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Monday, July 13, 2009, 03:55 pm PT (06:55 pm ET)

Apple's iPhone "wrecking" the cell industry

While many iPhone owners hail Apple as saving them from greedy cellular carriers, an analyst now says the company has overturned AT&T and the entire wireless industry — and not always for the better.

Analyst Craig Moffett of Bernstein Research likens the relationship between Apple and AT&T as that between the former and music labels dating as far back as 2001, when Apple first had to ingratiate itself with labels as it incorporated music CD ripping into iTunes. Apple at first won important concessions and praise from its partners, only for them to regret it later as the iPod maker's popularity left these companies at the supposedly smaller company's mercy.

When it comes to carriers, particularly AT&T, the researcher sees them as just now realizing the bad bargain they'd struck for themselves. As late as this spring, AT&T has continued to praise the iPhone as virtually saving the company from the US economy's fallout by driving customers to its network and encouraging them to spend more on data plans. But with the launch of the iPhone 3GS in June and the 3G congestion problems in the months leading up to the handset's debut, AT&T was increasingly cast as Apple's anchor — keeping a good device locked to a carrier that doesn't enable features like MMS and tethering.

"Apple has stolen the march, and in the process has recast AT&T from hero to villain," Moffett says. "At Apple’s June developer conference in San Francisco, where Apple unveiled its new [iPhone 3GS], AT&T was roundly jeered at every mention by the more than 5,000 application developers in attendance... even Apple itself seemed uncomfortable talking about its U.S. partner."

The attack is such that Apple has all but taken control of the partnership, according to the analyst. Now, the Cupertino company has "radically tilted" the normal balance of power against AT&T and cellular networks as a whole. If Apple preferred another carrier, many iPhone owners would switch to preserve the experience they already have; an incentive that forces carriers to keep the handset maker happy. At times, though, it also has the caustic effect of suggesting an conspiracy at the carrier to limit useful services, such as voice over IP calls, when cost or technical reasons are the real motivators.

And while the US government may be close to investigating exclusivity deals as possibly anti-competitive, Moffett argues that Apple's presence in the marketplace has actually helped competition by forcing companies to keep reasonable service rates and let apps dictate business rather than network services. Government intervention could paradoxically hurt the industry by telling providers how much they could discount a phone and hardware developers which networks they would have to support. Leaving Apple to pursue its usual path with corporate partners is considered the best route as it may keep those firms honest.

"In short, the iPhone seems to be doing just fine at wrecking the wireless business without the government’s help," the analyst notes.