February 3, 2010, 11:00PM EST
The iPhone has swamped AT&T's data network and sparked a consumer rebellion. What can Ma Bell do?
By Roben Farzad
In mid-December, Fake Steve Jobs, the alter ego of widely read journalist and blogger Dan Lyons, posted the following appeal to his fellow members of iPhone Nation: "On Friday, Dec. 18, at noon Pacific time, we will attempt to overwhelm the AT&T data network and bring it to its knees. The goal is to have every iPhone user (or as many as we can) turn on a data-intensive app and run that app for one solid hour. Send the message to AT&T that we are sick of their substandard network. …Join us and speak truth to power!" Soon thousands of hooligans—or if you prefer, frustrated customers paying AT&T (
T) as much as $150 per month—took to Twitter and Facebook to join up.
Operation Chokehold might have been a landmark consumer uprising had the federal government not stepped in. Two days before the planned protest, Jamie Barnett, the Federal Communications Commission's chief of public safety and homeland security, issued a statement warning that to "purposely try to disrupt or negatively impact a network with ill-intent is irresponsible and presents a significant public safety concern." Doing so could interfere with 911 calls. Fearing a boomerang of negative publicity, the Chokeholders called off the stunt, but the popular backlash against AT&T raged on. On the Dec. 20 broadcast of NBC's Saturday Night Live, Weekend Update anchor Seth Meyers noted that Google's new phone might pose a threat to Apple's (AAPL) iPhone and added: "Also a challenge to the iPhone: making phone calls."
AT&T has stumbled into a quagmire. When it secured exclusive rights to support Apple's iPhone on its wireless network in June 2007, investors hailed the deal as a masterstroke. Here was stodgy, safe AT&T positioning itself to gulp profits from a cutting-edge technology. But AT&T and Apple vastly underestimated the iPhone's appeal. At launch, Real Steve Jobs said he'd be happy if the device could grab 1% of the global cell-phone market, or about 10 million units for 2008. Instead, Apple has sold at least 42.4 million—25.1 million in 2009 alone, 14% of the global smartphone market. AT&T, which markets the iPhone in the U.S., simply can't handle the traffic.
Making matters worse is the proliferation of "apps,">>>