Will Strong iPad Sales Undo ATandT's San Francisco, NY Efforts?

Apple surprised many people during its iPad launch by sticking with AT&T as its mobile carrier. AT&T, which faced quite a few jabs in about its iPhone service in 2009, says it's addressing network issues in its two most problematic cities, New York and San Francisco. But will a successful iPad launch add stresses AT&T can't afford?

The Apple iPad is one more device soon to be gobbling data on the AT&T network.
During AT&T's announcement of its fiscal fourth-quarter results on Jan. 28, however, executives noted that progress has been made in New York and San Francisco-two areas where AT&T has previously acknowledged having service issues.
"We're closing the gap against our immediate target, which is the performance level we achieve today in our top-performing markets," John Stankey, AT&T's president of operations, said on the call to investors.
"AT&T is not alone in having service issues at hot spots in major urban areas," Strategy Analytics analyst Neil Mawston told eWEEK. "O2 in the United Kingdom suffered a few network crashes in London last year, as data traffic from smartphones and laptops surged to record highs. O2 has had to spend tens of millions of dollars to install dozens of extra base stations and upgrade its network."
While AT&T may be trying hard-and hardly alone in its efforts-will the iPad impact AT&T's service in already struggling areas?
"If the Apple iPad takes off, then data usage will spike and AT&T could find its 3G networks in urban hot spots coming under renewed pressure," Mawston said. "AT&T could try crimping demand by raising data prices for consumers, but this is difficult to implement. A more likely solution is that AT&T will have to continue expanding the capacity of its networks across major cities."
Fiscal fourth-quarter materials from AT&T detailed both its progress nationwide, where dropped 3G calls fell from 1.16 percent in December 2008 to 0.91 percent in December 2009, and in the two cities currently presenting the greatest challenges.
For San Francisco, AT&T reported that it saw a 21 percent improvement in its 3G Voice Composite Quality Index during the fourth quarter, and for New York the same index showed "three consecutive months of improvement," whether modest or not.
AT&T additionally reported that in the next 90 days it will have additional third- and fourth-carrier implementations and will deploy Ethernet to the cell site to improve network backhaul. It says it also has projects under way that should offer significant improvements to both of these markets "over the coming months."
During the earnings call, AT&T executives said they expect consumers to enjoy the iPad in home, office and coffee-shop environments, where they can take advantage of Wi-Fi hot spots.
"We'll have to monitor this usage as the device gets out there. And if it's substantially different, we'll adapt to it," said Rich Linder, AT&T's chief financial officer.
"The real question is going to be whether or not users will use the iPad in the way Apple and AT&T assume they will," Charles King, an analyst with Pund-IT, told eWEEK. "To my mind, the Wi-Fi version [will likely be] more useful as an alternative to a standard laptop in the home, rather than something to carry with me on the road," which would fit with AT&T's plans.
Will Apple sell enough iPads for their connectivity needs to markedly affect the AT&T network?
"The first bloom of sales will be among dedicated Apple customers, who will buy pretty much anything the company comes up with," King said. "That could include iPhone users who see it as an interesting add-on device."
King added that while the iPad is beautifully designed, it has a few shortcomings-such as its inability to multitask and its lack of a Webcam-and consequently Apple is now hustling to address the issues that have been raised by, for example, introducing a VOIP (voice over IP) solution for the iPhone that seems applicable to the iPad, and announcing that Microsoft Office documents can be ported to the iPad through iWork.
"I'm not sure if that will be enough to push strong sales in the long term," King said. "Immediately, though, I expect sales to be very healthy."
In a Jan. 28 research note, Broadpoint AmTech analyst Brian Marshall, after getting some hands-on time with the iPad, revised the number of iPads he expects Apple to sell in 2010.
While not the 10 million units Apple is rumored to be hoping to sell, Marshall wrote, "Clearly our 2.2-million unit shipment assumption for [calendar year 2010] is conservative, and we now believe an order of magnitude higher is likely more accurate. If Apple sells [approximately] 7 million units in [calendar year 2010], our current [2010 earnings per share] of $12.00 would rise to $13.00-plus."