All Things Digital

So those reports that AT&T (T) would subsidize $200 of the cost of the iPhone 3G? Way off. According to Oppenheimer analyst Yair Reiner, the carrier is actually paying Apple $325 in subsidies on each iPhone 3G. And another $100 if the purchaser is a new AT&T customer. That’s $425 in potential commissions per device sold. That’s unprecedented in the industry.

So what was AT&T’s reason for agreeing to pay it–other than the warm glow it felt during subsidy negotiations with Apple CEO Steve Jobs? AT&T’s faith in the iPhone’s ability to attract new subscribers, apparently. Not to mention those subscribers’ penchant for running up a $100 tab each month in data and calling services.

One last point worth noting here. That $425 Apple (AAPL) is said to be collecting is even more impressive when one considers the fact that the iPhone 3G costs about half as much to make as its predecessor. Tear-down specialist Portelligent put the new model’s bill of materials at somewhere around $100.

Apple’s much lauded iPhone captured 28% of the smart-phone market in the States by the fourth quarter of 2007–just six months into its launch. Today it holds something less than that–about 19.2%. But to look at the headlines, you’d think it controlled the market in its entirety. A quick search on Google returns 19,035 results for “iPhone”– from Jun. 2, 2008 to today. Why? Because in a few hours, Apple CEO Steve Jobs will address the company’s Worldwide Developers Conference in San Francisco, at which he is expected to unveil the next version of the company’s iPhone.

And for Apple’s (AAPL) sake, I hope he does. Because with expectations running this high, I’d hate to see what happens if he doesn’t. Although the new Apple Store housed in a life-size replica of the Golden Gate Bridge pictured in the invite would certainly take some of the heat off …

Anyway, I’ll be live-blogging from inside Moscone West in San Francisco starting at 10 a.m. PDT. Here’s something to read while you wait …

• From Moscone West: This is crazy. They just opened a single door to let cameras in and the media rushed the gate. Its like that 1979 Who concert in Cincinnati.



• The hall in Moscone West is filling quickly to the sounds of Jerry Lee Lewis. From the looks of it media and developers are here in equal numbers.
• Jobs takes the stage. I’m sitting about 20 rows back, but even I can see he’s looking pretty thin from here. He gets right into it, pulls up a slide of a stool and describes Apple as a three-legged company. Macs, music and the iPhone.
• Jobs will spend the morning talking about the iPhone. This afternoon Apple will discuss OS X “Snow Leopard.”

Read more »

AT&T (T) is on track to complete the upgrade of its 3G mobile broadband network by the end of June.

Good thing, too. Because we’re just weeks away from the eagerly anticipated launch of Apple’s 3G iPhone and AT&T–Apple’s exclusive wireless carrier in the states–certainly doesn’t want to foul up the debut of the second-generation iPhone, the way it did the first. Because if it does, AT&T Mobility CEO Ralph de la Vega won’t be activating his own 3G iPhone until it’s been surgically removed by a doctor. Apple (AAPL) CEO Steve Jobs does have a bit of a temper.

Anyway … AT&T’s network upgrade is just six markets away from first-phase completion in 275 cities (second-phase roll-out will extend it to another 75). And when it launches, it will be the first and only network to run on a technology called HSUPA, or High Speed Uplink Packet Access. HSUPA should provide speeds of 1.4 Mbps down and 800Kbps up, which AT&T asserts “will be as speedy as logging onto the high-speed Internet service that many consumers enjoy at home.”

Hope so, because logging onto AT&T’s Edge network is about as speedy as logging onto the Internet with a 56.6 Kbps fax/modem.

Dust off your sleeping bags and Therm-a-Rest and get in line, Apple’s 3G iPhone will reportedly arrive at market in just a few weeks.

“Someone very, very close to the 3G iPhone launch” tells Gizmodo that the device will debut as expected at Apple’s (AAPL) Worldwide Developers Conference 2008 on June 9 with immediate availability.

A plausible rumor, and one that jibes with other similar ones we’ve been hearing for some time now–specifically the one about AT&T (T) employees being asked not to schedule any vacation between June 15 and July 12 to ensure sufficient staffing for “an exciting summer promotional launch.”

Normally a consumer product announcement at WWDC would seem unlikely. That said, it would make sense for Apple to uncrate a next-gen iPhone at the event this year, given its recent software roadmap and SDK announcement. Wouldn’t it?

Apple (AAPL) CEO Steve Jobs is so intent on extending his company’s lead in online music sales to the mobile market that he may finally be willing to give up the one-price-fits-all model that’s long been a cornerstone of Apple’s iTunes Music Store’s business model.

Cupertino is reportedly in talks with some of the major music labels about adding over-the-air downloads and a greater variety of ringtones and ringbacks to iTunes in advance of the debut of the 3G iPhone. But getting the labels to agree to such a thing may come at a price, or rather a variable-pricing model.

The labels have long wanted iTunes to abandon its policy of selling songs at a flat rate of 99 cents in favor of a variable-pricing system that allows them to charge more for popular tracks. In the past, they haven’t had the leverage they needed to force Apple to do this. But with the mobile music market at stake and the company gunning for a big 3G iPhone launch come June, Apple may have no choice but to agree to the labels’ terms.

“[Mobile is] clearly an opportunity Apple is missing,” IDC analyst Lewis Ward told Wired News. “And Apple is going to want to do it all themselves, but these OTA music storefronts have not sold very well. Maybe there’s secret sauce Apple’s thinking about, but the track record [of mobile music and ringtone stores that require a credit card rather than charging users via their cellphone bills] has not been impressive to date. The real issue is billing. People are much more comfortable with paying through a carrier [because] you don’t have to enter a credit card number or be worried about security. … That puts the carrier in the supply, and the carrier is going to want their cut, which means the margin for Apple goes lower.”

As the anniversary of the iPhone’s market debut approaches, the Mac faithful are quickly succumbing to Apple (AAPL) Rumor Seasonal Affective Disorder, an ailment most often associated with the lead-up to Macworld.

Fueling that trend today is a memo, purportedly leaked from inside AT&T (T), instructing employees not to schedule any vacation between June 15 and July 12 to ensure sufficient staffing for “an exciting Summer Promotional Launch.” This, of course, is being taken as proof positive that the 3G iPhone will arrive at market sometime during that timeframe. And for good reason, AT&T issued a similar mandate last year prior to the iPhone’s official debut.

Meanwhile, Vodafone (VOD) and Telecom Italia (TI-A) said today that they’d both won contracts to bring the iPhone to Italy this year, the first time Apple has allowed two mobile carriers to distribute the device in a single country.

An interesting bit of news and one that lends some validity to recent reports that Apple is stepping back from the exclusive iPhone distribution arrangements it’s been inking to spur iPhone growth abroad. “Apple’s either turned a corner that they’ve had to turn, or that they’ve chosen to,” Technology Business Research’s Ezra Gottheil said of the Vodafone and Telecom Italia deals. “I don’t know if they prefer the exclusivity, and the revenue sharing that goes along with it, or just prefer to sell iPhones and grow their share of the [handset] market.”

Well, Apple Insider isn’t paying much mind to the sudden closure of its Mac rumor site brethren earlier this week. Citing the same sort of “people familiar with the matter” that got Think Secret into trouble, the site today reports that Apple plans to adopt Intel’s upcoming ultra-mobile Silverthorne chip in “not one but multiple products currently situated on its 2008 calendar year product roadmap.”

Silverthorne, part of Intel’s “Menlow” Mobile Internet Device platform, reportedly runs as fast as a second generation Pentium M processor, but consumes between half a watt and two watts of electrical power–about a tenth of the power consumed by a typical notebook processor. No wonder Apple’s said to be interested in the chip. It would appear to be perfect for a number of devices rumored to be secreted away in its product pipeline–the FlashBook, the multitouch Newton, the Mac tablet.

That said, we’ll likely not see it popping up in a 3G iPhone, though at first glance it would make sense there as well. “According to several iPhone teardowns, Apple is likely using the Samsung S3C6400, or some special equivalent built just for them, in the iPhone,” explains News.com’s Tom Krazit. “That chip is based on the ARM1176 core, which at 620MHz consumes just 279 milliwatts. That’s running all-out, whereas most of the time you’re actually going to be drawing much less power than that. Silverthorne, by contrast, will consume 500 milliwatts of power at minimum, and probably only when it’s doing nothing in idle mode. Those numbers just aren’t going to work in a phone, especially an Apple phone, if the company really is so concerned about power consumption that it has held off on releasing a 3G iPhone until the power consumption of that modem improves.”

Bet that $6-per-handset settlement Broadcom offered Qualcomm back in June is looking pretty good to the chip-maker right now. Yesterday, the Bush administration let stand the International Trade Commission ban on the import of devices using Qualcomm chips found to infringe on Broadcom patents.

“After extensive review, DHS [Department of Homeland Security] has advised that it does not believe there are public-safety risks sufficient to justify disapproval of the USITC’s limited exclusion order,” U.S. Trade Representative Susan Schwab wrote in her decision. “DHS has also advised that Broadcom Corporation’s offer of royalty-free public-safety licensing to state and local public safety organizations and its licensing agreements with two major wireless carriers will ameliorate to a significant degree concerns regarding the order’s potential effect on public-safety wireless broadband systems and 3G network deployment. We also understand that other market participants are investigating the use of a noninfringing software workaround. We believe that such licensing agreements and workarounds will address in large part the concerns raised about delay in 3G network deployment.”

Quite a nasty turn of events for Qualcomm. The company had lobbied–fiercely–for White House intervention to reverse the ITC ruling, arguing that allowing it to remain would harm consumers, telecom carriers and handset makers. But the administration apparently didn’t buy it, and without the sort of deus ex machina it could have offered, Qualcomm is nearly out of options. It is facing an immediate ban on all forthcoming handsets running its WCDMA and EVDO chips–a potentially devastating blow to the company’s hugely important chip IP licensing business.

“If I’m one of Qualcomm’s customers, I’m furious,” Gartner analyst Michael King told the Associated Press. “My product line has the potential to be disrupted. The merits of the case notwithstanding, the fact they let it get this far is going to be somewhat unconscionable to their customers.”

Qualcomm, which is working on a software workaround to avoid any infringement on the Broadcom technology in question, is pursuing a stay of the ITC ban. Third time’s a charm, right?

Sucks to be Kevin Chang. The JP Morgan analyst who earlier this week predicted a forthcoming iPhone nano was thrown under the bus for doing so yesterday. By his own colleagues.

“We believe that iPod Nano will be converted into a phone because it’s probably the only way for Apple to launch a lower-end phone without severely cannibalizing iPod Nano,” Chang told Reuters. The new device would have “rather limited functionality,” he added, but at a price of around $300, would be attractive to millions of people who want a snazzy new phone but who wince at the idea of spending $500 to $600 on one.

Now, leaving aside for a moment the probable impossibility of compressing the iPhone’s robust technology into a nano-sized form factor, don’t you think a lower-end iPhone based on the nano design would, you know, defeat the purpose of having an iPhone? Certainly, it would render the device’s Web browsing and video features useless.

Little wonder, then, that a trio of Chang’s New York-based colleagues issued a note yesterday warning clients against putting much faith in his report. “One of our colleagues in Asia, Kevin Chang, published a note discussing his expectations for a low-end ‘Nano’ version of the iPhone,” the note reads. “We caution that the potential for a low-end, subsidized phone from Apple seems unlikely in the near term. Perhaps Apple will choose to eventually replace its iPod family with phones over time, but it would be premature to assume this will happen in volume anytime soon. Our view is that the next iPhone will be 3G and remain a high-priced, nonsubsidized model.”