The iPhone is grand, but is AT&T reaping the benefits of a new Apple "halo effect"?

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The past week on MobileCrunch

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Right now our biggest stories are about the iPhone 2 and how it’s going to revolutionize mobile communications. Apple did it before with the original iPhone, setting the stage for a number of wannabes and imitators. This means the bar for the follow-up handset is high, though Apple is likely able to hit the mark. With its shortcomings, there’s plenty or room for improvement in the iPhone.

That means that all eyes this week will be on the company Steve Jobs founded. But what about the other half of the iPhone equation, AT&T Wireless? Most people forget that a cell phone, as a piece of hardware, is pretty useless without the wireless network to make it work. Sure, you can unlock the iPhone and use it on any GSM network, but as it is most iPhone users stay with AT&T, and it’s not just contractual obligations.

AT&T has quietly been transforming into a much maligned poorly rated carrier into the high-techest carrier in North America, and the iPhone has a lot to do with the transition. But is it all iPhone, or is AT&T just playing it smart?

AT&T before it was AT&T, but after it was the first AT&T

The original AT&T Wireless was a fully owned part of AT&T, after the telecom giant bough a smaller cellular carrier and absorbed it. Later, it spun it off as its own company to maximize profitability. When this happened it also acquired its own customer service team. Though it was far from perfect, the service provided was reasonable. Later it rolled out a nationwide GSM network, alongside T-Mobile and Cingular.

T-Mobile was known for having good customer service and poor coverage. Cingular was known for the opposite, crap service and good coverage. AT&T was a compromise so it became quite popular.

About five years ago, Cingular bought AT&T, who rolled out its ill-fated M-Mode EDGE system while deploying its fast, next-gen 3G system. The two companies combined, but not without many growing pains.

Customers who were formerly AT&T had an ultimatum: switch to new Cingular plans — with a contract extension — or be shut out of upgrading services or handsets. This upset many long-time, happy AT&T customers. It was also a prelude to things to come.

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Eventually all customers were “converted” to the Cingular fold, but customer service nightmares were rampant in message boards. When calling for service, a user wouldn’t have any idea if they were going to get AT&T support (Blue) or Cingular support (Orange). There was no cross training, leading to horrible support on both sides, though it wasn’t the fault of the service reps. This went on for months and months until the Blue side was finally integrated.

Cingular went on to have some of the worst customer service ratings of any carrier ever. It was hemorrhaging customers to T-Mobile, happy that they could unlock their handsets and get better service with comparable plans without much up-front cost.

Meanwhile, SBC, majority owner of Cingular, bought up AT&T Wireless’s former parent, AT&T, rebranding itself with the ancient moniker. The “New AT&T” as it was called then bought up the other major shareholder in Cingular, Bell South. Having complete control of the wireless carrier, it was rebranded as AT&T Mobility.

The good news is that the mergers brought a new focus to the company formerly called Cingular, with the new entity having high marks in service. But it’s what happened next that starting the ball rolling to make it the second largest cellular network in the US.

Enter the iPhone

Before the merger took place, when it was just rumors on forums, Apple had inked a five-year exclusivity deal with Cingular for its iPhone. Steve Jobs cited Cingular’s advanced network as the main reason, as no other US competitor had the technology in place to make the iPhone’s Visual Voicemail work, one of the key selling points. While the iPhone at first didn’t take advantage of Cingular’s 3G network, there were other factors at work that made it an attractive partner.

As the Cingular to AT&T transition finished, the iPhone became one of the new companies greatest sellers. Apple negotiated for special plans for the iPhone users, meaning people could use the hardware to its greatest extent.

At the same time, AT&T added many mid-to-high-end devices to its lineup, including several Blackberries, Windows Mobile smartphones, and other feature-rich handsets. AT&T was aiming at the top end of the market, and at first analysts were worried it would cannibalize its own iPhone sales.

But the iPhone sold well enough. Soon, AT&T introduced the nation’s first video chatting system for handsets for phone-to-phone video calls. This is something communications companies have been promising for years, and now people finally had it.

There was concern, though, that it was only on particular devices. There weren’t many, and other than the video features they paled in comparison to the feature-stocked and elegant iPhone.

This is where the iPhone 2, with its purported forward-facing iChat camera, comes in.

The iPhone had without a doubt the industry’s best handheld Web browser as well as the best music phone ever made. With the update expected Monday, the iPhone should get the video chat as well. This means that the iPhone will be the top choice for any AT&T subscriber.

AT&T goes next-gen

What AT&T is excited about, though, is the interoperability. The video chat on the iPhone will work with any other video chat-enabled AT&T phone. With users flocking to the carrier for the iPhone, others will be happy with standard phones with the feature.

The technology the carrier has in place for this kind of communication, as well as the improved customer service, means that many people are looking intently at AT&T. The question is this: Does AT&T owe its current success to Apple? Or, more to the point, does it owe its success to the iPhone?

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There’s a “halo effect” that many attribute to the spike in sales of Mac computers. The idea is that the iPod was such a hit that people started to consider Macs again, or, put more simply, iPod sales boosted Mac sales. Could the halo effect also apply to AT&T?

A good indicator would be Starbucks’s recent decision to choose AT&T over T-Mobile to run its in-store Wi-Fi networks. The Wi-Fi service difference between the two would be negligible, and T-Mobile already had hotspots in thousands of Starbucks locations across the country. So why change?

Sure, AT&T was rumored to offer special discounts on Wi-Fi to iPhone users, but it’s likely that was only part of the reason. AT&T, with the iPhone, video chat, fast 3G connectivity, and growing happy customer base, is probably the top carrier in the US right now.

You can’t attribute it all to the iPhone, but having the sleek black-and-chrome multipurpose handset as its flagship phone, and with all things associated with it, certainly helps in the cultural cachet department. With luck AT&T can continue to use this momentum to stay on top, and on Monday we should get some clue as to what the future holds.

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