An iPhone without a data plan? Does not compute

It’s been almost seven months since Apple came out with the iPhone 3G, which of course means that the field is wide open for speculating about the next version, even if doing so has all the diplomacy of asking the bride and groom exactly when they’re planning on having kids.

Then again, that speculation is about as likely to stop as gossip rags are to stop printing sensationalized stories about celebrity weight fluctuations. Apple 2.0’s Philip Elmer-DeWitt has a report from Sanford Bernstein analyst Toni Sacconaghi on what Apple could do to capture the oh-so-important 83 percent of the population who are still buying conventional cellphones. His answer? Well, make an iPhone without a data plan, naturally.

Yes, a great idea. Let’s take one of the iPhone’s most convenient and attractive features—the ability to access the Internet no matter where you are—and just toss it out the window. Never mind that it doesn’t make a shred of sense. Ask your average iPhone user if they spend more time on the phone or on the Net, and I guarantee that the majority of them will say something to the effect of “Holy crap, it makes phone calls too?”

Sacconaghi proposes two ideas: an iPhone nano that plays music and videos but can’t access the net or run iPhone applications and an iPhone touch that’s basically an iPod touch with a cell radio in it (for voice only). So, for those of you playing along at home, Saccaonaghi’s diabolically clever plan is to jam a cell radio into every product of Apple’s existing iPod line—hey, where’s the iPhone shuffle?

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More to the point, though, the foundation on which this brilliant idea is built is suspiciously tenuous: Sacconaghi argues that it’s all about converting the 100 million iPod users into iPhone users. But those 100 million people are already Apple customers. And since Apple no longer gets a cut of iPhone users’ monthly payments to AT&T, it doesn't really stand to gain anything (well, aside from the usual upsell to a new device, but it can accomplish that just as well by releasing a new version of the iPod). Let me ask the simple underlying question here: Why? Why should Apple bother?

This is A1 Missing-the-Point stuff: Apple’s not going to make cut-rate versions of its—let’s not forget, super-successful—product to appeal to the masses. It doesn’t play that game; Apple’s game is to provide a product so compelling that you will pay the cost to upgrade. Why? Because it does more.

Apple’s in the business of converting people who are using conventional cellphones into people who are using iPhones. And that’s for one very simple reason: because Apple knows smartphones are the future. Ten years from now, it seems likely that the number of people with smartphones is going to well outnumber those without. And as a company, Apple is more inclined to pull its customers into the future then to keep them happy with yesterday’s technology.

The trouble with so many of these assumptions put forth by business analysts is that they rely on Apple operating like a “normal” company. But as we’ve seen time after time, Apple doesn’t. Analysts will argue until they’re blue in the face that Apple needs to offer, for example, a sub-$500 computer in order to survive the encroaching hordes from the steppes of Outer Netbookia. And foolishly, Apple has yet to heed those poor analysts’ Cassandra-like words of wisdom. To be fair, though, the company is too busy raking in money.

With rakes.

I’ll admit that the data plan is a balking point for many who would otherwise like to have an iPhone. But I think the barrier there isn't Apple's problem so much as it's the cellular phone carriers' problem. They clearly stand to gain more than Apple does: they want people to pay more by adding data packages. Here’s the thing, though: while plenty of people are clearly willing to spend the extra $30 per month for unlimited data access, there are a lot more people who aren’t willing to pay that $30 a month. But they probably would pay, say, $10 to $15 extra—many are willing to pay that much for text messaging alone.

I think it’s likely that the providers are eventually going to have to lower the data package price in order to convince conventional cell phone users to upgrade. In fact, I’m willing to bet that we see Apple convince a service provider to offer cheaper data rates before we see it ever sell a phone product without Internet access. That may involve hardball negotiations with mobile operators, but it’s not as if that’s something Apple shies away from

In fact, that seems very much their style—more than crippling their existing products to sell more, anyway. Since when has Apple been all about the market share, anyway?

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