Online sales of iPhones resume in New York

December 28, 2009 2:57:32 PM PST
It maybe AT&T's battle cry, but now many of its customers are feeling uncovered. That's the fallout from a company decision over the weekend to suspend online sales of iPhones to New Yorkers, a move that was suddenly reversed late Monday afternoon.

It was salt in an already tender wound for people like Sam who had owned an i-Phone for three years.

"It just constantly drops out and looses signals," Sam Shahid said.

Bloggers speculated that the sales suspension was a means of managing data traffic, since AT&T has acknowledged that its network is overburdened with iPhone users in New York and San Francisco, but Peter Kafka of is not buying it.

"AT&T is not going to make a really big decision like this over the weekend and not tell the press, analysts or more importantly shareholders," he said.

Because the phones were still available in New York retail stores and from Apple Inc.'s Web site, the ban may have instead been an attempt to curb buyers who renege on the service contracts and resell the phones to customers of other carriers overseas.

On AT&T's Web site, buyers who supplied New York City ZIP codes were told on Monday morning to "Please shop for another phone." By afternoon, though, the Web site raised no obstacles when the same ZIP codes were supplied.

It was not clear whether the iPhone suspension had applied to all New York ZIP codes or just certain ones, nor was it known why New York was targeted.

The official word from AT&T doesn't shed much light on things, even now that online sales in New York have resumed.

A spokesperson only said the company periodically modifies its promotions and distribution channels.

"People believed AT&T might have been shutting down iPhone in New York. The fact that people thought that was a reality, says a lot about perception and reality. It's a problem AT&T has," Kafka said.

AT&T goes to great lengths assuring customers its service is getting better, but Apple soon must decide whether this is the right fit.

AT&T sells a new iPhone 3GS with 16 gigabytes of memory for $199, with a two-year contract requirement. A buyer who doesn't pay the monthly service fee is assessed a $175 early contract termination fee, but that still leaves room for a reseller to profit. The phone sells for $600 on eBay after it's been modified with software to work with the networks of overseas carriers.

In November, AT&T competitor Verizon Wireless doubled its maximum early contract termination fee for smart phones to $350 partly to protect itself against resellers. That move drew scrutiny from the Federal Communications Commission, which asked the company why the fee needed to be so high. Verizon said the old $175 termination fee didn't cover the difference between what it charges customers and what it pays manufacturers for the phones.