Apple Predictions

Come See Our Latest Creation

For months the Apple rumor mill has been stirring, as usual, whenever there is a build-up to an official Apple event. Each year, there are a half dozen or so Apple events of significance, but two notable events come to mind, WWDC and Macworld. Alas, Apple announced last year that Macworld 2009 would be their last. It surprised very few people, however, when they announced they would do their own event on January 27, 2010.

Notable Apple forecasters and pundits have written several incredibly interesting articles about this upcoming event and just what Apple may release. I've been reading about this speculation for months and several notable posts come to mind. Before reading the rest of my post, I encourage you to read these:

• John Gruber wrote "The Tablet", "Tablet Musings", "The Original Tablet", and "Apple, Adobe, and Flash".
• Andy Ihnatko wrote "Thoughts on what an Apple tablet shout be - or not."
• Marco Arment wrote "'The Tablet' and gadget portability theory", and then this untitled post in response to Jon Siracusa's Tablet post.
• Jon Siracusa wrote "Antacid tablet".
• MG Siegler responded to Joe Wilcox, who is a pro-Microsoft troll writing, "The World Doesn't Need Someone Telling Us What We Don't Need In Tech".
• Neven Mrgan wrote "DIY", "DIY, Pt. II" and "DIY: The Amazon Way".
Tim Van Damme wrote "Dreaming of an Apple Tablet".
• Jim Dalrymple wrote "Prediction: Apple to release two tablets, and other prognostications".
• Aaron Mahnke wrote "Apple's Tablet Device".
• And finally, Leo Laporte, Andy Ihnatko, Alex Lindsay and John Gruber all discussed the tablet for an hour on an episode of MacBreak Weekly.

What Apple Will Announce

Before I get to the topic of the The Tablet, let me first talk about the iPhone.

iPhone on Verizon, T-Mobile and Sprint.

On May 23, 2007, Leslie Cauley of USA Today published a piece quoting that AT&T had signed a 5 year exclusivity contract to sell the iPhone until 2012. Wired's Fred Vogelstein wrote the same thing on January 9, 2008, quoting:

After a year and a half of secret meetings, Jobs had finally negotiated terms with the wireless division of the telecom giant (Cingular at the time) to be the iPhone's carrier. In return for five years of exclusivity, roughly 10 percent of iPhone sales in AT&T stores, and a thin slice of Apple's iTunes revenue, AT&T had granted Jobs unprecedented power. He had cajoled AT&T into spending millions of dollars and thousands of man-hours to create a new feature, so-called visual voicemail, and to reinvent the time-consuming in-store sign-up process. He'd also wrangled a unique revenue-sharing arrangement, garnering roughly $10 a month from every iPhone customer's AT&T bill. On top of all that, Apple retained complete control over the design, manufacturing, and marketing of the iPhone. Jobs had done the unthinkable: squeezed a good deal out of one of the largest players in the entrenched wireless industry.

Steve Jobs gave AT&T just enough to make them happy in exchange for allowing him to make the iPhone the way he wanted it to be made. The iPhone was released and it was an enormous success. Once AT&T saw how much the world loved the iPhone. Apple's iPhone, not AT&T's, they were in a weaker negotiating position. Steve Jobs now had the upper hand over AT&T, which had become dependent on the iPhone as a product due to the enormous rate in which it has been able to sign on new customers for them. Steve Jobs was in a much stronger position. He had something he could take away from AT&T that they desperately wanted to keep and he had something all of the other carriers wanted. He used this new power over the wireless industry. Leslie Cauley of USA Today wrote on on July 31, 2008 that:

Under the original iPhone contract, Apple had the right to offer the device to other carriers beginning in 2009. If Apple exercised that clause, AT&T would have lost one of its biggest points of leverage with customers — exclusive access to the iPhone.

So AT&T caved to Apple's new price structure, which allowed Apple to account for most of the profit for an iPhone up front, rather than spreading it out over the 24 months of a customer's contract. Also...didn't she say a year ago that Apple had a 5 year deal? Didn't Wired report the same details in January of 2008? Something had changed. It appears that, either those two articles were wrong, and that it was a 3 year deal from the beginning, or Jobs managed to rewrite the deal before the iPhone 3GS launch. In either case, the Apple & AT&T marriage is due to expire in 2010. Once again, Leslie Cauley of USA Today backs up this line of thinking saying that:

Verizon (VZ) and Apple (AAPL) are discussing the possible development of an iPhone for Verizon, with the goal of introducing it next year, people familiar with the situation say....

...The New York-based telecom entered into "high-level" discussions with Apple management a few months ago, when CEO Steve Jobs was overseeing day-to-day business, these sources say. They declined to be named because they aren't authorized to speak publicly.

The original iPhone went on sale in June of 2007. It is reasonable to believe that Apple will therefore sell the iPhone on other carriers as early as June 2010, right after WWDC, when the new iPhone hardware is released. The New York Post backs this up, for what it's worth (I don't think very highly of the NY Post).

iPhone 4.0 Software and Hardware

I haven't seen as many leaks about upcoming features to the iPhone OS. The one credible post that I have seen recently was made by Boy Genius Report. In addition to providing a screenshot that looks like a validly leaked developer seed (2B13), they report there will be OS-wide multi-touch gestures. This would make sense if The Tablet is to run the same OS as the iPhone. They also report that Multitasking - running applications in the background - is coming. They hint at an improved home screen and new UI improvements for navigating through the OS. Other features such as new calendar and contact syncing (official Google support, not just using CalDAV?) seem believable as well. I think Steve will preview these new things on stage, releasing the 4.0 SDK to developers soon thereafter so they can get cranking on their apps to be ready to release updates come June/WWDC when the OS & new iPhone hardware is released.

iPhone hardware you say? I have no earthly idea exactly what they could add to this phone hardware-wise to make it better, other than more RAM, more storage, better camera and a faster processor. I'll be happy with just those improvements. I wouldn't put it past Apple to surprise all of us, however, with some new, yet-unthought-of, hardware feature.

The Tablet aka the Canvas

I don't think anyone, at this point, doesn't believe Apple is going to release a touch screen/tablet like device on Wednesday. Earlier today, during their Q4 earning conference call, Steve Jobs was quoted to say, "The new products we are planning to release this year are very strong, starting this week with a major new product that we’re really excited about." Later in the call, Tim Cook says, "I wouldn’t want to take away your joy of surprise on Wednesday when you see our latest creation." Additionally, MacRumors wrote on January 24, 2010 that:

We haven't heard this first hand, but we've heard it multiple times second and third hand from completely independent sources. Senior Apple execs and friends of Jobs are telling people that he's about as excited about the upcoming Apple Tablet as he's ever been.

I think this will be Apple's 4th biggest release within the last 10 years. Release 1 = iPod. Release 2 = Intel-based Macs. Release 3 = iPhone. Release 4 = Canvas. This release has the potential to be just as big, if not bigger, than the previous three.

I think Apple will finally drop the 'i' as a prefix to the name. Apple Canvas, or simply, Canvas. Take your pick. I've seen people throw about iTablet, iPad, iSlate, iCanvas, Apple Tablet, Apple Pad, Apple Slate, Apple Canvas. It could be any of these, or a yet unnamed one. I'm going with Canvas, simply because Apple has hinted at product names in event invitations before. At the event where Apple unveiled the MacBook Air, the invitation tagline was "Something is in the Air." The name was IN the tagline. This invitation? Scroll up and look at it. Doesn't that look like an something an artist might paint on a piece of canvas? Yes, thin reasoning, but I think it fits.

It will be running iPhone/iPod Touch OS 3.2 when he shows it off on stage, set to be running a newer version when it goes on sale in March and eventually 4.0 in June. Some of this is speculation on my part, but at least one mobile app analytics company claims to have seen evidence of this already in their user agent strings within their data.

Will Canvas be Wi-Fi only? Built-in 3G always on internet, sans contract (like the Kindle)? Purchased data-plan from a wireless carrier? Sources have been all over the place on this. Part of me wants to say it will be like the Kindle's Whispernet™, but realistically I think there will be 2 versions, one with Wi-Fi only and the other that you'll able to also purchase a data plan from a wireless carrier.

Will this be a Kindle killer? Well, yes, but not in the way you think. This product isn't aimed at just the Kindle. That's thinking too small. This product is aimed at being a do-everything-you-could-want-device-for-its-size, like the iPhone, that just happens to be able to do everything the Kindle does, but better. Also Apple has been working with book publishers to negotiate content distribution deals within iTunes. Rumors purport that Apple has been talking to publishers such as HarperCollins and McGraw-Hill, and say that Apple may even be working directly with Barnes & Noble. I also think Amazon's Kindle app will still be available to allow Kindle books on the device. Apple wants to kill the competing hardware off, but will allow other company's content to continue to work as well (through their respective apps). Remember Apple is a hardware business. iTunes exists only to support their hardware business. If Kindle and the Nook's books also work on the Canvas, so much the better. Perhaps the owners of those $249 devices will upgrade to a Canvas in 2011 when they tire of their e-ink readers. Having their 20-30 books they purchased through the Kindle or B&N store work on the Canvas go a long way to make the switch easier for them.

And finally, let us all hope Andy Ihnatko makes it to San Francisco before Wednesday.

Magic Sales for a Not-So-Magic Mouse

Magic Sales for a Not-So-Magic Mouse:

Holiday spending has seen sales of Apple’s Magic Mouse soar. According to a report by NPD and covered today by AppleInsider, last month saw a twofold increase in Apple’s share of domestic mice sales. By the end of November, Apple had captured 10 percent of the market.

NPD analyst Stephen Baker told AppleInsider:

Sales in November were through the roof. The Magic Mouse had the best month for a mouse product from Apple that we’ve ever seen.

It’s the first time Apple’s share of the domestic mouse market has ever reached double digits, and even more impressive considering the data was compiled from standalone sales. Units sold with new iMacs were not counted.

While that’s fantastic news for Apple, I find myself wondering whether those new Magic Mouse owners aren’t going to be feeling somewhat disappointed because, despite its name, the Magic Mouse is anything but magical. For a company that gets so much of its user experience spot-on, it does keep missing the target with its pointing devices.

Andy Ihnatko said it best:

I can’t think of a single good Apple mouse released this millennium. Ideologically, they’ve all been covered with spray-glitter and rainbow stickers.

When I got my Magic Mouse I admired its diminutive form factor and minimalist lines but it was clearly not an ergonomic design. That super slimline, ground-hugging shape took some getting used to. But aesthetic and ergonomic matters aside, I think the thorniest issue isn’t with the hardware at all. The problem, as I see it, is one of user perception.

You see, users accustomed to the touchy-goodness of an iPhone or MacBook trackpad lament the lack of similar functionality in their supposedly ‘magic’ mouse. The major criticism is usually expressed in the form of common questions, like, Why is there no pinch to zoom functionality? Why do we have to click, when we could tap? Why aren’t more swipe-gestures supported?

‘It’s just a software fix,’ reviewers on popular Apple tech sites have concluded, ‘Apple will likely add that functionality later in a software update.’

Well, I don’t think so. In fact, I think Apple will intentionally avoid adding further touch functionality to this mouse, and I think I know why.

Be Careful What You Wish For

In the relatively short time since the Magic Mouse was released in late October, several third-party applications have appeared, both free and paid, that (ahem) ‘tap’ into the Magic Mouse software and foist upon the device all that pinching, swiping, multi-touch functionality people think they want. Well, I also thought I wanted those things…until I got them.

Remember how, with the Mighty Mouse, you had to handle it with care because those side-buttons could be way too sensitive? They were so sensitive, in fact, many people disabled those buttons entirely because they proved such a nuisance. Turns out, having multifunctional touch-sensitive controls all across the surface of the Magic Mouse turns the thing into a far greater nuisance than its ‘mighty’ predecessor ever was.

I swiftly discovered that controls I wanted to trigger (say, a three-finger-tap) often wouldn’t register. I’d spend an inordinate amount of time obsessive-compulsively tapping the mouse with minimal success. Pinching and zooming was literally painful, transforming my hand into a deformed claw of knotted knuckles and cramp. Yet, for all my efforts, it still never zoomed in a controlled, predictable manner.

Worse still, functions I didn’t intentionally invoke would trigger while I was doing something else entirely. It got to the point where simply moving the pointer across the screen — an action so natural and normal I normally give it no conscious thought — was now an event demanding deliberate care and attention. I tried two of the most popular apps and got the same results each time.

In short , it’s not a software problem, but rather, a limitation imposed by the very form factor of the mouse. As long as Apple wants its flagship pointing device to be small, svelte and sexy, it’s just not going to be the right shape and size for full-fledged multi-touch controls.

Software like MagicPrefs introduces hugely varied additional functionality

Apple, I’m sure, did a lot of R&D to determine what were the most appropriate default touch controls for the Magic Mouse. Therefore, a feature’s absence is a deliberate choice. It makes perfect sense. One of the most celebrated aspects of Apple’s user-experience is its consistency; across all Macs the user experience is predictable and dependable. There are rarely unexpected (or unwelcome) surprises. Much of the time, that’s made possible by Apple’s minimalist, ‘less-is-more’ approach to interface design.

That is why so many people disliked the Mighty Mouse. In trying to do so much it was just too unpredictable and ruined the user experience. And that is why the Magic Mouse is so limited. It’s better this way.

I just wonder if all those new Magic Mouse owners will agree?

(Via The Apple Blog.)

My thoughts on the new 27" iMac after 3 days use

I've had my iMac for 3 days now so I thought I'd write about a few observations I've made. I previously wrote about the high calibre of the new display within the 27" iMac. After now using this display, I can attest that it is indeed a thing of beauty. Watching hi-res videos, whether from iTunes or Youtube, it looks great. The color gamut is awesome. The viewing angle is awesome, and I'm really enjoying using it with my new Bamboo Fun.

Speed

As for the speed question? It's fast. Application resource hogs that used to take many 'bounces' to open on the Dock now open in 2 or 3 bounces at most. Adobe Lightroom 3 Beta now opens in less than 6 seconds. I was able to import 400 RAW photos from my Canon 40D to Lightroom while also importing 30 minutes worth of video from my new Flip Ultra to iMovie at the same time the iMac handled the workload just fine.

Bluetooth connection issues with the Apple Wireless Keyboard & Magic Mouse

My major problem has been, so far, having the Apple Wireless Keyboard & Magic Mouse lose their bluetooth connection. I don't mind typing on this keyboard, although I dislike the fact that Apple felt the need to chop off the number pad. The Magic Mouse is leaps and bounds improved over the previous Mighty Mouse, but that being said, it still is not comfortable to use for any length of time if you hands are as large as mine. It feels tiny in my hand. Too small, too uncomfortable. Sure, it's beautifully designed but my Logitech G5 just feels NICE is my hand. Oh and it has a wire so if the CPU spikes to 100% for 3 hours when encoding video, the damned thing doesn't lose connection.

And while I'm on that topic....the keyboard & mouse only seem to lose connection whenever the CPU cores max out to 100% for any length of time (mostly video encoding so far). HA! As I type this post, and watch MacBreak Weekly on youtube in HD, the damned keyboard lost its connection again. iStat Menus reports my current CPU use at ~ 55% on both cores.

Really Apple? How do you expect people to use this thing? It wouldn't be quite as bad if it automatically reconnected on its own. Sadly, that is not the case. Even keying the bluetooth drop-down menu, selecting disconnect for the keyboard, and then selecting connect again will not cause it to reconnect. I have to toggle bluetooth off and then toggle it back on in order for it to pick up the keyboard once more. This process is sufficiently annoying and tedious to make this product unusable for me. Thanks to Amazon Prime, I should have the wired full-sized keyboard by Tuesday Monday (I love when the 2 day shipping arrives in 1 day).

Luxurious desktop screen real-estate

Did I mention how BIG this screen us? Under my previous desktop setup I was using a 17" MacBook Pro alongside a Dell 24" Widescreen LCD. I'm still at my family's farm in southern Virginia, so alas, haven't hooked the Dell up to the iMac yet. Under the previous setup, I used the MacBook's screen on the left to keep things like GMail, Adium, and Twitter displayed all the time. I use the 24" Dell as my main screen. Under this setup, I plan to use the 27" iMac as the main screen with the Dell as the secondary display for panels such as Twitter/email/IM. Even without the second display, I'm able to comfortably have a full sized Chrome window alongside my MarEdit markup screen + its preview screen. Also, I have Adium & Tweetie for Mac tucked up in the top right corner. All at once. On one screen. Without using Spaces. AWESOME.

Editing photos of the family I took during Christmas was a treat within Lightroom as well. None of the various control panels felt cramped on the screen as I was still able to see a fairly large image in the center for editing. I high recommend this computer to photographers or designers who regularly use Adobe products.

Now, a reminder, I've only used this machine for 3 days, so my experience is limited but overall I have found no faults with the iMac. Apple's peripherals on the other hand...

AT&T has only reduced spending on its network since the 2007 iPhone launch

AT&T has received a great deal of criticism for the abysmal quality of its network in major cities. They've always countered that they were going to, at some point in the future, upgrade the quality of service in those areas where it is poor. But according to their own SEC filings, they've actually been pulling back on spending on their network.

All this time they've been taking more and more iPhone owners on unlimited plans, they've actually cut their spending on the network that is supposed to carry their data. Is it any wonder that people are so mad?

Images courtesy of Gizmodo:

Hello!? Is this thing on?! Apple's new 27" iMac is breakthrough innovation!!!!

New Apple hardware was released last Tuesday. Like normal, Gruber had it right the night before. Also like normal, the Tech/Apple blogs covered the release of the new hardware extensivley the day of their release. There were some reviews and a few other commentary posts about the new hardware throughout last week, but not until Sunday, October 25th, did I encounter some commentary from Marco Arment.

Looking back on Marco's blog, I found his initial post to the new 27" iMac last Tuesday.

The 27” iMac’s base configuration is $1699. It has a 2560x1440 resolution and can be used as a standalone monitor from another computer. It’s a new LED-backlit IPS panel likely to have an excellent color gamut, contrast ratio, and pixel response time.

Now, IPS panels are the most expensive form of LCD panels available. They offer the most accurate color correctness (essential for designers, or anyone who works in Photoshop or with other graphc apps). Marco's followup post came yesterday:

The more I think and learn about the curious pricing of the 27” iMac, the more bizarre and incredible it seems.

It has a resolution of 2560x1440, which no other monitor in the industry seems to have (that I can find). 30” LCDs are the same width but 1600 tall. Shrinking 2560-wide into a screen that’s 3” smaller diagonally yields an impressive pixel density, especially given the panel’s still-immense size.

It has an IPS panel. IPS is the best and most expensive LCD type, giving the best viewing angle and the least color- and brightness-shifting as the angle increases in any direction. Nearly every panel on the market, including every laptop panel, is the cheap TN type. (TN panels wash out as soon as you move your head slightly, especially vertically, which is why it’s so hard to find a good viewing angle for your laptop lid while watching a dark movie.) Other 27” TN panels exist (only at the lower 1920x1080 resolution), but I can’t find any other 27” IPS panels.

It’s also LED-backlit.

So it’s a very high-specced, brand new panel that’s apparently not being mass-produced yet (since no other monitors for sale are using it). That must be expensive. How much of the base 27” iMac’s $1700 retail cost does this represent?

The closest existing panel for comparison, spec-wise, is the 30” IPS panel that Apple uses in their Cinema Display. It has the ultra-high resolution and size, but doesn’t compete with the 27” iMac’s panel for brightness, contrast, power efficiency, or color range. It’s overpriced by today’s standards at $1800, but not by much — Dell’s original 30” monitor with the same panel is $1200, and a newer version with better specs (although still not as good as the new iMac’s) is $1700.

A standalone monitor with the new iMac’s panel would be perfectly reasonably priced at about $1500. From Dell. Apple’s only charging $200 more than that for theirs, and there’s an entire high-end computer stuck to the back of it.

When they mentioned on last week’s quarterly earnings call that they expected lower profit margins for a new product, I don’t think anyone expected a change of this magnitude. How are they making anything — or even not losing money — with the base-model 27” iMac?

My guess: a massively successful negotiation with the panel’s manufacturer (most likely LG) to get not only an incredible price on these panels, but also apparent exclusivity for a while. It’s a hell of an accomplishment, and presumably a hell of an effort, for a computer that isn’t even Apple’s most-selling model (or even product line). That raises a more interesting question: Why?

Until we know why the panel is so cheap, I bet we’re going to see a lot of Mac Pro owners buying 27” monitors for $1700 and trying to figure out what to do with the free computer stuck to the back. For new-computer shopping, a lot of people are going to abandon whichever laptop or Mac Pro they were considering and get this instead.

That helps answer the “why” question: Maybe Apple wants to push more buyers away from today’s default system-type choice — laptops — and show them why they should consider getting a fast, spacious desktop instead. And, for the time being, it’s a desktop with absolutely no equivalent in the PC world.

First of all, this article made me very excited on a personal level. I will be the owner of one of these machines by late December, if all goes well. I was excited about the 27 inches of new desktop real estate but I had no idea what the implications of this new display meant - on a technical level.

To followup to Marco's post, Jim Cloudman replied to his post this morning:

The monitor is, by all accounts, the greatest piece of liquid crystal display heaven to ever grace the Earth. Marco Arment touches on a good point, though:

How are they making anything — or even not losing money — with the base-model 27” iMac?

His answer, that Apple scored a great deal from the panel manufacturer, has got to be a part of it. I think another part of it, though, is that the panel manufacturer must be drooling over the fact that this is really the only way to move a lot of high-end panels, and therefore gain access to serious economies of scale, driving the prices down and bringing IPS panels to a more mainstream market.

Not many people are very discerning about their monitor choice. Even many creative types look for a much cheaper panel - $1800 for a monitor, when you can buy a 13” MacBook for $1200 and find a good-enough HP or Dell display with what you have left? IPS monitors are a tough sell.

Now, you have IPS displays in the hands of everyone who buys the 27” iMac. This isn’t something that only designers will use - it’s something that every geek with enough disposable income or company funds will consider. It’s a much bigger market, and it’ll move many more IPS displays. Many sales -> many IPS panels moved -> massive economies of scale -> cheaper panels -> profit!

This is what I love about Apple. Nothing is driving innovation anymore in the PC market - the average computer today has little more capability than a computer from five years ago. Apple, however, is using the brute force of its market share to drive technology forward - by buying the latest stable technology and creating a vast market for it in the time it takes to make an update to the Apple Store, allowing it to mature and develop, while reaping the benefits. Then, the rest of the industry follows suit in a vain attempt to catch them, two years later, not realizing that as long as they keep seeking out the lowest bidder, they keep giving up the chase.

If you combine Marco and Jim's thoughts, they make a very strong case for the reasons why Apple is able to sell a computer of this stature. We, the customer, are the beneficiaries. Another important poing that Jim makes, which I feel need to be emphasized is Apple's ability to be an innovation driver within the Computer industry. I bolded his last paragraph with the hope that you will really take it to heart. Can you think of the last time Dell, HP, or any of the other crapware manufacturers lead the industry in new technology adaptation.

The Very Daring Fireball RE: WWDC 2009 Announcements

That John Gruber usually knows his stuff. I would pay attention if you care, at all, about what may or may not be announced at WWDC in about 3 weeks. The gist of his info is that the new iPhone will be faster in terms of processor & ram....and you will definitely be aware of it once you use the new phone. Also, 16/32 GB storage as well as a magnometer & video capabilites ala the Flip.

Woot.

More Apple & Verizon News: Two New Devices

In my previous post, I discussed the rumors from USA Today that Apple was in talks with Verizon about making either a CDMA or a 4G iPhone with them. Today, the news has continued, but this time the source is Businessweek.

The rumors seem to have taken on a life of their own with multiple reports that the companies are planning to work together as early as 2010. Businessweek provides the most intriguing report yet with claims that Apple could be working on releasing two different devices with Verizon: an iPhone Lite and a Media Pad.

One device is a smaller, less expensive calling device described by a person who has seen it as an "iPhone lite." The other is a media pad that would let users listen to music, view photos, and watch high-definition videos, the person says. It would place calls over a Wi-Fi connection. One of these devices may be introduced as early as this summer, one person says.

BusinessWeek was able to confirm with Verizon Wireless CEO Lowell McAdam that Verzion had been in talks with Apple but could not get any details from McAdam.

Instead, the magazine cites "two people familiar with the subject" as the source for these two possible Apple devices. The Apple media pad is said to be smaller than Amazon's Kindle ebook reader but its touchscreen is bigger than the Kindle's. The source predicts that this new product will be a category defining breakthrough device:

"The media pad category might go to Verizon," said the person who has seen the device. "We are talking about a device where people will say, 'Damn, why didn't we do this?' Apple is probably going to define the damn category."

Meanwhile, the iPhone Lite is said to be thinner, smaller, and cheaper than the current iPhone. Most of the cost savings are said to come from a new system-on-chip that has reduced costs.

The Businessweek Article in its entirety:

New Gear from Apple and Verizon Wireless?

The companies are in talks to develop two iPhone-like handhelds that could be unveiled as soon as this year

By Spencer E. Ante and Arik Hesseldahl

Verizon Wireless is warming to the idea of an Apple (AAPL) partnership. Verizon Wireless is in talks with Apple to distribute two new iPhone-like devices, BusinessWeek has learned. Apple has created prototypes of the devices, and discussions reaching back a half-year have involved Apple CEO Steve Jobs, according to two people familiar with the matter.

One device is a smaller, less expensive calling device described by a person who has seen it as an "iPhone lite." The other is a media pad that would let users listen to music, view photos, and watch high-definition videos, the person says. It would place calls over a Wi-Fi connection. One of these devices may be introduced as early as this summer, one person says.

Until now, AT&T (T) has been the only carrier of Apple's iPhone in the U.S., adding more than 7 million subscribers as a result of the arrangement; the company has said it's in talks with Apple to extend the partnership, due to end as soon as next year. An agreement to distribute Apple communication devices via Verizon Wireless may cost AT&T some of the business it has gained as the sole Apple carrier. Even if Verizon Wireless and Apple fail to strike a deal, talks between them increase pressure on AT&T to accept partnership terms favorable to Apple.

A Turnabout for Verizon Wireless

In a recent interview with BusinessWeek, Verizon Wireless CEO Lowell McAdam confirmed that the company has spoken with Apple executives. "In the last six months, I have talked to Steve Jobs," McAdam says. Although McAdam would not say what the two companies discussed, two people familiar with the subject said talks covered the new smaller iPhone-like device under development. Representatives of Verizon Wireless and Apple declined to comment. AT&T spokesman Mark Siegel says: "We are delighted with the iPhone and our partnership with Apple." The company declined to make an executive available.

The recent round of talks marks a turnabout for Verizon Wireless, which initially balked at becoming the exclusive U.S. distributor of the iPhone. Verizon Wireless, a joint venture of Verizon Communications (VZ) and Vodafone (VOD), chafed at Apple's request early on to take a cut of the phone's monthly service fees and its desire to choose which retailers could sell the phone. Despite the failure of that deal, McAdam says "there is no animosity" between the two companies.

While talks between Verizon Wireless and Apple have heated up recently, no deal is imminent. It's possible both sides may disagree over financial terms, such as how big a subsidy Verizon Wireless might pay for each device or whether to share monthly service revenue with Apple. Another deal breaker could be disagreements over distribution of wireless software applications. Apple is the exclusive provider and distributor of apps for the AT&T iPhone. If Apple requests a similar deal on newer devices, Verizon Wireless may balk.

Whatever the outcome of Apple's discussions with Verizon Wireless, they at least could be used as a bargaining chip to help win concessions from AT&T. Apple may want AT&T to absorb an even larger portion of the costs of manufacturing the phone. Plus, it may seek to obtain promises from AT&T to beef up investments in its network and customer service operations. Many iPhone customers have complained about the quality of AT&T's wireless network. AT&T's success is so tied to the iPhone that it may have little choice but to accede to Apple's demands. Still, during Apple's quarterly earnings call on Apr. 22, Apple Chief Operating Officer Tim Cook said: "We're very happy with the relationship that we have [with AT&T] and do not have a plan to change it."

Potent Threat

Apple could also use the prospect of an iPhone-esque device as leverage to prevent Verizon Wireless from introducing the Palm (PALM) Pre, or at least delay the introduction of the smartphone on Verizon's network. Sprint Nextel (S) is due to release the widely anticipated phone in June. Selling the Pre through Sprint, with 35.5 million subscribers, is less a threat to Apple's iPhone than if Verizon Wireless, with 86.6 million subscribers and a reputation for a superior network, were to begin distributing the device.

USA Today reported on Apr. 27 that Verizon Wireless and Apple are discussing the development of a current version of the iPhone for Verizon Wireless. That would mark the first time Apple has produced a version of the iPhone for a CDMA wireless network, which is different from AT&T's GSM technology.

But analysts say such a deal is unlikely because it would mean Apple would have to develop two versions of the same phone, which would increase the company's costs. "We believe such a deal is unlikely due to the technology hurdles involved in building and supporting its first CDMA iPhone," Gene Munster, a senior analyst at Piper Jaffray (PJC), wrote in a research note. Re-engineering the existing iPhone would also prove challenging from a design point of view, says Richard Doherty, research director of the Envisioneering Group. "You would be throwing away dollars," he says. "Part of the miracle of the iPhone is they have big volumes with the same design."

Terms of the Apple-AT&T agreement haven't been made public, but they very likely impose strict limits on Apple's ability to introduce an iPhone on a rival network. Many analysts speculate Apple and AT&T will extend their agreement in some fashion.

Smaller Media Pad

The new Apple devices under development, if introduced, hold the potential to shake up the tech industry. The media pad is smaller than an Amazon (AMZN) Kindle electronic reader, but its touchscreen is bigger than the Kindle's, says the person who has seen it. Carriers such as Verizon and AT&T are keen on striking deals to supply wireless Internet access to these new small computing devices, such as netbooks, which represent revenue growth opportunities. Phone carriers also fear being cut out of their core markets for supplying land-line and wireless voice services.

"The media pad category might go to Verizon," said the person who has seen the device. "We are talking about a device where people will say, 'Damn, why didn't we do this?' Apple is probably going to define the damn category."

The new iPhone-like device is slightly thinner and smaller than the existing iPhone, people say. The reason the device is much cheaper than existing iPhones is that it relies on a so-called system on a chip, which incorporates many types of chips and drives down the cost of silicon in such devices, says one source familiar with the design. This new chip could also potentially be used in the media pad. "It will have a much lower cost that will blow away the margins on the BlackBerry and the iPhone," the person says.

Apple and Verizon In Possible Talks for CDMA iPhone

According to Leslie Cauley of the USA Today, Apple and Verizon have been in talks for a few months from back when, "...when CEO Steve Jobs was overseeing day-to-day business, these sources say". Jobs went on his leave of absence earlier this year so it appears that they've been negotiating, or perhaps even already agreed upon & are now working on, a new iPhone for Verizon. Now, USA Today was the orginal source, back in early 2007, that AT&T had a 5 year exclusivity contract with AT&T for the iPhone for 5 years. They revised that in June of 2008 by saying that the deal was for 3 years, not 5 and reconfirmed that earlier this year. This would mean AT&T's contract runs out in June of 2010. The source in this new article coraborates this fact.

The article claims that this would be a CDMA product, but given that Verizon boss Ivan Seidenberg himself ruled out a CDMA iPhone and opened the door for an LTE one, I'm inclined to believe that the carrier would like to see this product help roll out the first slivers of its commercial 4G network in 2010. Since AT&T (along with the rest of the world) is moving toward LTE, and an LTE-powered iPhone is a forgone conclusion,  it's really just a question of when Apple will make it happen and whether Verizon will be able to come to an agreement with them.

Perhaps now we know why it’s been reported recently that AT&T was pushing hard to get Apple to extend its exclusive deal another year, into 2011. Verizon is AT&T’s main rival in the US, and is actually larger. That being said,  Verizon lacks the one device that people are switching networks just to get. In announcing its most recent earnings, AT&T said that as many as 40% of all customers who sign up for iPhone contracts are new to AT&T which translates into the fact that having the iPhone to themselves is gravy.

Now, any skilled negociator will tell you that the first thing to do in a situation like this is to play one off of the other, and of course that may be what Apple is doing but I sure hope not. I really hope Verizon can make this happen, if the rumors are true.