AT&T’s designs on wireless devices: Wrong avenue for e-books

A couple years ago, Ed Whitacre, then the CEO of AT&T, told an audience that he resented Web companies’ use of “his pipes” for “free,” ignoring completely the fact that every company connected to the Web is paying for the privilege. He simply wanted a larger cut, a piece of every transaction flowing over “his pipes.” Now, his successor at AT&T is taking a shot at e-book reader development, according to BusinessWeek.

Let me preface the following by reiterating my long involvement in telecommunications and with AT&T. I have spoken at AT&T Bell Labs and appeared in a “vision video” about the AT&T service that was designed the support the General Magic device. I’ve seen AT&T go through three cycles of decline and recovery, interviewing a series of its CEOs along the way. We are now at the tail end of its latest recovery, though the company has yet to earn a market cap approaching the amount of money—more than $200 billion—Whitacre spent to cobble together many of the former Babies Bell into the “New AT&T.” The company has also consistently underperformed compared to its industry and the wider market since Whitacre’s tenure began.

AT&T should stay out of the e-book reader business.

AT&T was a consumer hardware company in the early 20th Century*. For the most part, however, it has only succeeded in delivering enterprise technology and services or creating technologies which it failed to commercialize as effectively as upstart competitors (like the transistor and the fundamental elements of the hard drive). But hundreds of thousands of smart people have worked there over the years, and it has done some things very well at certain times. I thought, for example, that it’s support of General Magic’s Telescript agent-based application technology was potentially visionary. Instead of adapting Telescript to the emerging public Internet and its standards, which would have trumped Sun Microsystems’ Java programming language, AT&T prevented General Magic from following open standards, killing it in the process. Sony and others helped, but AT&T blew the technology apart by making proprietary standards mandatory, and cost itself and fellow backers of General Magic more than $1 billion.

The reality is that large companies working in collaboration with other large companies often trample the promising offspring they partnered to create. BusinessWeek suggests AT&T may be partnering with Sony or Plastic Logic to develop an e-reader with built-in networking a la Kindle’s WhisperNet service. If someone from Plastic Logic is reading this and there is, in fact, a deal in negotiation, please take heed. Sony should know better than to link its reader to proprietary network services or a format touted by a telecom company.

An e-book reader from AT&T, which operates on the principle that it should earn more from the data sent as digital products over its “pipes”—you can see where Alaska Senator Ted Stevens might have gotten his “the Internet is a series of tubes” frame of reference when listening to telecom execs talk—is going to attempt to lock customers into a format and a network service. The former, because it will allow AT&T to identify files sent and charge for them, perhaps each time they are downloaded, unlike the Kindle model, and the latter, because AT&T wants to drive more data more profitably over its network.

Tie the two together, format and network, and it is the basis of a potentially expensive environment for publishing upstarts to get started, publishers to compete based on price and quality because they need to spend more on connectivity, and the combination is antithetical to open standards. In many ways, the wireless device aspirations described in the BusinessWeek piece are repetitions of AT&T’s earlier failures. Given the business model Whitacre outlined and that new CEO, hand-picked by Whitacre, embraces, it doesn’t appear that the company has learned from experience.

There is one way AT&T could make e-books better: Make sharing e-books easier by linking sharing to a Web service based on bookbuyers’s personal networks, because publishers are still enamored of DRM. If AT&T facilitated e-book sharing, something a network provider has the bandwidth and permissions infrastructure to do, it might find itself offering a service to publishers that actually was worth something. Even that, however, would be a tough business to shape to the needs of readers, who are the real customers in the book market.

*At one point in the BusinessWeek article, the reporter, Roger O. Crockett, writes: “Already, AT&T is selling inexpensive portable computers called netbooks, and the CEO thinks that could soon be a $1 billion business. Lurie believes his team can pull in another $1 billion from other wireless-connected devices over the next few years.” This suggests AT&T is designing and building netbooks and that, by extension, its e-book and other wireless devices could succeed based on that experience. It is not manufacturing netbooks, it is selling third-party netbooks, taking a tiny fraction of that billion dollars in revenue as a retailer. (Disclosure: I work daily with Lenovo, a client of mine and maker of, among other PCs, netbook competitors.)