If they want their music from Napster, we have to let them have it from Napster. If they want Yahoo music, we're fine. E-music? Fine. We've always believed in giving the customers choice and that's why we entered into the relationship with Apple because we thought they were a great company. Plus there are a lot of customers out there that love iTunes and if that's what they want, why should we not give it to them? And so it's that kind of customer-centric thinking that led us there in the first place. And after we got to work with an Apple team I think there was a mutual admiration for both camps of how well we worked together on that aspect of it. I think when the iPhone came around we were naturals to see if we would want to partner with them on that. And we did and the rest is history.
Was it ever a point of contention for you that Apple went to Verizon first and Verizon passed?
I don't know who Apple went to first. I really... you'd have to ask them that. But I think the fact that we had a relationship already, that they knew us personally, that we had been out there and done the Mac show and they had met our CTO and our CMO. We had all been heavily immersed and I think that it gave us a step ahead of everybody else because they knew us and we knew them and I think they trusted us to do what we would said we would do.
So you never sat there and felt like, "Oh no, we're getting sloppy seconds" or anything?
It never felt that way to me. If you sit and you look at it from the Apple point of view why would they not want to do business with the number one carrier -- that they have known and has the most widely used technology in the world, GSM. So you could have a lot of theories but, you know, Steve Jobs is a very smart guy and I think he made a very smart decision by working with us. We both, I think, have really enjoyed the relationship. It's a good relationship.
So that relationship that is actually something that a lot of people are interested in because the perception is that it's changing the way that the wireless carriers are interacting with the handset manufacturers, in that you gave a very unprecedented deal with Apple between the multi-year contract, the revenue sharing, and all the various things that are going on there. Have you ever at any point stopped and thought: is the tail wagging the dog here? Are we going too far to get a lock on this phone?
I think when we started negotiating with Apple and working, Steve's quote was, and I think it was a very smart one: "This is such new territory for both of us, that we are both going to feel uncomfortable after we get this deal done." Because it's so new -- we were both going into new areas. You know we had never done this kind of a deal and they had never worked with a carrier this closely before. So I think that there was new ground being plowed by both companies and I will always believe that if you do something where you are giving the customers what they want, it's tough to go wrong with that. And I think shame on us if we can't figure out how to make music available on our phones through iTunes.
And so, I've always felt that while it's new, un-plowed territory, but fundamentally it was the thing to do. In the end, my realization was, that if you are going to have a partner like Apple who is so innovative and creative, you've got to let Apple be Apple, and let us be who we are and partner together. But not deter them from the great things that they are able to do. And in the end I think that proved to be a pretty good match, right? In terms of how we want to operate with a partner.
So now that you are paving this new road and redefining what the relationship between a major American cellphone carrier and a manufacturer can be, does that mean that you are going to be open to similar deals with other manufacturers in the future?
We have always been very open in terms of working with manufacturers. If you look at the things that we have done, when we first launched our combined company with Cingular (at the time), we launched it with an exclusive deal with Motorola for the RAZR. We were the ones working together with Motorola that made that phone available at the time of the [AT&T Wireless] merger, it was one of the benefits our customers got. And so, we've always had the vision that we needed that when we do a merger we need to bring tangible benefits to our customers.
Its not just two big companies merging, but they are merging and they are giving "something cool that's beneficial to me." So we came out with the RAZR and we expanded our free mobile-to-mobile calling to 46 million customers -- no carrier had ever done that before. We extended our warranties to 30 days, return it with no questions asked. I think it's that kind of an approach that led to the breakthroughs -- the next big device that we launched, which has been a huge hit, was the Blackjack. Same thing, this time it wasn't Motorola, it was Samsung with the Blackjack, and now it's Apple with the iPhone.
But correct me if I'm wrong, but with the Blackjack Samsung is not getting a cut of the revenue you're collecting from each customer. And Samsung is not really able to set the kind of terms under which Apple was able to come in and negotiate.
But, its not because it's Samsung, it's because Apple has an exclusive deal with us that they don't sell that handset -- any of the iPhones -- to anybody else. That's something that the other manufacturers have not done or have not been willing to do. That's why this was new territory for us and for Apple, with them deciding to only distribute through us [in the US]. The infrastructure in the rest of the industry is not set up to work that way. Samsung has to sell to us and to the other players because that is their business model, right? They sell to everybody. We've never had a company, and I guess this to Steve Jobs's credit, that would be so bold as to say, let me try to work it with one and see if I can make the best phone that's ever been made.
And I think that by working closely with them, we were able to do things together that would have taken much longer if they, for example, would have had to be testing networks and testing software in different technologies and different operating environments, so I think that we both got something out of it. But we each had to be willing to do something that was non-traditional and in my experience that's when the magic happens. Is when companies are willing to take a calculated risk to take things to the next level. And that is the story of the iPhone. We were both willing to take some risk in taking this product to market.
So what was the reason that AT&T didn't take the calculated risk or take things to the next level when Google was looking for partners with the Open Handset Alliance and for Android?
Well, we're still open to looking at that. We have not said no to that, but we are still looking at how that is going to work. We want to make sure that it truly is open and gives customers choice. We have lots of existing relationships and we want to make sure that is something that can be supported. I think today if you look at the OSes, I mean this is coming at us not in new phone, but I mean it's a new operating system for phones. And so if you look at what we offer our customers today, we offer them choice -- every OS that's out there, we carry.
If you want Symbian operating system we have phones that are Symbian-based. If you want Windows Mobile 6, we've got that. If you want a Java-based phones, we have Java-based phones. Blackberry has its own OS, the iPhone has its own OS. So I think if Google is reasonable to work with us. I do not know why we would not offer a Google OS, but I do not know enough of the details at this point to know how its going to work. We have our people looking at it.
So you mentioned some of the relationships that you have in place effect some of these decisions that you make. Does the relationship you have with Apple in any way effect your decision to join the Open Handset Alliance?
No. No, I was actually thinking more to say Yahoo. And we need to understand if the Google phone, for example, will allow me to use Yahoo instead of Google do my search. Will I be able to use Yahoo Mail? We have millions of Yahoo customers, do they get the capability in that environment to use Yahoo instead of Google? I don't know how open it's going to be, but that's some of the things we are looking into to understand how the stuff works.
I've taken a very close look, and--
Have you? And does it allow for that?
Yes! I've spoken with OHA partners and Google and I haven't really seen that implies false openness or anything that would prevent anyone from being able to get in there and dig into it. In fact Google is actually open to the idea of carriers locking down their devices. It's really up to them to do whatever they want to do with the platform. I'm kind of surprised to hear that you guys have not come up with any conclusive determination as to what the platform is or isn't capable of.
That's correct. I think it's a little bit too early, but we have our team looking at it and going through the details of the platform and the business model and contractual agreements that would have to be made. We are very open to giving customers choice. If you look at the way we operate, I think you will find that we give every choice possible to customers. We talked about the music, but if you want to get your e-mail from Xpressmail, from Yahoo, from Google, from AOL, from MSN, we say fine. We're in the business of helping customers being connected to their world -- whatever their world: music, business, entertainment. I think we need to give them choices. If this platform gives customers more choice, I don't think we'd be opposed to giving customers that choice.
So besides the judgments that you guys are still making on whether or not its something you want to have as part of your business... you personally, I'm sure you've seen or played with Android. What are you thoughts and how do you feel about it?
I think it has some attractiveness. I think in trying to get developers to write applications, I think that in the environment in which we operate in wireless is difficult for the software developer because there isn't a dominant OS. But if you look at the PC model and you see the dominance of Windows and there is nobody even close so if you could develop an application that runs on PCs you're going to have a lot of take. If you write an application for phones, especially smartphones -- lets just say smartphones -- then if you don't write it Symbian-based, then you have to say ok, this doesn't work on Symbian devices, or Palm devices or Blackberries. And so the fact that they may have a way to get application developers to get more apps, that's not a bad thing.
Its an interesting point of view because a lot of people perceive companies like AT&T and Verizon as having too much control and too much say over what goes on people's phones and what goes on people's devices. You know, there is just this extremely tight grip on the software environment and that there is a real conscious effort to keep it FROM being very PC-like.
I think that my biggest disappointment is that we have not been out talking to people like I am talking to you about our philosophy. And that we have let some of us, get painted with that view, which is not true. If you look at the choices that our customers have today, it's an unprecedented number of choices. If you go to our stores you can get your choice of six operating environment systems. Every OS that has been made for phones, our customers have access too. If you look at the number of phones that we carry, it's like a hundred and fifty different devices that you can choose from.
I tell people that the biggest difficulty for one of our customers is making the choice. Do you want a smart hone? One that is more music-centric? If you want music do you want iTunes? Do you want eMusic? Napster? What kind of music do you want after you make that choice? What e-mail service do you want? Because I can get you AOL, MSN and I can go through a litany of changes so sometimes the hardest part for our customers is deciding which is the right phone and making that choice. Because I tell you, I get a lot of letters, but one that I don't get is that I want this and I can't get it.
I can sense the concern about the software developers being able to write apps, but if you look at what has happened with phones, phones over their history have gotten increasing memory and some of the lower end phones have very little memory so you have to be very specific about how to write an app for that phone. The more memory that they get and the more smart they become the easier it is to have more applications run on those devices. But today I think we run a very open environment of anything that matters, of significance. Customers have choice today and I don't think that we have really touted that as much as we should. All of a sudden people have said, well, [Android] is an open alliance.
But to me openness is all about choice, and if you are a customer today in our wireless business and you walk into our stores you get a tremendous amount of choice. Not choice in the applications, choice in how you pay. You want a phone that's on a contract basis? I'll sell it to you on a contract basis. You want to pay by the minute? I'll charge you by the minute. You want to pay by the week? I'll charge you by the week. You want to use a credit card. I'll take a credit card. You want to pay cash, I'll take cash. You've got good credit and you want me to charge you on a post paid basis, I will do that. We just give an incredible amount of choice. People for example today don't know that if you want to go out and buy a unlocked phone you can. I just don't give you a subsidy against that phone... I try to sell you that phone at a higher price.
I've actually tried to buy unlocked phones through AT&T before and they refused to sell them to me.
Both over the phone and in the store. I've done this multiple times and they always refuse to sell them to me.
Just tell them that you want a "no-commitment price" and that phone can be sold. No body wants to buy it because you, in fact, are paying a premium for the phone. Ask them for the "no-commitment price" so that you don't have to sign a contract, one or two year. And I think they will be able to say, ok fine you can buy that phone, there is no contractual requirement for that.
Okay. I'll give it another shot and let you know.
Yeah, let me know. The key is to ask for the right thing. That's what goes back to my point, that you have so many choices that sometimes in the interest of making it easy for the customer we try to whittle away those choices to get you in and out of the store.
I think having a passphrase for a certain choice is not exactly even really having a choice, right? As an average customer, I've walked into AT&T before and said I want to purchase an unlocked device. For example we give them away on Engadget sometimes. I've had nothing but difficulty in the possibility of doing so.
Most customers don't ask for that once they understand that they have to pay a premium, that the phones are no subsidized. If we had a lot of customers coming in and saying this is what we want and they were willing to pay for it -- but we've had it for years and nobody has, really. When you see a phone and it says free with a two-year contract, $100 bucks with a one-year contract, and with no contract its $250, people go, ok I'll take the two-year contract, give me the free phone.
I want to talk a little bit about some of this consumer choice you're referencing in some of these handsets. Specifically with regard to Symbian, I think that's actually a really good example of where AT&T and other carriers desire to have control over platform software and release, which has really held things back. When the E62 was due for launch, it was delayed continuously. Same thing with the N75. Symbian has had a really difficult time making its way into America. Especially on AT&T. So, what is it about releasing these types of devices? Why is it that the process that's in place right now for releasing advanced devices is so effective at keeping us behind in the wireless world--
Actually that is my pet peeve, but it's not because it's not because it keeps us behind. In the case of Nokia, you can talk to their executives. My biggest pet peeves is saying purposefully releasing the devices in Europe first and then we get them months or years after they have been released in Europe because that's their biggest market. And so my biggest pet peeve with Nokia in particular, and you can talk to them -- because I've certainly talked to them on this -- is, why are you releasing that device in Europe first, and then letting us having it device 6 months or even later in the US?
And their reason is that's their core market. So they release and develop everything to work in Europe first. Now as a result of our complaining they have built a development lab in San Diego to begin to develop devices for the US. They are still not on par with other companies, but that is my biggest pet peeve. Why are you doing these things for Europe first, as opposed to us. So its not that we have been holding it up. They have not been giving it to us at the same time that they have been giving them to European operators. The N75 is a device that Nokia developed specifically for AT&T, for US spectrum and with your 3G network. And that was a device that was held up continuously. It wasn't on their head, right? I mean, they developed it specifically for this market. So the holdup can only be at AT&T.
No, not really. We spend a lot of time testing devices to make sure that they work and they do what they are supposed to do. And most often times when we get a device we reject it because the device doesn't work and they have to go in and tweak the software. I don't know the specifics on the N76 because at time that was released I was running our wired business, so I can't speak to that one in detail. But I can speak to the E62 because I was there when that device was launched, and it was full of flaws. We have a very strong commitment that we are not going to put out a phone that has flaws in it. So our customers don't end up calling us and getting upset with us when it doesn't do what it's supposed to do. We do have a very rigorous process to make sure that the phones work right, but not because we are trying to keep anybody out.
In fact, one of our key strategic imperatives is to develop and deliver compelling products and services to our customers. Compelling meaning, they are the coolest, they are the latest, and that's why you've seen us lead the market with the RAZR, the Blackjack, the iPhone with the HTC Tilt, and the Pantech Duo, and those kinds of cool devices. But they have got to step over the bar that says when I put them in a customer's hands they do what they are supposed to do. We are very, very focused on that, and I guess we've paid the price on that when we try to get some devices out to the market. Without going through the testing they invariably have bugs and I don't want my customers to find those bugs. So, when you are talking about compelling products and services, that does not always necessarily just mean cellular, 3G, or what have you. There is a lot of very forward-looking technologies that I know you guys sometimes are (and sometimes are not) involved in. So now that you're in charge of AT&T Mobility, what is your take on the 700MHz auction and what are your objectives there?
I think the auction is very key because 700MHz is premium spectrum and our wireless company runs on spectrum. That's the lifeblood of any wireless company. So you've seen us, before the auction, go in and acquire spectrum through our purchase of Aloha. Of everything I have said in the conference this morning, is that we have seen the growth of the use of data, in particular with devices like the iPhone. My take is that as more and more companies try to step up to that bar that Apple has established, they will produce maybe not exactly but very close to an Apple-compelling device that is going to drive more and more usage.
And so, we have looked ahead and we probably don't need that spectrum for several years, but we are bullish on the future of this business and what customers are going to do with these applications. So much so that we have gone ahead and already invested $2.5 billion because we believe in the future of this industry, and we believe that this 700MHz auction provides us with a good vehicle to meet those needs. You know this technology changes all the time. Our network technology changes from 2G to 3G and to the next generation of that, which we call LTE. So we want to make sure that when that technology change comes in that we will have enough spectrum to be able to launch it -- without causing us to have a lot of modifications to make to the network. So I think it's a great opportunity and that time will tell to see who is really serious about bidding on it. But I can tell you this. We're serious. That is our core business and we have already invested already and will continue to invest. So what do you feelings on the various initiatives that intend to make 700MHz freer, or at least more open or akin to a free-market environment--
I think it's going to be an interesting experiment. I give the FCC credit for trying to do something different there and see what develops. It's an auction so I think that everybody is going to have a chance to participate in it and see who is willing to build the network with those requirements. I think somebody likely will and time will tell. I think it's a good experiment to see if they can foster more of this "open access", as it's being called. I've never called it open access. I'd like to think of it as giving customers more choices about the devices and the applications that they want to run. If you look at our history, every time that there is a significant amount of customers that say they want this app or that service we've gone out and we've delivered it to them. We think we are pretty customer centric from that point of view. Well, only a very small number of very big, wealthy wireless -- like AT&T -- are able to buy a lot of this spectrum. And they seem believe that they are customer centric and really are replacement for a free-market and an open wireless environment. But isn't it possible that only a really open environment can give true customer choice?
I think giving the customers choice is always the good thing. You say we work with big companies but we just did a deal with Pandora to put their music service on all of our phones. I'd never heard of Pandora until we started working with them. It's a very small company. We just did a deal with On Networks here that we just talked about it in this morning's keynote. On Networks is providing us with content to show across all three screens. It's a very small entrepreneurial company out of Austin, Texas.
So, what we haven't done well is communicate to our customers and even to you, all of the things that we have done -- so we just come across as "we are a big company". We are a big company, but in order for us to be successful we have to take risks with small companies and we actually encourage and fund small companies -- like we funded On Networks -- to bring something new to the marketplace and to give customers that choice which I think we are going to do in the TV space and in the IPTV space to be specific. So conversations are going on between Long-Term Evolution / 3GPP group, WiMAX -- and these various rollouts are very interesting. From the sound of things, [AT&T VP] Chris Helm more or less verbally wrote off the possibility of AT&T using WiMAX. Are you basically only looking at using at LTE as a possibility at this point?
I think LTE is the most logical choice. You know that it has been approved pretty much worldwide as the next generation technology -- for us. We have always believed -- and you can see this in our technology choices -- that to the extent that we can we ought to be using technologies that can be used worldwide and that can be scaled worldwide so that they can reduce our costs and have our customers be able to roam worldwide and to be connected worldwide. That's what LTE does, I think you are going to have a very large number of carriers subscribed to that technology so that it can be consistent between countries. I think WiMAX has yet to prove anywhere near LTE's capability to scale.
We are in the business of connecting people, I can't connect people if I am using incompatible technology. So, I think you've see us make that technology choice when we picked GSM. You've seen us make that choice when we picked HSDPA. I think you are going to see us go the LTE route. That is our preferred technology choice. It's a world standard, it's going to have lots of carriers worldwide using it. I think we will get the economies of scale and we will be able to continue to give customers great devices at a low price and devices that work just about anywhere in the world. So what are you targeting for LTE, rollout?
Well, it depends when the network infrastructure companies can deliver the necessary infrastructure. You hear dates everywhere from 2009 to 2010. I'm going to be taking a wait and see
, because my experience is that they always over promise and under deliver on the dates when the technology is good for commercial deployment. I've seen enough of these transitions to tell you that it always takes a little bit longer than we would all want to shake out the new technology, to fix the bugs, to make it work well so that customers get a good experience. I think that this probably will not be any different. I'm a little bit cautious to just take the dates that are being thrown out of there. Obviously you are very focused on connectivity, the ability to traverse networks, standards, openness, giving customers choice, and letting that choice be something they view as being a wise investment. So it seems like all of these are themes that kind of play into the history of the phone companies from 20, maybe 30 years ago, when they went away from being all-inclusive services -- owning the hardware and owning the services and owning the entire user experience -- and, basically become a dial-line. Is that where you see AT&T Wireless eventually headed? Do you see this business -- and the wireless business specifically -- turning from this all-inclusiveness into a dial-line service?
No. I think, I mentioned in the beginning. I don't know if you had a chance to sit in on the session this morning, but we view our vision as a company to connect people, but to connect them to their world, and to do it anywhere they live and work. The key part is to their world
. I think it's no longer just acceptable to just connect bits. What customers want, is they want to be able to get to their world of music, their world of entertainment, their world of work and they want to do it in a simple way. They want us to take the complexities out of it. So I think we always look to provide to the extent that we can, the end-to-end service to make it simple and that requires partnerships with companies like Apple and Motorola and Samsung and you name it. But I think we need to make it simple and that way requires us to work with other companies rather than to just be a bit-pipe connecting devices. But, when you look at what Apple has done, they really have taken a lot of the control that AT&T traditionally exercises over handset services, applications, and the entire ecosystem, and taken it in-house. They do their own customer service, they do their own activations. They decide what apps and are not on there. They control the platform. They are doing a lot of things that nobody else is. In that sense Apple is using AT&T more as bit-pipe, a dial-line service and less so than what you see in some of the other devices. The trend is already begun, in that sense.
Well, we have worked with apple to develop some of the services that the reside on that phone that you don't see on any other phone. For example, visual voicemail. So I think those are the kinds of examples that I am talking about where, yeah, you can provide some of the basic functions, but as technology becomes more powerful with things like IMS and some of those applications, I think it going to take some of the cooperation between the players who provide the hardware and the software -- and the carriers -- to provide great applications for customers. I think it will be very difficult, and the proof of what we have done is that Apple didn't decide to do it with five different [carriers] at the same time. It's very difficult to do that as a software and hardware developer. But by partnering we were able to do things that otherwise probably would not have been possible.
So, I think that you are going to see more openness, we've led the way in working with Apple because we saw the benefit of that, but I think its going to be done with a customer-centric view, not just do it for the sake of doing it. But doing it because there is a business reason, there is a customer reason, that they want this application. In the case of Apple, it was iTunes. People love iPods and iTunes, so why would you not want to give them the device that has what they are using already? I think it took some forward looking things on our behalf to do that and we are pretty forward looking. We'll work with whatever other providers are out there to give them a great experience. And if that makes them more loyal customers of AT&T, if that makes them consume more of our service which makes us more profitable and makes us more able to bundle those services -- wireless services with our broadband service, with our TV service -- then that's a good thing for us, too. I think you just have to step back and take a broader look at it and not be myopic on how you view the relationship. So what is the status right now with HSUPA and in the larger sense, the 3G rollout? How do you view where you're at in terms of being behind Verizon in roll out area and coverage and what's the next step to really--
I think you will see fairly soon, we are launching markets as we speak, and will get well beyond 200 million POPs [points of presence, i.e. prospective customers] in 2008, and that's very close to what Verizon and Sprint have. The stuff that we are rolling out today is HSUPA as well, so we have the throughput equal to Verizon or Sprint on the uplink ,and equal or better on the downlink. So they won't have anything that they would claim superiority on us in terms of our 3G capability by sometime in the middle of next year. So my final question is: as the new CEO of AT&T Mobility, what are your plans or what are your ideas to take America as it is now, and the American wireless market, which you basically have command of as the number one player, and to move us all to a position where we are not the laughing stock of the wireless world?
I don't think we are the laughing stock. Some people I think probably under estimate us. If you look at what Americans get, they use more minutes and they pay less for those minutes than almost any other country in the world. And so I think -- and I've worked internationally, so my career has not been limited to the US -- that in the choice of carriers, in the choice of devices, in the choices of things that they have, I think that there is a great environment here with CDMA players, GSM players, WiMax players with Clearwire. I think that this is a great system that is based on the theory that competition and free enterprise produces the best results for customers.
And I think that you will find few countries that have the number of providers that citizens of this country have to choose from. I've worked in many countries, in fact there are still many countries where you have two or three providers, in some cases two. Here -- my God! You've got a choice of four major provides and regional providers. So, our people here have a great choice. And that brings us back to my prior comment and I think that competition brings choice and great value, and eventually what the customer wants in that environment, the customer gets. So what we have done is we have responded to the marketplace in this country and what they want is: to talk a lot, to pay very little for it, to have all kinds of choices in handsets, all kinds of choices in how they pay -- whether its cash, credit card, pre-pay, post paid.
Our distribution today, if you look at how we distribute our products, we distribute them in our stores, we distribute them in Radio Shack, we distribute in Wal-Mart, in Best Buy, in family dollar stores. You can go to almost any place from where you live, I would assume, within 5 or 10 minutes, and you can buy competitive devices. What I want to keep doing with AT&T Mobility is to simply do the things that I know are the fundamental right things to do for the company and for our customers and that is to continue to build a great network. We've continued to add to our network and continue to expand it. We've just spent another $2.5 billion in buying additional spectrum with Aloha we bought the Dobson properties to expand our coverage, so you are going to continue to see us put significant investments into making our network top notch.
You are also going to see us continuing the trend of coming into the marketplace with cool, compelling devices that other carriers are not going to have. Things that are trying to differentiate us. You are going to see us have great distribution so you don't have to worry worry, anywhere you are you'll be able to find our products. And you are going to see us focusing and providing great customer service. I think we have some way to go there and as we look to simplify our plans and our phone services, we are going to look to making that an even better experience for our customers. And I think that's what customers want. They want our phones to work anywhere in this country. They want cool devices. They want to buy them anywhere and they want great service. And I think that if we do these things we are going to be very successful with AT&T Mobility. Thank you very much for your time.