Steve Jobs needed some advice. It was 2006, and Apple was working on the design for its first smartphone. Jobs had questions about its radio. So he called up Ralph de la Vega, Cingular Wireless’ chief operating officer, who had helped broker the exclusive deal between Jobs and the telco, soon to be part of AT&T Inc., to carry the phone. ” ‘How do you make this device be a really good phone?’ ” de la Vega recalls Jobs asking. ‘ “ I’m not talking about how to build a keyboard and things like that. But I’m saying the innards of a radio that worked well.’ ”
AT&T had a 1,000-page manual that detailed how suppliers should build a mobile radio optimized for its network. “
He said, ‘Well, send it to me.’ So I sent him an e-mail. Thirty seconds, he calls me back. ‘Hey, what the … ? What’s going on? You’re sending me this big document, and the first 100 pages have to do with the standard keyboard,’ ” de la Vega says, laughing. ‘ “ Sorry we didn’t take those first 100 pages out, Steve. Forget those 100 pages. Those don’t apply to you.’ He says, ‘Okay,’ and he hangs up the phone.”
Honestly, this sounds exactly like something AT&T would do.
News quickly spread inside Cingular that Apple didn’t have to adhere to the specs, an act deemed blasphemous by the carrier’s CTO, who rang up de la Vega and called him “crazy” for “giving in to Apple.” De la Vega had signed a nondisclosure agreement in Jobs’ office that was so secretive it prevented him from describing the device to his bosses except in the most general terms. Board members didn’t even get to see one until after the deal was signed. “I said, ‘Trust me, this phone doesn’t need the first hundred pages.’ ”
And then the quick switch around:
During the first year of the deal AT&T sold the iPhone starting at $499 and agreed to give Apple an unheard-of cut of its customers’ monthly bills, estimated to be a $720 million slice of revenue. Some wags inside AT&T predicted the iPhone would be mostly a Wi-Fi device with little cellular data use. Once early reports on surging traffic came in, Stephenson knew he had an expensive hit on his hands. “It went beyond any rational expectation we could have ever put together,” he says. He renegotiated with Jobs to end the revenue share and buy the phones up-front for a reported $400 apiece and subsidize the new $199 cost with a two-year contract.