Consumers in the New York Tri-State area can again buy iPhones on AT&T?s Web site after being blocked from buying the Apple smartphone for much of the holiday season. But is this a sign of more serious issues to come?

The "outage," which blocked consumers throughout New York City and in parts of upstate New York, New Jersey and Connecticut from buying iPhones online via AT&T?s site, supposedly began as early as Thanksgiving weekend and lasted throughout this past weekend. AT&T?s unusual silence on the issue led to widespread speculation that this is related to the carrier?s ongoing network capacity issues.

?First of all, it wasn?t just New York City ZIP codes that were blocked, it was surrounding areas as well,? said Salvatore Tirabassi, partner at M/C Venture Partners, Boston. ?I live in Westchester County in New York, and I tried to buy an iPhone over the Internet around Thanksgiving, and it wasn?t available.

?My initial thought was that it was network-related and they were basically trying to mitigate issues on the network by not having as many iPhones turned on,? he said. ?But when I contacted AT&T over the phone, they said it was fraud-related, which I found hard to believe, because if someone wanted to commit fraud, they wouldn?t use a New York ZIP code.

?I must have been talking to a misinformed call-center person?more likely the outage was due to the network issue and they?re controlling demand for data.?

AT&T falling off the map?
The continued bad press from AT&T?s ongoing network issues has fueled a television advertising war between the carrier and its top rival, Verizon Wireless.

For that reason, this incident comes at a particularly bad time, and it cannot help AT&T?s relationship with its partner Apple, either.

?In the industry it?s generally known that AT&T doesn?t have as good of a network as Verizon and not as good of a spectrum position, so over the long run, relative to Verizon, [so] I?m not sure how much they?ll be able to improve,? Mr. Tirabassi said.

?It will be interesting to see what path AT&T takes to improve their network, because Verizon has so much spectrum, they can have a very aggressive path to LTE, and I don?t think you can say the same thing about AT&T,? he said.

?All of the carriers are worried about consumers? increasing appetite for mobile data, although probably Verizon is the least worried about it, because it has plenty of real estate in terms of spectrum.?

Smartphone adoption and hence mobile data usage will continue to grow, explode even. And even Verizon may not be immune to the toll those trends are expected to have on wireless networks.

?The iPhone consumes a lot of bandwidth, but if you look at the Droid and other handsets using the Android OS, they consume a multiple of what the iPhone consumers because they have multiple applications running in the background,? Mr. Tirabassi said.

?The iPhone is bringing out all of these issues, but smartphones in general will have to be developed carefully in conjunction with the networks so they don?t provide bad service and take down the networks,? he said.

?Bandwidth is a finite resource to be shared among many, many users, and you can?t build network capacity fast enough to respond to smartphone demand, and it?s very expensive, so what are carriers going to do??

Carriers need to improve back-haul from base stations. They are going to have to start building more base stations and they are going to have to start thinking about what types of applications are going to ride on their network.

Carriers are also going to have to decide what handsets they approve, and how to deal with mushrooming smartphone demand.

?It?s a multifaceted approach they need to take?there is not a silver-bullet solution,? Mr. Tirabassi said.

Flattened rate pricing
Across the Atlantic, British carrier O2 has reported similar network issues stemming from iPhone users? high levels of data consumption.

And while AT&T is taking the brunt of the criticism related to these issues, all carriers will have to come to grips with them sooner or later.

Some believe that these network capacity issues make put the flat-rate unlimited data plan in jeopardy (see story).

?It?s a really exciting thing that iPhone has shown that people will use data if you give them a good experience,? said Susan Welsh de Grimaldo, senior analyst at Strategy Analytics, Newton, MA.

?However, you need to charge people for what they use so they don?t clog the networks for everybody else, especially with the impending wave of high-data applications such as mobile video," she said.

?AT&T and other carriers are doing a lot to address it, focusing on back haul within networks and the need to infill additional microcells to handle heavy traffic areas, and letting smartphones access WiFi networks as well. It does show that traffic is growing, and it?s going to keep growing.?

Carriers do have some recourse, but they must act quickly to stay ahead of competitors. Rolling out 4G networks such as LTE and WiMax is a start.

?There are things you do with the handling and managing of IP traffic, and charging people a premium if they want a higher quality experience to guarantee that,? Ms. Welsh de Grimaldo said. ?We?re going to start seeing more of that and a setback for flat-rate pricing.

?Once you get a device with a great experience, it?s going to drive up traffic usage,? she said. ?It will continue to grow?it?s not going to stop,? she said. ?AT&T has been caught on the early wave of this, and everyone is learning from what AT&T is going through.?