Online Sales Of iPhone Suspended In New York

In a holiday-shortened week, AT&T has spawned a raft of headlines on the Internet after the company halted online sales of the iPhone in New York City, at least temporarily. The phone is still available to New Yorkers in Apple /quotes/comstock/15*!aapl/quotes/nls/aapl and AT&T stores, however.

The decision has revived talk about whether AT&T's network can handle the traffic generated by iPhone users, especially in dense urban markets. Owners of the iPhone tend to use the Internet much more than other wireless customers, but existing mobile networks are not designed for such heavy data traffic.

Although AT&T /quotes/comstock/13*!t/quotes/nls/t has beefed up its network, complaints about dropped calls and Internet interruptions seemed to have increased. That's spurred rivals such as Verizon Wireless to mock the quality of AT&T's network in commercials.

In almost any other week, AT&T's effort to limit online sales in New York City might have gone little mentioned. Yet business news is scarce in the last week of December, between the Christmas and New Year's Day holidays.

Dallas-based AT&T hasn't helped its cause with a cryptic and tight-lipped explanation of its action. Several spokespeople have given different media outlets, including MarketWatch, the same response: "We periodically modify our promotion and distribution channels."

Since reports of AT&T's online move surfaced Sunday, a number of people have tried to order the iPhone online using New York City ZIP codes. An effort by this writer to do the same showed that "there are no phones and devices that match your search criteria," according to AT&T's Web site.

A blog called the Consumerist, apparently the first site to report the halt in online sales, said a customer-service representative cited a lack of wireless cell towers in New York City for AT&T's decision. Other AT&T representatives blamed excess fraud or said the online stock of iPhones available to New York customers had been depleted.

Whatever the case, AT&T knows it has to continue to expand its network to match the increased usage by iPhone customers -- 11 million and growing -- as well as 70 million other AT&T wireless subscribers. Brand is critical in the fiercely competitive U.S. wireless market -- as Sprint Nextel Corp. unhappily discovered -- and AT&T can ill afford to see its image suffer. In a worst-case scenario, AT&T might even have to consider raising prices for iPhone customers, who now pay a flat monthly rate for unlimited Internet access.

Ralph de la Vega, AT&T's mobile-operations president, hinted at such a possibility in a presentation to investors earlier this month, though he later said a change in pricing policy is not imminent. He insisted AT&T is merely exploring a variety of methods to reduce the strain on its wireless network.