Participating in the interview are Engadget's Chris Ziegler and Paul Miller.
Chris: Ralph, thank you for joining us. The first question that we want to dive into is AT&T has had a number of unplanned outages in recent weeks. I think there was one in the Midwest, there was one in Texas, there was one in New York a few weeks ago if I'm not mistaken. So my question is, is AT&T doing anything to sort of mitigate that?
Ralph: Yeah, of course, we work around the clock to make sure that we prevent outages. In fact, the one in Texas, it happened because a fiber was cut. So, we typically provide redundant facilities just to, you know, prevent something like that from occurring. When we did the root-cause analysis, we found that there was a small section of the route where it should've been diverse and the fibers in the same cable or sheath, they shouldn't have been. And, of course, of all the miles that that fiber runs, that's where the guy dug and cut the fiber, so we have gone and now looked at the rest of the country to make sure if there are any frailties we understand what the frailty is so we can fix it, but typically where we do a major run like that, we have -- for example, the fiber on one street that is the transmit, and (inaudible) is a few streets down so that even if they cut one, they don't cut the entire facility, and in this case, it happened that they hit it in the right spot. And so we're doing that, but also, we're working with local authorities to make sure that people locate before they dig, you know, so that they don't damage facilities like that. But we work around the clock to maintain reliability because that's what customers expect and want their service to work all the time.
Paul: I get the impression that at least our readers sometimes sense AT&T outages more often. I don't know if we have a way to track what network goes down more often, but would you be able to speak to frequency related to other carriers?
Ralph: I can tell you that the way that we track, we don't see any big significant difference. When you're talking about reliability, we measure it, you know, four or five nines, so it's 99.999 if it's... you're at a really top quality network, it'll be up 99.999, five nines, and so when you look at how much outage time you have, in light of all the time the network is up, is relatively small, but any customer that experiences an outage is going to be impacted. I can't speak to what your customer base may see, but our reliability is very good, but we did have that case in Texas where somebody came in and dug a trench and hit our fiber cable. And the one in the Midwest, it was a power outage where the power went out and there was a problem with the generator, and it failed to kick in like it should have. So in both cases, we designed the network like it should've been, and it was by a small failure that resulted in the outage.
Chris: Okay. And on a related note, as I'm sure you're aware with the original release of the iPhone 2.0 firmware, there were some reception problems that ended up getting slowly resolved over the next few revisions. But I think that people are still seeing an increase in dropped calls on the 3G network versus the 2G network, and I can say that I've personally experienced this where if I switch an iPhone from 3G to 2G, I tend to experience fewer dropped calls. Is this something AT&T is aware of, or is this something that's inherent to the technology?
Ralph: I think, first of all, we track dropped calls on the iPhone, and they're definitely way down compared to the way they were before the release went in, so we track that, you know, weekly and we know whether it's improving or not, and it's improving. In fact, it's kept improving. When you have a 3G network, if for whatever reason you're going from 3G to 2G, then you have a greater chance while that transition is made that you're going, you're driving out of a 3G area into 2G, then you may have a slightly higher chance of dropping a call than if you were in 2G all the way. And that may be what you're experiencing.
Chris: And that's a problem that's inherent to the technology, correct?
Ralph: No, it's a problem in tweaking the handoffs between the phone and the cell sites so that it works really, really well. And then to minimize the handoffs so that you don't have very many of them, and that's what we work with Apple and that's what we do ourselves, try to make sure that you eliminate as many of those borders where that transition takes place as you can.
Paul: Are there further software updates that you anticipate on the iPhone to...
Ralph: Oh yeah, yeah. They're going to continue to update and...
Paul: ...but network-specific?
Ralph: Yeah. They're continuously looking for, and we communicate with Apple and say, you know, if we tweak this it would work better, so they've been very good about working with us and making sure that as we look at things to do the drop calls there, they're going to implement it.
Chris: Do you see a higher number of dropped calls with the iPhone versus the other 3G phones in your lineup?
Ralph: There are phones that have higher dropped call rates and there are phones that have lower.
Chris: Okay. Can you speak to where the iPhone falls in that range?
Ralph: No, I don't think it'd be appropriate. But just leave it to say there's some that are better, some that are worse.
Chris: Okay. Well, to change gears a little bit, obviously buzz with the Pre has been very high since its announcement, and AT&T has a history of working with Palm, has a history of partnering with Palm, you have Palm devices in your lineup and you always have. Can you speak about the relationship there? Are you going to pursue the Pre? Is this something AT&T's interested in?
Ralph: I think it'd be premature for me to talk about the Pre at this point.
Chris: More generally, can you speak about webOS-based devices? I know that you said in the past...
Ralph: Palm devices, or...
Chris: webOS, specifically. Or you can't speak to that?
Ralph: Ah, well, they're the ones providing it now. Do you know somebody else who's doing a webOS-based device?
Chris: Well, no, I mean the Pre versus webOS in general. You said that you can't speak to...
Ralph: Oh, okay, okay. Well, I don't have much to tell you in terms of webOS other than the first time I've seen it work is with the Pre and I think that it's an interesting innovation and an interesting application of that OS, and I like the... when I saw it, I thought that it has good functionality.
Paul: Outside of the Pre, are you continuing... is there room for further Palm devices otherwise?
Ralph: We continuously look for the next great device. Whether it's Palm, or Samsung, or LG, we're always looking at all the device manufacturers and we regularly talk with every one of them so we understand their roadmaps, what technology they're bringing to market, and we put a lot of focus in that because we want to make sure our customers get access to the best technology in handsets that's out there. So yeah, we talk to all of them -- not just a few, we talk to just about every maker.
Chris: Okay, and expanding on that a little bit, I heard you speak at CTIA last year and you mentioned that... you mentioned basically the same comments about Android at that time. You said that you thought that it was promising, you liked what you saw, but that was at a time when there were a lot of questions about why AT&T wasn't in the OHA. I'm wondering if your thoughts, your opinions have changed since then. Has AT&T's direction with Android changed at all?
Ralph: No, actually, I think that they have been somewhat validated in that... we like the Android as an operating system on its own, but we want to make sure that we have, and customers have the option, to put applications on that device that are not just Google applications, so when the G1 came out and T-Mobile launched it, it's primarily a Google phone. And we want to give customers the choice of other applications on that device, not just the same Google applications.
Chris: So you're basically waiting for Android to be de-branded, so to speak?
Ralph: Well, to be open. (Laughter.) Right? I mean, the whole idea behind Android is that it's gonna be an open OS, and so I don't wanna roll an open OS to market that has primarily Google apps on it, and I think that's gonna happen. I mean, I see a lot of activity, I think it's got a good future, and I think it makes a lot of sense that the OS is open-source, separate from Google apps that are also very good.
Chris: So you don't have any concerns about the stability of the platform, or the commercial viability of it? We saw Vodafone make an announcement today. So you're comfortable...
Ralph: Well, I am not 100 percent comfortable until our people kick the tires on it in the lab, and what worries me most is malware and security and privacy issues that can get into that phone. You know, T-Mobile has had a couple of issues as you know, and so it validated our concerns that we had up front that... I don't mind having the open OS, but I want to make sure that when our customers use it, their security or their privacy is not going to be compromised. That they're not going to be subject to attacks and malware.
Paul: Were you to... down the road, you're confident that it's malware-free, and its open, is it something that you guys would be interested in putting your own services in? Is that something that you...
Ralph: Sure, we'd be interested in that.
Chris: Okay. Turning our attention back to the iPhone, obviously we've heard a lot of rumors that there will be new models in 2009. I think it's a foregone conclusion that Apple's working on new iPhones, of course they would be... what is the status of AT&T's relationship with them? Do you want to continue to pursue exclusives, or is there anything you can talk about there?
Ralph: I can't speak to what Apple is doing in terms of new devices and new products, but I can tell you that our relationship has never been better. Both companies are doing well, we already like what we have seen. The App Store has already been a huge hit beyond anyone's imagination that it could take off so fast and do so well, so I think that everybody's pretty thrilled about where we are today.
Chris: Okay, but you can't speak about the future of that relationship?
Ralph: No, I don't think it'd be appropriate for me to speak on behalf of Apple.
Chris: Okay. Prior to the Android announcements today, the major focus of this event seemed to be Windows Mobile. A lot of 6.5 announcements, 6.1 devices that are going to be upgradeable to 6.5. Do those announcements have any effect on AT&T's perception of Windows Mobile? Are you going to increase your count of Windows Mobile devices? Is that something you'd look at doing?
Ralph: We actually are one of the top sellers of Windows Mobile devices. You know, Steve Ballmer and Microsoft's team have been good partners with us, and we look forward to working with them on 6.5 and 7.0 and all of the other innovations they're going to come up with because I think it has a place in the marketplace. Customers know Microsoft and want Microsoft, so we're going to provide it to them.
Chris: So, a lot of carriers in the past 12 to 18 months have been saying that they're looking to pare down to 2 or 3 core operating systems across their entire lineup in an effort to reduce support calls and sort of mainstream their operations, or, you know, make them more efficient. That doesn't appear to be the direction you're going.
Ralph: Yeah, in fact, I mentioned that at my talk today that a year ago there were some carriers that said that we're gonna... we need to reduce the number of OSes and a year later, there's more. A year ago, there wasn't Android, it was just getting started, and now webOS is here, and so now you got two more and I'm sure next year there may be something else, so I think that perhaps we need a different approach. We're gonna try to get some commonality of applications or widgets across handsets that we haven't seen up to now. The point that I made today is that I think we need to... the industry needs to work together to provide APIs, to facilitate the widgets and small applications so that they can be ported from different devices, different platforms, different OSes. Not everybody agreed with me but I think that's a very good way of putting apps that go across different devices and platforms.
Chris: And is that something that AT&T would actively invest in?
Ralph: Yeah, actually, I said this morning that we're supporting the BONDI initiative from the OMTP that tries to get standardization and APIs established so that browsers can enable widgets that are Web 2.0-like to work between platforms, and I think that's something that should be very viable and very doable.
Chris: Okay. Can you talk a little bit about the status of your 3G buildout? Where are you with that?
Ralph: Yeah. We actually have more than 320 cities that are now 3G capable [AT&T has written us to let us know that they're actually at 350+. -Ed.]. We're going to continue to increase the number of cities, the number of the population that's covered, and we'll be finishing this year converting the frequency band that is used in some major cities for 3G from 1900 to 850, so by the end of the year, we'll finish San Francisco, we'll finish parts of New York, and then that'll bring the best technology 3G on the best backbone to significantly improve the quality and the coverage for 3G on our network.
Chris: And are you looking to sell that freed-up bandwidth or repurpose it?
Ralph: No, we're gonna use it. I think there's a pent-up demand that we were talking about before as we expand 3G and as you expand coverage with 3G, there's less of a need for the call to go from 3G to 2G, and so quality improves, coverage improves, and I think that's what you're gonna see us do. We're also looking to improve the speeds of our 3G network. As I mentioned before, we have the infrastructure capability to go to 7.2, and we'll have the capability to go 14.4 and 20 in the next couple of years, so I think there's coverage we're going to improve, there's quality we're going to improve, and there's speed that's also going to get improved.
Chris: Okay, now going back to the EDGE launch several years ago. It was really striking how quickly that, you know, it started in a few pilot markets then spread across the entire country. And I know that was a different situation because that, by and large, was a software upgrade whereas this is an entirely new infrastructure, but do you foresee a point where you're at 100 percent 3G coverage?
Ralph: Yeah, I think there will be some time in the future, but we haven't necessarily put that stake in the ground. I think our objective is to get most of the country's major population centers covered, and then we may decide to use some of the 700MHz spectrum to cover the more rural areas because it works better in those remote scenarios, so we're studying how to get it to the last 10 or 15 percent.
Chris: Do you have any concerns about getting manufacturers on board for creating 700MHz devices?
Ralph: What kind of devices?
Chris: 700MHz devices.
Ralph: Oh, no, absolutely not. They are built... they'll come to town. In fact, they already have some that are prototyped, so that won't be a problem at all.
Chris: Okay. And is this something where you'd expect your entire lineup to eventually have 700MHz capability?
Ralph: Oh, no, I think that just like we did with 3G, first thing you're gonna see is probably data cards that are 3G data cards that actually are dual-propose... you know, 700 and the other frequencies we use. And then it'll eventually migrate to handsets. But the way it usually works, it gets introduced... because, you know, it's hard to build out a complete network on 700 down the road, so I think it goes in stages. That's what we have seen happen in other times.
Chris: And on a related note, where are you with LTE?
Ralph: We think that LTE, for us, will be in the 2010, 2011 time frame. We are, right now, capable of taking our network and improving the speed of it up to 20 megabits per second. So we think that carries us through the next year, year and a half, then I think you begin to look at LTE as the next step.
Chris: And we've mentioned this a couple times on the site, that there appears... it looks like there's going to be a somewhat awkward period where Verizon is going to be the first to upgrade to LTE before AT&T just because their technology path is at a dead end right now. So are you worried about that overlap where maybe Verizon has the better technology that's rolled out?
Ralph: No, actually I feel exactly the opposite. I think we're much better off to say that they don't have a way to improve the majority of their footprint for the next year, because they're going to have to build a whole new network nationwide. We don't have to build the new network. We've already got HSPA, and when we go to release 7, and we can go all the way up to 20 megabits per second, and so I think for the next couple of years, AT&T will have the best and the fastest 3G network in the country while Verizon and others are continuing to look for what to do with LTE or WiMAX or whatever they decide to do.
Chris: Okay, and what's the status of your 2G devices? Do you still have any in the lineup?
Ralph: Oh yeah, yeah, sure.
Chris: And are you going to continue to sell 2G devices for the foreseeable future?
Ralph: At the lower end of the market, I think you're going to see 2G devices being sold, yeah. Because the handsets are very inexpensive, and for people that are not... you know, too centric on data, and they want to get a low-end phone, a nice phone that works well, so there's some place for that.
Chris: Okay. Has your stance on unlocked devices changed?
Chris: So, I know there's been a lot of discussion about the meaning of "open network." It's a very sort of...
Ralph: Yeah, yeah. (Laughter.)
Chris: In fact, I think you were the first to raise that point, the fact that Verizon coming with this open network, what does that mean, we've been open for years. But you're still comfortable hosting unlocked devices on your network? You don't actively encourage it, but...
Ralph: No, but they can bring them. I mean, we actually, you bring a handset, we'll put our SIM in it if that's what you want, and you can just use that. We've done that for a number of years, but it's not something that's done very frequently.
Paul: Yeah, speaking to that, I believe a lot of consumers are a little frustrated when they see really exciting products from Nokia but they have to pay the full price and then bring it as an unlocked phone to your network. Is that something that you guys are working to improve the relationship there so that you can have more subsidized Nokia phones earlier?
Ralph: Well, I mentioned that on the panel this morning with Olli-Pekka, the head of Nokia. And what they have done in the past is they have developed phones in Europe and then brought them to the US later. What we have challenged them to do is bring them to us here at the same time, or better yet, design phones that are centered for the US because, you know, right now, for example, we are leading the world in smartphones. I mean, we are way ahead of the curve on that. So he has actually put in a campus in San Diego, he has a team in San Diego that is now designing stuff for us, for the US, so I think you're going to see them be more successful, because some of the stuff that works in US doesn't necessarily play well here.
Chris: And you're talking in terms of form factors?
Ralph: Yeah, I'm talking about in terms of form factors. You know, they just came out with their touchscreen. We've had touchscreens here for quite a while now, so that's nothing new. And the sides of the handset to make sure they're nice and thin, and it's a bunch of things that I think we've talked to them about, and they're getting much better at.
Chris: So are there ever situations with Nokia or other manufacturers where they come to you with a finished device and say, hey, do you want this? You know, if you want to subsidize this... or is there always input during the design process from you?
Ralph: No, actually, we discuss, we begin discussing handsets with manufacturers up to two years ahead of time. So there's a lot of dialogue back and forth on which devices are going to take off, which one is not, and, you know, it just takes sometimes a little bit of an art to figure out what about a device is gonna trigger the public decision to want to get it. A good example of that is the LG Shine. You know, that's a very nice phone, but I think that the innovate part is just the fact that the front of it almost looks like a mirror... it's a very popular phone, and if you had looked at it with another, you know, hundred phones on a table two years ago, you'd say I can't see that making a difference. But our people saw it and said, no, we want this, I think that one will sell in the US, and sure enough, it sold. So part of it is understanding your customers and what they want.
Chris: Right. So if -- this is just a purely theoretical example -- if Nokia were to come here and say, hey, do you guys wanna sell the N97, that's not how the conversation would typically go, right?
Ralph: No, we would've been talking about that a long, long time ago. They would've said a year ago, here's kinda what we're looking to do, what do you think, and I think we'd have those kinds of conversations.
Paul: As the technology evolves, do you see that pipeline shortening? NVIDIA's talking to me today about their Tegra chip and saying how this phone took the manufacturer two months to develop because it's sort of a plug-and-play process. As that becomes shorter on the manufacturer's end, does that get shorter for you guys too?
Ralph: I hope so, although for me, it seems like it's incredibly long. I hope that that kind of stuff shortens it, but it's a very long cycle right now to make sure that the phone works right, you know. And one thing is to design the phone, another thing is to test it and make sure it works right. We test all of our phones so we don't put them out until we make sure it's going to be a good experience, and so it's probably more of a longer phase than we want it to be, but things like that would absolutely help, absolutely.
Chris: So, that's... it seems like there's kind of a catch-22 there, because part of the testing process is going to be AT&T's tests confirming it works, right? And unbranded devices obviously and unbranded firmwares have already been tested by the manufacturers, so can you talk a little more about the testing process? Is there radio testing?
Ralph: Yeah, absolutely. It's not so much the software, it's making sure the radio works, that it's not going to have a lot of dropped calls, that it's not going to have resets, and we see a lot of devices that are turned into our labs that we would never put out to our customers because they reset too much, there's a bug with the browser, or, you know, the radio is just not working right, it's dropping too many calls. So we take it through its paces because, you know, the fact that you design something in Europe and you've never taken it to San Francisco or Chicago or Miami, New York, and trial it in the street I think is very risky, and companies that don't do that, they always pay a price of getting a handset in the marketplace that it's gonna be returned in high numbers because they'll miss a subtlety in the network that needs to be adjusted in the handset. So I wish it could be that you design it with your eyes closed and it works everywhere, but that's just not reality.
Paul: Yeah. On the software side, I think there's a perception, correct or incorrect, that AT&T might say no to devices if the manufacturer doesn't let AT&T software on there. As the iPhone comes as a blank slate -- nothing AT&T branded -- is that a requirement on your end for most phones?
Ralph: Every phone and every device, every manufacturer, there's a negotiation that goes on, and we talked about that in the panel today, that it's a cooperative relationship, you know. And it depends on the manufacturer and the handset what the business model is going to be. And I mentioned this morning that we need to be flexible in the business model. We were very flexible in first agreeing to a revenue share model with Apple, and then we changed it to a subsidy model, because we thought that was going to result in more sales.
Chris: And what's your take on other manufacturers' app stores? There's been a big theme lately, with the Ovi Store...
Ralph: Yeah, I think they're all, you know, trying to catch up to the App Store that Apple had, and I think that the Apple App Store is the one that has set the bar. But I think the other ones will also have a good set of apps.
Paul: I believe that Nokia is working with T-Mobile in sharing widgets. How, what you were saying with at least having some applications across devices, is that something that you guys want to maybe work with Apple or other people to have a more universal AT&T app store?
Ralph: Yeah, I think we wanna have just more universal apps, period. You know, because that... I don't think that they need to necessarily be AT&T apps, I think that there's a lot better entrepreneurs that are developing apps than AT&T is, so we wanna partner with those people, but make those apps available to our customers. So they don't have to be AT&T apps, they just have to be apps that work well that customers want.
Chris: So on that note, would you be willing to launch not just an Ovi Store phone, but initiatives like Nokia's Comes With Music, for example?
Ralph: We're discussing all those options with Nokia. One of things I mentioned this morning at the panel is that we're working with Nokia on all those things... it's premature to say anything about them, but Nokia has a concept that within the Ovi Store, there can also be another store that's a carrier store, so I think they're implementing the concept that I talked about where there's cooperation rather than just, you know, it's either my store or your store. In this case, there's cooperating between the two. And I think that makes a lot of sense so that customers can go there and they can get the Nokia app or they can get something else.
Chris: Okay, and one more question -- this is something that's been bothering me for a couple weeks since I noticed it on the AT&T site. The 6650 is not listed as a smartphone, and I thought that that was very interesting considering that it runs S60, so I'm wondering what AT&T's official definition of smartphone is. Is it about form factor?
Ralph: No. It's based on whether the OS is smart enough to qualify as a smartphone. And you said that it was an S60? I don't know if that device is really an S60. Are you sure that it's S60 or S40?
Chris: 6650 is S60, yeah.
Ralph: It's S60? Yeah, then I can tell you that it's either got to have that kind of an OS, but it also has to have a QWERTY, and I think that phone doesn't have a QWERTY.
Chris: Ah, right, it's numeric.
Ralph: So it's got to have a combination of a QWERTY keyboard and a powerful enough OS, and I think that one is the keyboard that doesn't qualify.
Chris: Okay, and that's strictly about customer perception? You're trying to sort of define smartphone in very specific terms for the customer?
Ralph: There's a lower price for the data plan for phones that are not smartphones. And so you're going to send less data if you type on a numeric keypad and double-tap than if you have a QWERTY keyboard and a smart OS. And that's what we were trying to differentiate is, just to get different price points. And we thought that was a good way to define it.
Chris: Okay. And actually, let me wrap up on a note about data. Recently, you capped your unlimited data plan down to 5 gig at a time when it seems like customers are consuming more data than ever. And I'm wondering, do you see that coming to a head where, you know, suddenly people want to use more data than AT&T's network is maybe capable of supporting? Are you worried about monetizing that? Where do you see that going?
Ralph: No, I think the pattern that I have seen -- and by the way, as you talk to various operators around the world it's a very similar pattern -- where it's a very small percentage of customers, and I'm talking about single digit, maybe 1 or 2 or 3 percent, drive an inordinate amount of traffic. And so it's those that are in some way using the service in some way, I don't know because we haven't done enough detail to get to it, but that are driving unnecessary usage. In fact, I was talking with somebody from France, and France has an interesting way in which they define unlimited, and they define it as unlimited fair usage. (Laughter.) And we totally agree with that -- I mean, most people don't use anywhere near 5 gig, but apparently there's some people out there, a very small percent, I don't know what they're doing, they may be watching YouTube videos all day long, I don't know, but that are using it in an excessive fashion. So we're just trying to say, let's not make the average person pay for that excessive usage. And so if you want to have that high, high usage, then beyond a certain number then you should pay per use. And that means that they pay or they don't use it so they're not abusing the unlimited capability that we make for others. Fair usage, I really like that term, because that's a good way to describe it.
Paul: As you study that more, like you said, you're looking into what causes that, are you gonna define fair usage more clearly as opposed to someone watching a bunch of YouTube videos compared to someone tethering or torrenting?
Ralph: No, no, we're not trying to get that specific. And I'm not trying to define fair usage, I'm just giving you that as an example of what France was doing. I just learned that this week, and so I haven't had any more time to think about it, but I think it's a good way to describe the phenomenon that we're seeing is that the average person never runs anywhere near the 5 gig limit. It's a few that are driving a lot of high costs for everyone, and those are the ones we're going to try to identify, and once you exceed that limit, it doesn't matter what you use it for, you just have to pay. And I think that's a fair way.
Paul: And speaking to sort of the global usage, just... this is sort of highlighted just being at this show, trying to get international data and things like that. (Laughter.) And you guys as a GSM carrier have a great advantage in the States because people can take their phones over here and use them. Do you see more interoperability between, and more communication between international carriers and domestic carriers for roaming and that becoming less of a financial burden?
Ralph: Yeah, yeah, I think that we continue to work with our international carrier partners to figure out how to have lower roaming costs. We just put in a new plan for the iPhone that lowers some of the international costs for iPhone users, and so we are gonna continue to work to drive those costs down, you can rest assured of that.
Chris: Okay, and just to cap off, what can we expect from AT&T in 2009?
Ralph: You can expect AT&T to continue to deliver some great, cool, innovative devices. You're gonna expect us to continue to improve and expand our 3G network, and you're gonna continue to see us deliver great value to customers at a time when the economy is asking our customers, or is driving our customers to seek really good values. So I think you're going to see those three things from us. And I also want to qualify what I said this morning about Dell was that I, you know, that I heard that there were other manufacturers coming on like Dell and Acer...
Chris: Possibly from us. (Laughter.)
Ralph: Yeah, that's right, possibly from you guys. But also that I said I think that's what it looks like. I don't have any information that tells me otherwise.
Chris: Okay, great. Ralph, thanks for your time.
Paul: Thanks so much.