Apple's new iPhone augurs the inevitable return of the Bell telephone monopoly.

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June 10 2008 3:13 PM

iSurrender

Apple's new iPhone augurs the inevitable return of the Bell telephone monopoly.

Chadwick Matlin predicts that the release of the 3G iPhone will mean the end of the GPS industry as we know it. 

Steve Jobs. Click image to expand
Steve Jobs introduces the new generation of the iPhone

If my iPhone were a motorcycle, she'd be a chopper. I'm the owner of an unlocked, jail-broken iPhone 1.3 that runs on the T-Mobile network, fortified with third-party apps (like Tap Tap Revolution), adorned with Death Star wall paper, and running a natty customized interface named "Manhattan." Sure, not everything works perfectly (recently, the clock went off by an hour or so, for no apparent reason). But that's part of the fun of iPhone-modding, a vibrant scene that resembles the Apple II culture of the 1980s.

Unfortunately, for me at least, it may all be coming to an end. After Monday's iPhone 2.0 debut, it's just a matter of time before I trade in my chopper phone for Apple's new 3G phone—and swallow that AT&T contract.

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That may sound like trading a dune buggy for a Toyota Corolla. But like most such decisions, there is a depressing inevitability to the whole thing. As an ever-uncooler Steve Jobs (clad in atrocious jeans) made clear on Monday, the new iPhone pounds the hell out of the old one. Apple has rigged the thing with a better battery, GPS capabilities, and, most importantly, download speeds faster than the rate at which a man passes a kidney stone (at least if you live in a city, as David Pogue points out). I'm nostalgic but I'm not stupid—the new phone will be too handy not to have. But as Jobs neglected to mention, getting your hands on a new iPhone will mean signing, at the moment of purchase, a two-year AT&T contract. Tough news for the free iPhone movement.

The fact that someone like me is switching to AT&T is a sign of the times in the telephone world. The wireless industry was once and is still sometimes called a "poster child for competition." That kind of talk needs to end. Today, the industry is more like an old divorced couple; the bickering spouses are AT&T and Verizon, the two halves of the old Bell empire. (To its credit, the Bell company, in internal memos, proposed a wireless phone in 1915 and then spent 70 or so years deciding how to deploy it without hurting its wired-phone business.) While you can't blame this on the iPhone, nearly every non-Bell phone company is, in the long tradition of such firms, dying or being purchased. Sprint Nextel lost an astonishing $29.5 billion in a single quarter last year—a loss of nearly double the annual revenue of Google. Alltel, one of the last independents, is being bought by Verizon. The exception is T-Mobile, which, while healthy, simply doesn't have the spectrum to play with the bigs. By the end of this year, we may find that the wireless world, in industry structure at least, will be pretty close to where it was at the beginning of the 1990s, before "deregulation."

The underlying reasons for Bell dominance are Washington politics and the economics of natural monopoly. Some markets, because of the sheer costs of being a player, tend toward either a single firm or a small number of firms. Infrastructure and utility markets are the classic examples: bridges, plumbing, and electric systems. Everyone hoped and thought the wireless market would be different. But it's not, in part because of well-meaning policies. "Fair" spectrum auctions cost billions and thereby create the conditions of natural monopoly, over time making the industry a one- or two-horse show.

In fairness, there's still some possibility of radical change—particularly if Google, with its Android operating system and its Open Handset Alliance (including Intel, Sprint, and T-Mobile), gets its act together. But to say, as I have before, that Google and the gang face an uphill battle in this market is merely to state the obvious. As opposition to the Bells, the Google alliance at this point bears more resemblance to the French Resistance than to the Allies. And the wireless firms have more than 100 billion reasons to try to make Google and pals beat a swift retreat back to the beach volleyball court in Mountain View.

Who would have guessed that Apple—onetime victim of IBM and Microsoft—would today be an agent and symbol of industry consolidation? I don't know that it's fair to say this is Apple's fault. A telephone monopoly has been the norm for most of American telecommunication history, except for what may turn out to have been a brief experimental period from 1984 through 2012 or so. Like the short British experiment with republican government under Oliver Cromwell, it may be that telephone monopolies in America are a national tradition. In this larger story, the iPhone matters just as one of the last nails in the coffin of Bell's would-be competitors.

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