Fred Vogelstein at Wired has written a very interesting piece on the iPhone partnership between Apple and AT&T.  It highlights the tension between Apple and AT&T which Vogelstein called a “loveless celebrity marriage”.  Apple (and Google) are producing devices that are exploding in popularity and bandwidth consumption and they like it that way to increase profit while the network operators have to invest boatloads of money just to keep their noses above water all the while taking a brutal public relations bashing.

While the marriage may indeed be loveless, Apple is in no short supply of receiving the love now that they are pulling more profits than AT&T ($3.38 billion for Apple and $3 billion for AT&T).  While AT&T has much higher revenues, AT&T has to spend nearly 16 times more on capital expenditures (17.3 billion in 2009) versus Apple’s 1.1 billion in 2009 doing the upgrades to keep the iPhone afloat.  Furthermore, a significant portion of the monthly fee that consumers pay to AT&T actually goes to Apple which makes AT&T look like the bad guy.  AT&T has to do the dirty work of collecting the money and being accused of being “greedy” when Apple is the one getting the bigger chunk of the profits.

UPDATE 3:00 PM – Note that Vogelstein’s charts show a few billion less CAPEX spending for AT&T but I don’t know how he’s counting it.  I included links to AT&T financial statements as the source of my figures.  AT&T is actually increasing their CAPEX spending from $17B in 2009 to $19B in 2010 but MG Siegler at TechCrunch things it’s hard to feel sorry for AT&T pointing out that AT&T isn’t spending as much as they did in 2008 based on Vogelstein’s numbers.  I’m not sure it’s fair to expect a company to meet record CAPEX spending levels every year and Siegler admits that no amount of investment would be enough anyways.  This is one of AT&T’s biggest problem in that no matter how much money they spend to improve the network, they’re not going to get much if any credit for it.

Lastly, I find it interesting that Siegler still blames AT&T for the dropped calls even though he’s recommending Vogelstein’s article that explains that the dropped call problem is much to do with Apple’s bad baseband design.  But it’s clear from reading the rest of Siegler’s piece is that he carries a very irrational hatred of network operators and love of Apple and Google because he can invent the facts as he deems fit.  He credits Google for “opening the spectrum” when Google spends less then 1/20th the CAPEX of the network operators.

Another interesting nugget from Vogelstein’s piece is that much of the problem with iPhone disconnects were actually due to the iPhone’s baseband software yet the press and the public blamed them on AT&T network problems.  While this might have been hard for most people to believe a few months ago, they’ve recently been made aware of how important a role the phone plays when it comes to connection stability by the whole iPhone 4 “antennagate” saga which has apparently been turned into a feature animation (video is self explanatory even if you don’t understand Chinese).  People learned that Apple is very reluctant to accept any blame and they would go as far as blaming their own customers even when the problem is obviously Apple’s design.

One other interesting point was how difficult it would be to create a CDMA version of the iPhone as opposed to the current GSM version.  Vogelstein wrote: “The new chips were a different size, which would require Apple basically to rebuild the iPhone from scratch.”  I knew it wouldn’t be trivial but never imagined that it would be that bad.  Vogelstein also pointed out that Apple wasn’t sure if Verizon would be any better to work with.  I’m guessing that Apple isn’t sure how good the Verizon network would be once they’re forced to deal with iPhone loads.

Lastly, Vogelstein noted AT&T’s elimination of the unlimited $30 data plan resulted in more accusations of “greed” being thrown at AT&T.  However, I noted recently that AT&T stands to potentially lose up to half its revenue from 70% of its user base because those customers can change to the $15 plan without having to change their web usage habits.  The more rational explanation is that the smaller caps with lower prices are being implemented to slow the growth of data usage to a manageable pace that the $19 billion 2010 investment in infrastructure could keep up with.