AT&T (News - Alert) has a problem almost every other carrier is jealous of: popularity.

 

With more than 11 million iPhone users and about 7 million of them coming from their competitors, the iPhone has been both a boon to bottom lines and a bane to network planning.

 

According to AT&T, 3 percent of the iPhone customers located in San Francisco’s bay area and New York’s metro area are generating 40 percent of the traffic. According to AT&T, the traffic consists primarily of downloading videos and Web surfing.

 

While this a large problem for AT&T, the Internet itself has been morphed by the video industry as it developed content delivery networks to overcome the end users passion for P2P solutions. CDNs now make up a large percentage of the backbone Internet traffic.

 

But cloud computing, CDNs and the wireless network have not found a happy medium yet, and AT&T is looking for solutions to manage the migration.

 

The U.S. market for the iPhone is different than the rest of the world.

 

“What we are seeing in the United States today in terms of smartphone penetration, 3G data, nobody else is seeing in the rest of the planet,” Ralph de la Vega, president and chief executive for mobility and consumer markets at AT&T, reportedly told analysts at a conference in New York. “The amount of growth and data that we are seeing in wireless data is unprecedented.”

 

One reason may be the pricing differences, which have been a two-edged sword. The pricing for many of Apple’s (News - Alert) partners in the rest of the world is usage-based and not bundled into buckets of MBs or unlimited services. As a result, the iPhone has not been a game-changer for companies like Telefonica and DT, who are the exclusive partners in some European markets.

 

So AT&T is looking for ways to change its models of pricing to cope with these upper-end customers. Ironically, it was AT&T who started the bucket of minutes pricing models based on work by Andrew Odlyzko.

 

The term “unlimited” has been a subject of fine print in many a marketing ad and has caused penalties to be assessed by regulators in New York to Verizon and consumer complaints about Comcast in Massachusetts. AT&T has made it clear it intends to educate the 3 percent that they are bringing the high demand users. It is unclear what that will mean in the end.

 

AT&T says it plans are to educate users and suggest they be better “Netizens.” That thought process has been met with lukewarm appreciation by the blogosphere. AT&T could establish a new market segmentation, of course unlimited 1 and 2 would be difficult to explain. Another strategy could be network related. The adoption of new video standards like SVC could also reduce the load on the network. How it is deployed which may bring up issues about network neutrality. However, Video is considered a special issue within the FCC’s proposed guidelines where piracy is a concern which may make for a more market savvy approach to solve the problem.

 

It could also be that Apple and AT&T developed a pricing model for downloading on the 3G network that is different than home and WiFi (News - Alert) downloading from iTunes.

 

However, the companies’ concerns about the high-end users is not about their continued success with the iPhone which now has an app called “Mark the Spot” which is for customers to report problem areas on the network. AT&T is adding 2,000 cell sites this year which may be influenced by the iPhone app.

 

New York has been a consistently problematic network area and AT&T indicated their expansion in the area would solve many of these problems.

 

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