Data Cube Systems

While AT&T and Apple have remained silent on the absence of tethering and MMS with the iPhone, a new report provides insight on the effect an influx of bandwidth-heavy mobile users have had on the wireless network.

Digging into customer dissatisfaction with the AT&T network, The New York Times revealed that the carrier has struggled to keep up with demand as iPhone owners use more and more bandwidth. The report suggests that AT&T’s reputation could be tarnished because, for some users, its network is unable to keep up with demand. The bandwidth issues have led to delays of tethering and multimedia messaging, much-anticipated features for iPhone users.

“The result is dropped calls, spotty service, delayed text and voice messages and glacial download speeds as AT&T’s cellular network strains to meet the demand,” the report, which compared the device to a gas-guzzling Hummer, states. “Another result is outraged customers.”

The average iPhone user reportedly consumes 10 times the bandwidth of a typical smartphone user, but that is expected to change in the near future. The growth of the iPhone and its impact on the AT&T network has even led to lawsuits. As other mobile devices emulate the iPhone and also use more network capacity, the problem is expected to grow on all networks, not just AT&T.

Even John Donovan, chief technology officer for AT&T, admitted his company’s struggles. “It’s been a challenging year for us,” he told the Times.

But in the face of demand, AT&T plans to spend $18 billion this year to upgrade and expand its 3G network. And the company has no plans to cap data use, whether solely through the phone or via tethering with a computer.

AT&T announced Wednesday that it had improved its 3G coverage in metro New York and New Jersey. The company expects to roll out nationwide improvements with HSPA 7.2 technology, with the upgrade to be completed in 2011. And 1,900 new cell towers are planned for construction in the U.S. this year as well. But expansion isn’t so simple.

“As fast as AT&T wants to go, many cities require lengthy filing processes to erect new cell towers,” the report states. “Even after towers are installed, it can take several months for software upgrades to begin operating at faster speeds.”

Many analysts believe that when Apple’s exclusive contract with AT&T expires in 2010, the handset maker will offer the iPhone on other carriers. The most obvious jump would be to Verizon, the largest carrier in the U.S., ahead of No. 2 AT&T.

Apple’s iPhone now accounts for 8% of all mobile phone revenue and a whopping 32% of the industry’s handset profits, according to figures published by Bernstein Research analyst Toni Sacconaghi.

The numbers, published by All Things Digital blogger John Paczkowski, aren’t limited just to the smartphone segment market, but look at all mobile phones sold in the first half of 2009, a $65.7 billion industry.

Apple earned just over $5 billion in the first half of the year, making it the fifth biggest player in terms of revenue, behind Nokia, Samsung, RIM, and LG. Apple lead the world in actually making money however, with just over $2 billion in operating profits. The company earned just over $100 million more than second place Nokia, gobbling up a 32% share of the global profits made in handset sales and achieving operating margins of 40%.

Because these numbers reflect the first two quarters of 2009, they only take into consideration less than two weeks of the surge in sales generated by the new iPhone 3GS. Historically, the first half of the year has been the slowest for Apple’s mobile sales as buyers begin to anticipate the next refresh.

In terms of operating margins, second place RIM earned closer to 20%, while Nokia, Samsung, and LG made closer to 10% margins. Sony Ericsson and Motorola continued to actually lose money in their handset sales, with the former losing $841 million and the latter loosing $762 million.

Ignoring the losses of Sony Ericsson and Motorola, but still considering their $8 billion in sales, Apple’s 8% share of the industry’s revenue still accounts for 25% of the world’s profits earned from phone sales.

The numbers vindicate Apple’s strategy of exclusively selling smartphones, rather than trying to soak up unit market share by marketing huge volumes of many models of low profit ‘feature phones.’ Nokia, the leader in phone sales worldwide, has watched its market share evaporate under competition from Apple and RIM by doing just the opposite.

Apple’s smartphone business is structured similar to the company’s approach to selling computers, where it owns a disproportionally large segment of the premium market. As with feature phones, Apple has largely ignored low profit PC segments such as high volume but low priced $400 desktops.

Apple claims that hundreds of thousands of iPhones are being used by corporations and government agencies. What it won’t tell you is that the supposedly enterprise-friendly encryption included with the iPhone 3GS is so weak it can be cracked in two minutes with a few pieces of readily available freeware.

“It is kind of like storing all your secret messages right next to the secret decoder ring,” said Jonathan Zdziarski, an iPhone developer and a hacker who teaches forensics courses on recovering data from iPhones. “I don’t think any of us [developers] have ever seen encryption implemented so poorly before, which is why it’s hard to describe why it’s such a big threat to security.”

With its easy-to-use interface and wealth of applications available for download, the iPhone may be the most attractive smartphone yet for business use. Many companies seem to agree: In Apple’s quarterly earnings conference call Tuesday, Apple chief operating officer Tim Cook said almost 20 percent of Fortune 100 companies have purchased 10,000 or more iPhones apiece; multiple corporations and government organizations have purchased 25,000 iPhones each; and the iPhone has been approved in more than 300 higher education institutions.

But contrary to Apple’s claim that the new iPhone 3GS is more enterprise friendly (for reference, see Apple’s security overview for iPhone in business [pdf]), the new iPhone 3GS’ encryption feature is “broken” when it comes to protecting sensitive information such as credit card numbers and social-security digits, Zdziarski said.

Zdziarski said it’s just as easy to access a user’s private information on an iPhone 3GS as it was on the previous generation iPhone 3G or first generation iPhone, both of which didn’t feature encryption. If a thief got his hands on an iPhone, a little bit of free software is all that’s needed to tap into all of the user’s content. Live data can be extracted in as little as two minutes, and an entire raw disk image can be made in about 45 minutes, Zdziarski said.

Wondering where the encryption comes into play? It doesn’t. Strangely, once one begins extracting data from an iPhone 3GS, the iPhone begins to decrypt the data on its own, he said.

To steal an iPhone’s disk image, hackers can use popular jailbreaking tools such as Red Sn0w and Purple Ra1n to install a custom kernel on the phone. Then, the thief can install a Secure Shell (SSH) client to port the iPhone’s raw disk image across SSH onto a computer.

To demonstrate the technique, Zdziarski established a screenshare with Wired.com, and he was able to tap into an iPhone 3GS’ data with a few easy steps. The encryption did not pose any hindrance.

Nonetheless, professionals using the iPhone for business don’t seem to care, or know, about the device’s encryption weakness.

“We’re seeing growing interest with the release of iPhone 3.0 and the iPhone 3GS due in part to the new hardware encryption and improved security policies,” Cook said during Apple’s earnings call. “The phone is particularly doing well with small businesses and large organizations.”

Clearly, the gigantic offering of iPhone applications is luring these business groups. Quickoffice Mobile, for example, enables users to access and edit Microsoft Word or Excel files on their iPhone. For handling transactions, merchants can use apps such as Accept Credit Cards to process a credit card on an iPhone anywhere with a Wi-Fi or cellular connection.

Several employees of Halton Company, an industrial equipment provider, are using iPhones for work, according to Lance Kidd, former chief information officer of the company. He said the large number of applications available for the iPhone make it worthy of risk-taking.

“Your organization has to be culturally ready to accept a certain degree of risk,” Kidd said. “I can say we’ve secured everything as tight as a button, but that won’t be true…. Our culture is such that our general manager is saying, ‘I’m willing to take the risk for the value of the applications.’”

Kidd noted that Halton employees are not using iPhones for holding confidential customer information, but rather for basic tasks such as e-mailing and engaging with clients via social networking sites such as Facebook and Twitter. Halton also plans to code apps strictly for use at the company, Kidd said.

According to Kidd, a security expert performed an evaluation of Halton, and he said it was possible for any hacker to find an infiltration no matter the level of security. Therefore, Halton has measures in place to respond to an information security threat rather than attempt to avoid it.

“It’s like business continuity,” Kidd said. “You prepare for disasters. You prepare for if there’s an earthquake and the building breaks down, and you prepare for if there’s a crack in [information] security.”

But Zdziarski stands firm that the iPhone’s software versatility isn’t worth the risk for use in the workforce. He said sensitive information is bound to appear in e-mails or anything that can be contained on the iPhone’s disk, which can be easily extracted by thieves thanks to the new handset’s shoddy encryption.

Zdziarski said it’s up to the app developers to add an extra level of security to their apps because Apple’s encryption feature is so poor.

“If they’re relying on Apple’s security, then their application is going to be terribly insecure,” he said. “Apple may be technically correct that [the iPhone 3GS] has an encryption piece in it, but it’s entirely useless toward security.”

He added that the ability for the iPhone to self-erase itself remotely using Apple’s MobileMe service isn’t very helpful, either: Any reasonably intelligent criminal would remove the SIM card to prevent the remote-wipe command from coming through. (In a past Wired.com report, Zdziarski said the iPhone’s remote-wiping ability pales in comparison to Research In Motion’s BlackBerry, which can self-delete automatically after the phone has been inactive on the network for a preset amount of time.)

On top of that, the iPhone isn’t well protected in general usability, said John Casasanta, founder of iPhone development company Tap Tap Tap. He said though Apple’s approval process scans for malicious code, a developer could easily tweak the app to send a user’s personal data, such as his contacts list, over the network without his knowing.

“Apple can see if something is blatantly doing something malicious in the approval process, but it wouldn’t be very hard to do something behind the scenes,” Casasanta said.

Evidently, it isn’t difficult to sneak unauthorized content into the App Store. In May, Wired.com reported on an exploit demonstrated by the iPhone app Lyrics. Apple initially rejected the app because it contained profane words, and then Lyrics’ developer snuck the profanity into the app with a hidden Easter egg. Apple then approved the application.

Zdziarski added that there are other weaknesses with the iPhone: Pressing the Home button, and even zooming in on a screen, automatically creates a screenshot temporarily stored in the iPhone’s memory, which can be accessed later. And then there’s the keyboard cache: key strokes logged in a file on the phone, which can contain information such as credit card numbers or confidential messages typed in Safari. Cached keyboard text can be recovered from a device dating back a year or more, Zdziarski said.

Though Apple has declined to comment on iPhone security issues, the company has more or less admitted iPhones are vulnerable to security threats, because an emergency measure exists. In August 2008, Apple CEO Steve Jobs acknowledged the existence of a remote kill switch for iPhone apps, meaning if a malicious app made its way onto iPhones, Apple could trigger a command to delete the app from users’ devices. There is no evidence that the kill switch has ever been used.

So, what kind of business should you do with an iPhone if the device is not very secure? Zdziarski said there are some business-savvy apps that have managed to integrate better security (such as secure data fields to prevent key-stroke logging of credit card numbers, for example), but he warned companies to be cautious about investing too much trust in the iPhone and the apps available for it.

“We’re going to have to go with the old imperative of ‘Trust no one,’” he said. “And unfortunately part of that is, don’t trust Apple.”

Google Wave

Google Wave is the one item on this list whose reading on the SQUEE-o-meter is off the charts. The ambitious new messaging platform sets out to reinvent email for the modern web. Google Wave rolls email, wikis, instant messaging, blog-style commenting, revision history and version control, collaborative document-editing, and a whole lot of Ajax magic into a single app that just might someday subsume email and other fragmented messaging and collaboration products.

Thanks to the new HTML 5 standard support in modern browsers, Wave offers live as-your-recipient-types updating to messages and documents in your browser, wave revision playback, live collaboration on a single wave (as in, you can watch the cursors of your co-workers typing away on your screen while you work), and smart contextual spellcheck that knows you meant “Iceland is an island” when you type “Icland is an icland.” If you haven’t already watched the hour-plus video demonstration of Google Wave (and don’t want to invest the time), check out the highlight reel.

Like Gmail and Google Maps did, Wave will set the bar for web applications even higher, and change our expectations about what’s possible in the browser on our desktop and on the handset. Since it’s not yet in the wild, it’s hard to say what Wave uptake and use will be like; likely early adopters will lead the way but that at first it will feel strange and almost too-powerful.

Google Wave is in an early, invite-only Preview now, but will be available to the public “later this year.” Like Firefox, Chrome, and Android, Wave is open source and extensible. The Wave server you will use is also not necessarily hosted by Google—you or your organization could install a copy on your own server.

Windows 7

Windows is making a much-needed comeback from the flop that was Vista, and it’s called Windows 7. Sure it’s cool to knock Microsoft for past sins, and we’re not saying that Windows 7 is the end-all and be-all of all operating systems—but it’s a marked improvement, and it’s ready for the future.

Windows 7 adds visual features to your desktop that you need now as well as lays the groundwork for a tomorrow filled with multi-touch devices and tiny netbooks. Win7 is faster and smaller, able to run on a less powerful netbooks, and ready for your new touchscreen monitor or tablet. (We haven’t tried Win7’s multi-touch capabilities and for the record, some say that it’s only half-baked so far. The road to the future is a long one.) Current widescreen and dual monitor users will love Windows 7’s taskbar and Aero Peek features for multi-tasking, previewing, and managing several windows.

Windows 7 will be available in stores on October 22nd, but unlike any other item on this list, the release candidate is available as a free download right now for anyone to install and try out, no invites required.

Snow Leopard

While it won’t offer the same “ooh shiny!” visual makeover that Windows 7 does, Apple is also battening down the hatches and getting Mac OS X future-ready. The next version of the operating system, 10.6, is a cheap $29, and is revamped, enhanced, and retuned. Snow Leopard takes up half the disk space of its predecessor, starts up and shuts down faster, and includes totally re-written default applications with 64-bit computing support which means your Mac can more efficiently address and use more memory.

Snow Leopard’s also making tracks into the corporation with Microsoft Exchange support and taking a page from the iPhone book with location awareness. And not to be left behind by Windows 7’s new taskbar and Aero Peek, Snow Leopard adds Exposé to the Mac Dock to make managing and clearing away windows on your desktop as easy as possible. While Snow Leopard is light on the user-facing features, here’s what you will notice when you upgrade this fall.

iPhone 3GS and the All-Out Smartphone War

Is it irritating (and hard on the wallet) that every single year there’s a newer, better smartphone on the market to lust after? Yes, ma’am. Is stiff competition between companies to manufacture the tiny and powerful computer we walk around with in our pockets awesome? Yessiree. Apple still leads the smartphone pack with the iPhone (and the new iPhone 3GS unveiled this week), but the Palm Pre and HTC’s line of Android phones are also in the game, and that means better phones for all of us.

When you step back and think about all the devices a good smartphone can be to us: phones, email terminals, GPS devices, e-book readers, iPods, cameras, video capture and editing devices, and pretty much anything else an app can make them, it blows the mind. Like Snow Leopard, the iPhone 3GS is light on the features (save the better camera and compass) but heavy on the speed and performance increases. Expect this war to rage on, and spawn even more devices. (Mac tablet, anyone?)

What does it all mean?

The major trends across all these products is creating a faster and slicker cloud and local desktop experience. (New browsers like Chrome and Safari 4 also capitalize on the “faster leaner meaner” sell as well.) Evolved standards (like HTML 5), more powerful hardware support (64-bit architectures) as well as portable devices like netbooks and touchscreens are all signposts along the way. Location-awareness continues to show itself on desktops and smartphones, and extensibility (whether it’s a smartphone app store or open-source extension) all means we’re in for a super-fun ride in the next couple of years.

As evidenced by the non-sensical Twitter rumor last week, it’s easy to get caught up in the Apple rumor mill, but this one is too juicy to pass up.

A forum poster on a Chinese Apple website recently published what appear to be the specs for Apple’s upcoming iPhone model. If accurate, the next iPhone model should be a lot snappier and will include the following:

• 32 GB of storage - A solid increase from the current max of 16 GB.
• An upgraded 600 Mhz processor - More speed! The current iPhone 3G clocks out at 400 Mhz.
•  256 MB of RAM - The current iPhone has 128 MB of RAM. So far this is looking pretty good.
•  A 3.2 Megapixel camera with autofocus
•  A digital compass
• An FM radio 

Lastly, the anonymous poster also notes that the next iPhone model will retain the same shape and screen dimensions as the 3G model.

Overall, the above specifications are impressive, but realistic enough to be considered credible - though the inclusion of an FM radio doesn’t really seem like something Apple would include. Nonetheless, the upcoming iPhone looks to be a significant upgrade from the current 3G model, and lucky for us, Apple’s WWDC is only a few weeks away.