Apple iPad Adds to Pressure on AT&T

As Apple Chief Executive Steve Jobs unveiled the tablet-style iPad computer Jan. 27, many of his pronouncements were greeted with cheers. In contrast, his revelation that AT&T (T) would be the exclusive U.S. provider of high-speed wireless connections for the Internet-capable device was met with audible sighs.

The reaction reflects dismay with the performance of AT&T's wireless network and concern that adding the iPad will only add to the strain. AT&T is the exclusive U.S. carrier of Apple's iPhone, a device that already places heavy bandwidth demands on AT&T's equipment. Even executives of the phone company concede the network isn't up to snuff in New York and San Francisco. "Consumers may expect more from their iPad than the network can deliver at this point," says Shira Levine, an analyst with Infonetics, a telecommunications market research firm. "There's potential for more consumer dissatisfaction."

If Cupertino (Calif.)-based Apple (AAPL) has its way, iPad users will consume a lot of bandwidth-hogging media. The iPad lets users purchase and download books, movies, and other large files. Marketers may also find ways to deliver multimedia ads and other content wirelessly to the device. If the iPad is successful, "the volume of data would be the same the iPhone consumes plus another 50%," says Mike Manzo, chief marketing officer at Openet, a maker of software that helps carriers manage network traffic.

Only 25% of iPad Buyers May Get Data Plans

Not everyone who buys an iPad will use AT&T's network. Three iPad models that work with AT&T's 3G wireless-phone network will go on sale in April for $629 to $829, with an additional $14.99 or $29.99 a month for a service plan. In all, Apple may sell 3 million to 4 million iPads in the first year, and 8 million in 2011, says Gene Munster, an analyst at Piper Jaffray (PJC) in Minneapolis. As few as one-quarter of new iPad purchasers will add a wireless data plan, predicts wireless-industry consultant Chetan Sharma.

Many iPad users will instead access the Internet using Wi-Fi networks in homes and other locations, AT&T executives said on a Jan. 28 conference call discussing the company's fourth-quarter results. Three iPad models will be Wi-Fi only. The iPad "will be used a substantial amount of time in a Wi-Fi environment," AT&T Chief Financial Officer Richard Lindner said on the call. While the iPad's 1.5-pound frame makes it easy to carry from place to place, the device's 9.7-inch screen makes it too big to fit into a pocket.

AT&T's data-plan pricing may go part of the way toward alleviating network strains. Users who pay $29.99 a month can consume unlimited data. That plan "certainly could tax an already taxed network," says Gerard Hallaren, director of research at TownHall Investment. Those who opt for the cheaper plan may deliberately consume less data for fear of exceeding caps. Because they've spent less, they'll also feel less obligated to use big allotments.

AT&T to Spend $2 Billion on Upgrades

For those who opt for AT&T's 3G service plans, the company says it's working on upgrades designed to reduce the number of dropped calls and poor connections. AT&T will spend about $2 billion to improve its ability to deliver wireless calls, John Stankey, CEO of AT&T Operations, said during the Jan. 28 conference call. AT&T is adding twice as much capacity to its network in 2010 as it did last year, he said. The company is also adding 2,000 cell sites, which play a role in delivering wireless calls, and says it will extend 3G coverage by 400,000 square miles through the acquisition of certain wireless assets.

AT&T spent $21 billion improving its network between 2006 and September 2009, Ralph de la Vega, president of AT&T's wireless division, told attendees of the Consumer Electronics Show in Las Vegas in early January.

Network improvement plans by AT&T have met with Apple's approval, Tim Cook, Apple's chief operating officer, said during a Jan. 25 conference call. "We have personally reviewed these plans, and we have very high confidence that they will make significant progress toward fixing them," Cook said.

Now, AT&T will need to get the message across to users.

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