run any application.

(Credit: Apple)

The article also mentioned another developer, Rock Your Phone, which also plans to sell unauthorized iPhone apps. But this store won't require iPhones to be modified, the article says.

Some of the applications that will be found in non-Apple app stores are ones that Apple won't carry in its own store. For example, there is one application for turning the phone into a modem for laptops and another that turns the iPhone into a camcorder. Other applications might include adult games, which are not sold in Apple's App Store.

Apple launched its App Store back in July, and it has become wildly popular. Apple said in January that 15,000 applications are available through the App Store. The list grows daily. Downloads passed the 500 million mark in just over six months.

After Apple announced the App Store, other smartphone companies started jumping on the bandwagon.

In October, when T-Mobile introduced the G1, Google announced that it was creating an online app store for all its Android phones.

BlackBerry maker Research In Motion, followed suit with its own application store announcement. And last month at GSMA Mobile World Congress in Barcelona, Microsoft and Nokia announced their own application stores.

The idea behind these application stores is that giving independent developers access to the software and hardware will spur creative and innovative applications. In Apple's case, the company has provided the building blocks for developing new apps but has maintained strict control over what gets into the App Store and what does not. While Apple asserts it is trying to maintain quality and to protect the user experience, some developers have complained about the rejection of their applications. Others have complained that once in the App Store, it's difficult for their applications to be featured and discovered.

The real beauty of the App Store is its huge potential as a revenue driver for Apple, helping the company monetize the iPhone long after it's left the store shelf. Apple doesn't break out revenue from the App Store, but the company collects 30 percent commission on all apps sold through the store.

It's true that many applications are free. But there are also thousands of applications that cost 99 cents or more. Piper Jaffray estimates that Apple's App Store generated about $150 million in sales last year and projects that total sales will grow to $800 million this year, the Journal reported.

So far, Apple hasn't taken any legal action against companies preparing their own iPhone app stores. But the Journal noted that Apple appears to be preparing a legal case. Last month, the company filed a 27-page statement with the U.S. Copyright Office, making the case that modifying the software on the iPhone is illegal.

Whether this argument will hold up in court is yet to be determined. The Journal quoted a professor at University of California at Berkeley's law school who said that the developers have "a pretty good" defense under the Digital Millennium Copyright Act.

My prediction is that there will definitely be a good number of iPhone users who make the extra effort to "jailbreak" their phones and buy applications that Apple refuses to put in its own App Store. But the vast majority of iPhone users will stick with Apple's App Store. The reason: it's easy to use.

Still, if these rogue application stores gain any traction, Apple will fight. And it will likely fight hard.

Apple didn't respond to requests for comment on this story nor did it respond to requests from the Journal.