iPhone 3G Arrives: Real Mobile Broadband in Your Pocket

Remember when the original iPhone launched a year ago and the biggest complaint was its poky EDGE data speeds? Apple just fixed that problem and then some.

The iPhone 3G went on sale today at AT&T and Apple stores across the country, and the lines started forming at dawn. The new model brings two changes that matter for anyone who cares about mobile internet: real 3G data speeds and a dramatically lower price — $199 for the 8GB model and $299 for the 16GB, down from $399 and $499 at launch.

But the real story isn't the phone. It's the App Store.

Finally, Real Mobile Broadband Speeds

The iPhone 3G connects to AT&T's HSDPA network, which delivers real-world speeds of roughly 700 kbps to 1.5 Mbps. That's a massive leap from the original iPhone's EDGE connection, which topped out around 200 kbps on a good day.

To put those numbers in context: 1.5 Mbps is roughly equivalent to a basic DSL connection. It's not going to replace your home broadband, but it's fast enough to browse the web without wanting to throw your phone against a wall. Pages load in seconds instead of tens of seconds. Email with attachments works smoothly. YouTube streams play without endless buffering.

I've spent a few hours testing the 3G speeds around town, and the experience is night and day compared to the original iPhone. Loading the front page of CNN.com took about 7 seconds on 3G versus nearly 30 seconds on EDGE. Google Maps with satellite imagery — one of the iPhone's killer features — went from agonizingly slow to genuinely useful.

The catch: AT&T's 3G network doesn't cover everywhere. You'll get 3G in most major cities, but step outside a metro area and you'll fall back to EDGE. AT&T says it plans to expand 3G coverage aggressively, but right now the map has significant gaps, especially in rural areas and smaller cities.

The App Store Changes the Game

The bigger deal might be what launched alongside the iPhone 3G: the App Store. Starting today, third-party developers can sell and distribute applications directly to iPhone users through a built-in store on the device.

At launch, there are roughly 500 apps available — ranging from free utilities to games at $9.99 and productivity tools up to $19.99. Some are trivial. Others hint at something transformative.

Why does this matter for broadband? Because apps use data. Lots of data. Pandora streams music over the internet. Facebook pulls down photos and status updates. Weather apps check forecasts. News apps download articles and images. Games connect to servers. Every one of these applications is a new demand on the network that didn't exist a year ago.

The original iPhone's web browser was already pushing mobile data usage to new heights. The App Store is going to pour gasoline on that fire. Every app is another reason to pull data through AT&T's network, every hour of every day.

AT&T's Network Problem

AT&T reportedly invested $18 billion in its wireless network in 2007. It's going to need every penny.

The iPhone already accounts for a disproportionate share of AT&T's data traffic. Internal AT&T data that leaked earlier this year showed iPhone users consuming 15 to 30 times more data than typical smartphone users. The iPhone 3G — with its faster speeds making data-heavy activities more practical — will push that number even higher.

The $30/month unlimited data plan that AT&T requires for the iPhone 3G is a ticking time bomb. Right now, $30 for unlimited data is a reasonable deal for AT&T because network usage is still manageable. But as the iPhone user base grows from millions to tens of millions, and as the App Store gives users countless new reasons to consume data, "unlimited" is going to become very expensive for AT&T to deliver.

Don't be surprised if AT&T introduces tiered data pricing within the next year or two. The economics of unlimited data on a network facing exponential demand growth simply don't work forever.

What This Means for Home Broadband

The iPhone 3G isn't replacing your DSL or cable connection. At 700 kbps to 1.5 Mbps, it's adequate for on-the-go use but nowhere near sufficient for a household's needs. Heavy downloading, streaming video, online gaming — those still need a wired connection.

But the iPhone 3G is accelerating a shift in how people think about internet access. It's no longer something you sit down and do at a desk. It's something that's always there, always connected, always available. That shift in expectations is going to drive demand for better connections everywhere — faster mobile networks, broader coverage, and yes, faster home broadband to handle the growing appetite for data.

The app economy that's launching today is only going to make this more true. Every new app that connects to the internet trains another million people to expect connectivity wherever they go. The companies that build the networks to deliver it are going to be very busy — and very profitable — for a long time.

Assuming they can keep up with demand. That's the part that keeps AT&T executives up at night.