Will Apple and AT&T reinvent Cellular?

The current paradigm in American cellular seems to be to hook a customer on a service plan with a subsidized phone, and then profit by selling extras - minutes, text messages, ring tones, music, &c. AT&T will soon be offering cellular service with an "unlimited" data plan, and an unsubsidized iPhone. Not subsidizing the phone means AT&T makes a bigger profit from the service plan, without the need to sell extras.

There's no need for a bewildering array of service plans with complex rules and gimmicks if the basic plan is profitable. If the basic plan is profitable, then the way to increase profits is to increase market share. The way to increase market share is to offer a killer plan. The key to profiting from the killer plan is the unsubsidized phone. The key to the unsubsidized phone is a killer feature set. Enter the iPhone.

Verizon makes a good point. A service plan can only be as good as the service - coverage, reliability, customer support, &c. Both Apple and AT&T know how to do those. They just have to execute.

I'm not going to predict a price for this plan, as I don't know what the "sweet spot" is. I do know that most prognosticators were wrong - and Apple was right - about "sweet spot" pricing for the iPod and iTunes. That's why I'm betting on another solid hit with the iPhone. I expect Apple and AT&T to reinvent Cellular.

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