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AT&T's iPhone Monopoly: Today's Outrage

Apple's iPhone has only been available on the AT&T network since it was first released in 2007, stymieing competition and hindering competitive pricing for customers.

Editor's note: AT&T's response to this article can be found here.

SAN FRANCISCO (

TheStreet

) -- Steve Jobs gave us a great new version of a product we already love at the

Apple

(AAPL) - Get Report

conference yesterday. Now, if only we could use it.

Jobs unveiled the latest iPhone model at a software developers event in San Francisco. As expected (or, ahem, as previously

unveiled on Gizmodo),

the device was smaller, sleeker, cheaper and way cooler than the three versions that preceded it.

The iPhone 4 could woo more Blackberry addicts who weren't ready to get rid of their dinosaur devices and step into a more modern, intuitive operating system. It could also tempt additional "regular" cellphone users who were hesitant to plunge into a more costly device and data plan.

Unfortunately, one thing is standing in the way:

AT&T

(T) - Get Report

.

Apple's smartphone has been available only on the AT&T network since it was first released in 2007. That exclusivity has stymied competition for more than three years, thereby hindering competitive pricing for customers. That, in turn, prevents the more frugal variety from paying a cancellation fee for an existing contract and from paying the higher cost to join AT&T. Cost and service barriers also prevent the merely curious from jumping on board the iPhone train.

A service plan for AT&T with the 3GS model, including unlimited calls and messages, and 2 gigabytes of data,

costs $114.99 per month, plus taxes and fees. A customer could instead use a

RIM

(RIM)

Blackberry, on T-Mobile's network -- with unlimited everything -- for

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$79.99. Or unlimited service and data on a new HTC Droid with the top-rated

Verizon

(VZ) - Get Report

network with for $119.98

Speaking of which, AT&T's monopoly on the iPhone also prevents customers who want top-notch service from signing up. That's because its network has a reputation for being pretty terrible.

So terrible, in fact, that AT&T actually

made an application for customers to tell the carrier when and where dropped calls occur. It's available for free through the iTunes store.

AT&T responded to complaints about service issues in another way recently as well; not by adding capacity or improving service, but by adjusting its pricing model. Starting this week, users could no longer sign up for unlimited data plans, but pay according to how much space they sap from the network. That doesn't necessarily mean service will speed up, or that heavy users will use less data, it just means they will pay more for their usage while light users pay less.

So, the AT&T solution for shoddy wireless service appears to be thus: Do-it-yourself customer service and an a la carte pricing model that punishes the people who probably have the most issues. Brilliant!

Using a Verizon Droid would cost a customer $120 more over the life of the required two-year contract. But if one were to put a value on the quality of service, Verizon's plan might be considered a discount instead. The wireless provider consistently ranks at the

top of customer surveys, often

trouncing AT&T.

Tech bloggers' hearts were all aflutter when rumors recently circulated (yet again) that Jobs had the courage to cut the cord with AT&T. But sure enough, their

hopes were dashed (yet again) this week, when it became clear that Apple would not

offer the beloved iPhone on Verizon's network, but continue to offer it exclusively on AT&T. Investors also seemed to be disappointed, having wanted to hear about opportunities beyond the new and improved (but already-discovered) iPhone model, and AT&T's shoddy network. (Yawn.)

Since Jobs announced the exclusive deal with AT&T, the telecom giant has been making lots of headway riding on the iPhone's coattails.

Despite ongoing service issues and the higher cost, its wireless subscriber count has surged 43% since the end of 2006. Despite increased competition from low-cost providers like Metro PCS, its market share has climbed from 26% of U.S. wireless subscribers in 2005, to 30% at the end of last year, according to data from AT&T and industry group CTIA. At the same time, its churn rate -- the portion of subscribers who flip over to a competitor -- has dropped markedly, from 1.8% in the pre-iPhone days to 1.3% in the first quarter.

It seems that AT&T's iPhone domination has helped AT&T a lot, and it propelled Apple's device squarely into the mainstream. (We're not even going to get into the whole Europe-iPhone issue, or futile unlocking tactics here.) But, aside from the occasional upgrade, it hasn't helped customers all that much since its unveiling, and it won't help Apple get much more market saturation.

There may now be 87 million AT&T wireless subscribers, but there are another 200 million Americans that use other providers, some of whom are chomping at the bit for a chance at cellular luxury. America loves nifty, new-fangled technology, and there's a Pavlovian response every time the market or blogosphere whispers about a Verizon-Apple deal. Jobs might want to make the rumor reality if he wants to better serve his customers and his investors.

-- Written by Lauren Tara LaCapra in New York

.

Full disclosure: The author has been a contented T-Mobile subscriber since February 2006.