Analysis: Why is AT&T late on MMS, tethering for iPhone 3G S?

Billing issues might explain tethering delay, systems upgrades for no MMS

When it comes to the Apple Inc. iPhone, users want a lot of things. Among those things on their wish lists are MMS support and tethering that would allow them to use the devices to connect a laptop to the Internet wirelessly. Although both are possible on the upcoming iPhone 3G S, AT&T -- the exclusive iPhone carrier in the U.S. -- doesn't yet offer tethering and won't deliver on multimedia messaging until later this summer.

Which raises this question: What's taking AT&T so long?

The delays in offering both features, which are available on other networks, brought jeers from the developers attending the unveiling of the new iPhone 3G S yesterday at Apple's Worldwide Developer's Conference (WWDC). Not surprisingly, heated comments quickly mounted online.

And today, Free Press, a Washington-based nonpartisan group devoted to universal access to the Internet, issued a statement saying AT&T's delay is "impeding innovation instead of promoting it."

Chris Riley, policy counsel at Free Press, called on Congress to make illegal the kind of exclusive deals AT&T has with Apple Inc. with the iPhone. "We cannot afford to allow AT&T or any other company to stand in the way of progress," Riley said in a statement.

MMS (Multimedia Messaging Service) is a way to send photos, video and other types of digital media over a wireless network; tethering is a means of attaching a wireless device such as an iPhone to a laptop via a cable or Bluetooth and using the device as a wireless modem.

Mark Siegel, a spokesman for AT&T Mobility, expounded a bit more in an interview today about why both MMS and tethering have been delayed.

"The why on MMS is absolutely unrelated our 3G network," Siegel said in a telephone interview. "It has to do with internal systems upgrades and we want to have those ready before we offer MMS. We want to let customers know that the delay is unrelated to our network."

MMS will be available by the end of the summer, he repeated.

"With tethering, we will offer a plan for that and just have not said when yet," Siegel said. "I can tell you that both are a matter of when and not if."

Siegel, who had no more to add, declined to respond to the concerns raised by Free Press or others who have speculated about why AT&T is delaying both services.

Analysts widely believe that the delays are both because of the AT&T systems supporting the technology, if not because of the actual 3G network itself, and how prepared AT&T is to handle billing for the services, since it might lose out on revenues for broadband aircards now sold for laptops.

Jack Gold, an analyst at J. Gold Associates, said he felt the delay on MMS probably stems from AT&T's need for more network capacity to accommodate the larger files inherent with multimedia, regardless of what AT&T says officially.

MMS runs over a different technology infrastructure than SMS, which is restricted to 140 characters per message, and AT&T could be beefing up that capability, he explained. Gold also said that AT&T may be grappling with ways to get consumers to pay for that added infrastructure cost, as well.

As for tethering, AT&T is "very clearly" seeking a way to recoup the revenue it will lose if iPhone users resort to making the iPhone a modem instead of buying a laptop aircard and paying a monthly fee. "AT&T wants to sell you a dongle that gets you wireless access on a notebook, so very clearly it's an additional revenue issue for them," Gold said.

Gold said there is "probably" a way, albeit difficult, for AT&T to know whether an iPhone is tethered so it can then bill the user for that connection. But the more likely scenario is that AT&T will just keep monthly data caps at some level so that fees increase dramatically after a certain gigabyte limit is surpassed.

Both Sprint Nextel Inc. and Verizon Wireless recently raised the amount of data that can be transferred for a monthly fee using aircards, so AT&T may be factoring in the competition as it weighs how to deal with iPhone tethering, Gold said.

Tethering is also not seen as all that popular with many business users on BlackBerry and Windows Mobile devices. But that may be because the process is complex, offering Apple an opening to simplify it and make it more popular, analysts said today.

While the exclusive deal AT&T has with Apple was called into question by Free Press, Gold said the logical alternative to such an exclusive deal would be for users to buy the device without a subsidy and use it on other networks. But that would mean paying more money initially. "You could take the phone anywhere and pay $200 more for it to replace the carrier's subsidy," he said.

Users do pay more over two years' time with a subscription than $200, but many prefer having the lower device cost up front, Gold said.

Though neither side is talking, analysts believe AT&T is hoping to keep Apple's iPhone as an exclusive deal beyond 2010.

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