Leadership

The iPhone and the Burden of Buzz

By Nicole Solis

Updated on: August 20, 2007 / 6:20 PM EDT / MoneyWatch

Two days away from the launch of the iPhone, as reviews and details start to come out, more people are wondering if it will live up to the hype? And if it doesn't, what will it mean for Apple and AT&T?

As David Pogue points out in his review in the New York Times, the iPhone scores big with its impressively easy-to-use user interface, scratch-free glass, full-featured web browser, and option to choose your plan from the privacy of your own home. But in some key areas, it underperforms even the "free" phones you get with a phone plan:

It can take up to six steps to make a phone call.
There's no ability to voice-dial.
Text entry is challenging.

And that's just the handset. Cingular was known for its poor customer service, and its customer churn rate reflected that. Rechristened as AT&T, the carrier has cut its response time to consumer complaints in half, from 65 days in 2005 to 30 days. In a Consumer Reports survey released earlier this year, AT&T's signal strength was ranked either last or next to last in 19 of 20 major cities (at the time, the company was still called Cingular).

When not near a Wi-Fi hot spot, the iPhone will run on AT&T's dated EDGE broadband network, meaning that you may only see those cool, full-featured, full-text web pages after a considerable wait (Pogue found that Yahoo.com took two minutes to load on his review iPhone). Future iPhone models will likely run on AT&T's newer, much faster data network (currently available in 160 cities).

With Apple's product development and marketing acumen, it's highly unlikely that the iPhone will be a New Coke or Edsel-like flop. But the mandatory two-year service contract (with a $175 early termination fee, hefty for a non-subsidized phone) leaves plenty of time for buyer's remorse to set in -- and the high-flying exuberance those early adopters have now could plunge into an equally passionate frustration in just a few months. If this translates into lower-than-expected sales, the iPhone could cut into or even reverse Apple's iPod-fueled stock gains.