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Apple’s iPhone: Beware of Poisonous Pips

Amygdalin may sound like a Star Wars character, but in fact it’s a precursor to cyanide found in apple pips. And your daily Gala, Fuji, or Cox’s Orange Pippin isn’t the only fruity offering with a potentially harmful ingredient inside.

The Apple iPhone might just look to some like a dodgy cameraphone that you can’t operate one-handed. But lurking under those curvy plastic corners lies an assault on the pulsating the heart of the mobile operator.

Bypassing operator charges for services has been a pastime for hackers and users since the first networks were deployed. With the arrival of the Internet, going ‘over the top’ is perfectly legitimate. However, there are serious limits to what can be achieved. Sometimes this is because the handset is locked down — e.g. the application can’t access the voice processing path, radio or address book. [There’s a deeper analysis of this in our Voice & Messaging 2.0 report.] But more fundamentally, mobile phones aren’t just little shrunk-down PCs. They have to live with severe constraints, most importantly battery life.

This is important as many of the ‘over the top’ alternatives to traditional telco voice and SMS messaging have foundered on this rock. The application needs to keep activating the radio to poll for new messages.

Radio networks carrying phone and SMS traffic are very efficiently crafted to avoid waking the end user device unnecessarily. When a call comes in a special paging channel is used to signal ‘Wake up number 787919823239832, it’s your turn!’. The phone is an ‘always off’ device, unlike a wired PC which is ‘always on’ as far as the rest of the world is concerned. (SMS manages to get the whole messaging stuffed down this side channel.)

Apple have resisted calls to allow what are known as ‘background apps’ on the iPhone. Letting applications run continuously in the background can suck up battery power, deplete memory resources, and generally make things treacle slow. Instead, Apple have launched a Push Notification service to wake up the phone, and you have to initiate that request through an Apple platform.

Operators should tread very carefully here. Apple could easily offer to integrate with the paging feature of host networks (or kludge it with SMS) to increase the efficiency of this process. The telco then has no monopoly over reaching to the user and activating the phone using the paging service. Apple can bunch notifications from many applications, since they control the whole application ecosystem — and future presence-driven apps are likely to be very chatty. And you don’t have to be too bright to realise that one of the most likely things to be pushed to a phone in future is an advert, mediated again by Apple.

As a by product of having Apple in the middle, it could also solve a lot of privacy problems associated with background applications running, such as location data being passed without your real knowledge. There’s also the potential to filter noxious or intrusive messaging.

In addition, Apple can data mine the application message stream — and it’s been a telco’s dream for years to mediate such flows (what else is IMS for?). No doubt the first use of such data will be to optimise both their own application portal, which incidentally obsoletes the telco’s own efforts and eliminates that as a VAS revenue stream (and turns it into an all-you-can-eat data cost centre instead). If iPhone users do really generate three times the browsing traffic of other smartphones, and a zillion times that of featurephones, then it doesn’t take massive market share (stimulated by the new low price point) for the iPhone to de facto become the mobile web.

On top of this, the MobileMe data synchronisation services captures lots the key user data which could be the foundation for future 2-sided market models.

So Apple have an interesting solution to a real technical problem with their push messaging, coupled to a powerful back end. But under that tasty, shiny skin lies a potentially bitter taste for the operators who swallow the fruit. And Nokia — are you ready to finish your back-end platform yet? The telcos need an alternative, quick!

But, it is not all doom and gloom for operators as Apple has provided a rubber stamp to the subsidy-driven business model. They’ve also ceded pricing power back to the operator: that headline price drop for the device masks a hefty price rise for the service. We are firm believers that control of edge devices — handsets, home hubs, set top boxes, media gateways, home automation systems — is vital for both fixed and mobile operators. The easiest way of achieving this control is by paying upfront for the device and recovering the cost over a subscribers lifetime.

There has always been a fierce debate as to the extent that individual handset demand is driven by the handsets themselves and the attractiveness of the features within them, or operator subsidies and length of contracts. It is a complex relationship with many variables playing a part, and at least now in the Apple ecosystem the chosen operators have one variable firmly within their control.

The other important area of the control is the applications (and most importantly revenue stream from them) that run on the handset, and Apple seems to be firmly in control here and probably more so than either the operator or upstream application developers or content providers currently realise (see above). The operator secures the basic voice and data revenues, but the handset is capable of much, much more - witness the tension between the Nokia Ovi services and the operators.

A key battle ground here appears to be music: it seems these days that everyone under the sun has their own music store, with iTunes being the runaway market leader. However, Apple does not currently have permission here from the major labels to provide over-the-air music downloads, and therefore music for the iPhone currently will have to continue to be sideloaded from the PC. This is a major hole in iPhone functionality, especially when compared to the Nokia Comes with Music or white-labelled Omnifone service,

This just shows that tension does not only exist between the handset players and the operators, but also the content providers want a “reasonable” slice of the action as well. In this case, the music companies probably have a long shopping list of requirements gathered from their years of experience with iTunes.

To their credit, Apple has shown through the acceptance of subsidies that their business model is flexible. We believe that Apple will have to show a lot more flexibility in the future if the iPhone is going to be a real mass-market mobile device rather than the healthy niche it currently occupies.

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Since EMN is more efficient than keeping an IP connection up and since only carriers have priority access to the paging channel, I think they are better positioned to offer Push Notification service. I anticipate that they will be offering SMS like service but with immediacy and reliability of notification an incoming call.

iTunes content doesn't have to be sideloaded - you can buy from the handset via the software on the phone and a wifi connection. It's just buying it OTA via the operator network that you can't do - and from what I read, only because the networks unsurprisingly want a cut if they are to allow it.

Aswath, indeed operators have an advantage network technology wise, but Apple, Nokia Ovi, Google Android etc. are in a much better position to attract and lock-in application developers and hence end-users.

Excellent article!
Also worth noting that this Apple platform supports iPod Touch and presumably it will help with service mobility between Wi-Fi and cellular.

Nice article, pretty much spot on except I really don't think you'll see Apple pushing adverts to the iPhone, point is very valid for Google's Android though which this article could equally have been written about.

I believe Apple is totally focussed on defining the next computing platform (mobile), that these devices currently need Telco co-operation for network access is an inconvenience (for Apple, arguably also consumers), but long term that's not going to be an issue anyway.

I guess my point is, this was all going to happen anyway, that Apple is doing it now is nice for us gadget freaks but essentially the Telco VAS concept was always going to end ungracefully.

Companys and Telcos allow RIM exact the same access I don't see the difference.
Any manager who wishes to use a Blackberry is allways aware that now RIM has a free path right into the heart of his company IT infrastructure.

For Nokia or anyone else, it'll take more than just a factor or two to overmatch the iPhone, as I explain in:

Who can beat iPhone 2.0?

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