We've seen a lot of speculation about the new iPhone. And Apple is playing this very close to their vest, as usual, so very little is for certain. A few sources have confirmed that it is a 3G phone, and I would say that is about the only certainty.
I don't have any direct contact with Apple, but I do obviously provide strategy consulting to many of the world's largest mobile operator groups, and the iPhone has come up in just about every meeting with any operator since it was announced January of last year.
WHAT DO THEY WANT
So what I can tell our readers, is what I gather are the main requests that Apple keeps getting from the mobile operators. Remember, that as Apple insists on a revenue-share of the telecoms traffic generated by the iPhone, and operators have been extremely reluctant to agree to this, it has only been possible with the exclusivity promised by Apple to the mobile operators (carriers) in most markets (Italy is an exception, Italy is one of the advanced markets where there are no handset subsidies so the iPhone proposition is somewhat different there and both Vodafone and TIM have announced that they are authorized dealers for the iPhone when it hits their market).
So where you can find the typical high-end Nokia or SonyEricsson or Samsung sold also in third party stores like Carphone Warehouse in Europe - often a fifth of even a quarter of all phones are sold through these independent dealers - the iPhone must be sold through the operator stores only - to maintain the exclusivity so that Apple can get its revenue-share deals from the local operators/carriers.
So that means, that all these recently announced deals of new markets for the iPhone, tend to be based on the new spec iPhone being in the mix. And for more than a year, the phone designers at Apple have been getting feedback from the operators/carriers on what they think the next iPhone should have.
This is what I'm pretty sure they've been saying, and also a small discussion on the costs and complexities involved.
THIRD GENERATION (3G)
3G. The iPhone definitely needs 3G now. Last year to launch it in America on only 2G was still acceptable. The launches in a few countries in Europe late in 2007 were disappointing, and an obvious flaw in a phone of this cost, was the lack of 3G, especially for a high end media phone, sold to customers in Europe who have had high-end smartphones (far superior to the Blackberry as the best-known smartphone in the USA) for many years. Almost any existing smartphone user in Europe last autumn, who would consider the iPhone, would be "downgrading" from an existing 3G phone; the Western European 3G penetration level was over 20% last winter and over 30% today.
Also I'll be clear about this. The only type of 3G that can be considered, is WCDMA (ie UMTS). Not CDMA2000 EV-DO, because the basic iPhone is a GSM/EDGE device, and its evolution path to 3G is WCDMA. This means also, that with 3G, the iPhone can be sold in Japan and South Korea - where there is no GSM, so the current 2G iPhone could not even be connected to any network. Obviously Apple would want to get significant sales in the two most advanced mobile phone markets (Japan and South Korea) where customers have extremely advanced phones already. Also it will not be easy competing there against the locally designed phones optimized for the local needs..
But yes, adding 3G is a very complex issue. It means adding a whole new radio unit and antenna and fitting that into the handset. All cases of first launches of 3G phones by the major manufacturers, were bulkier than the 2G equivalents which had otherwise identical feature sets, because of the need to add more radio technology into the same device. 3G adds cost, complexity, size, and drains the battery more. It therefore also poses a demand for a bigger battery (adding cost and size).
3G also means something called "handover" so that if you start off on a call on the 3G network, and then your car moves into an area where there is no 3G, but there is 2G, then your phone should automatically "roam" onto the 2G network, without dropping your call. Cellular networks do this all the time within their network technology (GSM to GSM, CDMA to CDMA, TDMA to TDMA etc) but it gets far more complex to do that also between 2G and 3G. That also means more testing than for a 2G phone, by each and every operator/carrier that launches the iPhone.
Adding 3G is very demanding cellular telecoms engineering competence. I would bet this is why the 3G iPhone is so much delayed. I expected that a revised iPhone would be announced for Christmas 2007 (if it had been Nokia, that would have been the normal development cycle) or the first quarter when the original guidance was from Apple that the Asian launches would happen. But it is not easy to add 3G to a 2G phone. I do hope they have the new phone now on June 9, rather than just announcing one for later in the year...
Then there were some glaring omissions on the first iPhone. Issues that Apple probably didn't think were major at all, when they designed the original iPhone, but operators have been very upset about. First is MMS ie "picture messaging". Just about every phone in the world which has a colour screen, but certainly every phone that is a cameraphone supports MMS, except the iPhone. The operators/carriers have invested millions in their MMS gateways to enable MMS traffic. They have promoted MMS very widely. They are trying to create a new messaging revenue stream out of MMS to run parallel to the enormous bonanza of SMS text messaging, yet it has been slow going. Now Apple releases a brand new cameraphone which does not even do MMS.
That is a software feature, so it is relatively easy to add to a phone which already has the colour screen (to display MMS) and is a cameraphone (to take pictures that can be made into MMS).
Then specifically on the new 3G version, is video calling. Operators/carriers do not expect any 3G smartphone users suddenly to start to make tons of videocalls, but its a chicken-and-egg situation. The videocalling has been possible on all 3G networks since the first launched in 2001, and the usage is very modest still today seven years later, but growing every quarter, in every network. They want videocalls to be a new revenue source to support the profits that are dwindling with basic voice calls. They will not want to add a new 3G phone to the network in 2008 which does not support video calls.
Here the cost is bigger. It means either a second camera (which is the more common way of solving this) to face inwards, so the videocaller can look at the screen and see the person they are talking to, and the inward camera takes the video of the talker; or else a turning camera, which can be pointed outwards to take pictures (when you use the phone screen as the viewfinder for the camera) and pointed inwards for videocalls. Either solution adds size and complexity and cost. Not dramatically, and nearly not as much as adding 3G, but still, this is an added cost item.
Single-handed SMS. This is a matter which I've heard time and again, and one that spurs a lot of debate and discussion. To use SMS texting effectively with the iPhone, you have to un-learn typing with your thumbs like on older phones, and re-learn typing using your index fingers, pointing at the screen. If the user makes this change in behaviour, then texting on an iPhone usually is fast and easy. But - the serious problem remains, you cannot type using your index finger, while using the iPhone one-handed (unless you place the iPhone on something like a table, and certainly you cannot type with the index finger method with the phone behind your back or in your pocket).
This is very much a target audience thing. The heavy users of SMS text messaging surely love the iPhone but are not the intended target audience, ie young people. So if we move up in age, to young employed adults, then we have the two-phone users, who have very often resorted to not using the SMS feature on the iPhone, and carrying another highly text-oriented phone, like the Blackberry for example, or almost any of the popular Nokia, SonyEricsson or Samsung models as the phone for texting. Operators don't like this, because that other phone is almost always on a rival network, so the lucrative SMS text messaging traffic - 15% of total revenues, 40% of total profits for the industry - all escapes the iPhone... It is a bad move, to upgrade an existing high SMS user to an iPhone, and then find that their previous heavy SMS traffic vanishes (and has now been "gifted" to a rival - SMS is the most profitable service in the world, for any industry not just telecoms). Oh, and at the more senior level - the 50+ age group, who would mostly have the iPhone more for show than for real use, then SMS is not that big a factor.
But what can Apple do. I wrote the open letter to Apple about SMS more than a year ago. I think the best thing would be to incorporate a real physical keypad or keyboard, as a slider or clamshell or twister or whatever form factor. That would ruin much of the aesthetic appeal of the iPhone, so I am not holding my breath that this might happen.
The second best thing, is to introduce some kind of haptic touch feedback through the touch screen. Such technologies exist, that tingle the skin of the finger with tiny electrical impulses, so the finger thinks it is "depressing a button" when in reality there is no movement of the touch screen. This way a touch feedback can be given, which is very realistic, and would allow single-handed operation, while not necessarily quite the ability to send messages "blind"..
I would expect that the text messaging functionality of the new iPhone is strongly enhanced. I would guess with an advanced touch screen. But Apple may also have invented something else for this, perhaps even more cool. If the change is mostly software, then it is a modest cost at least in the per-unit price of manufacture but if it means a new type of screen technology, that can be costly and demanding of CPU and battery.
NICE TO HAVE
There are some elements that would be nice to see, but ones that I don't think are high on the operator requirement list. So while Apple may have some of these as well, I am pretty sure, Apple has prioritized the above needs first.
Better camera. Yes, 2 megapixel was pretty mediocre last year. Now we see plenty of 5 megapixel cameraphones. Apple should move up at least to 3 megapixels, maybe more. Then the quality of the optics becomes every more a factor, as does the lack of any kind of flash (Nokia N82 has Xenon flash, ie "real" flash). The better the quality of the camera, the more it will add cost. Also better resolution means bigger file images for the pictures, which drains CPU, memory and storage. I would expect a 3 megapixel camera to be rather easy to do, and perhaps a LED flash, but I don't expect 5 megapixels and branded optics and optical zooms and Xenon flashes.
Video recording. This was a strange fault of the original. The operators/carriers don't care very much about recording video - yes, for video sharing sites, but still, this is not nearly as bad as no MMS - but users will note that almost every other cameraphone, certainly any cameraphone of 2 megapixel resolution or more, by Nokia, Samsung, Motorola, SonyEricsson and LG - will record video. Top phones record video at 30 frames per second at VGA resolution, ie basic DVD quality. So this just makes the iPhone seem quite inferior when compared to a rival phone.
I think this is a relatively easy issue to correct, mostly by software, and thus an easy omission to fix in the second generation iPhone. I would expect the iPhone to record video at least at QVGA 15 frames per second.
HSDPA or so-called 3.5G. HSDPA adds another layer of further complexity beyond 3G. I would expect the second iPhone to be only 3G, but not 3.5G, especially as it has already been delayed. I would be quite surprised if the new iPhone now goes all the way to 3.5G.
2D barcode reader. This is mostly a software issue, but can be quite complex, as the 2D Barcodes will be able to create activities within the phone's operating system. Still, I think this is relatively easy do do, and would add a nice element at modest cost. But only a few countries are pushing 2D barcodes beyond Japan and South Korea, so I don't expect heavy demand for the ability yet.
I DON'T THINK SO
GPS. A lot of speculation has been around a GPS receiver for the iPhone. To me, this is N-95 envy. GPS has not been yet a major factor for the industry and only exists on some top-end phones, but is now an area that Nokia for example is pushing very hard to sell top-end phones (and various mapping solutions). GPS makes sense more for the handset maker than the operator/carrier. The carriers would prioritize GPS very low, and ask for most of the items ahead on this list, long before GPS.
GPS would certainly make the iPhone more impressive - and attractive perhaps to drivers for example - but location-based services (LBS) have been disasterously un-successful the world over, for the past seven years. GPS would be another radio unit to incorporate into the phone, adding cost, size, weight, and drain the battery. I would think, that Apple would be better served by fixing other more obvious faults, than bothering with GPS at this stage. But also, Apple is stuck being based in America, and the only experts massively excited about LBS are the Americans, as the Asians and Europeans have had years of bad customer response to extinguish the overhype from LBS.
There are location-positioning requirements in the USA which do come into play; but I would think that 3G triangulation is adequate to achieve the positioning, so would think that since the phone is a 3G device already, this might be the easier way to achieve positioning, without installing a GPS receiver into the phone. We'll have to wait to see.
Digital TV tuner. About 20 million phones around the world already have digital TV tuners built into the phone, like your TiVo box or Sky Plus box at home. The three most common technologies are DVB-H, DMB and 1Seg. This is another radio receiver and some heavy technology, costs, weight, complexity and battery drain. I am pretty sure there won't be a TV tuner in the new iPhone. As a 3G phone, it will of course be able to show video clips and "streamed" TV programming on what is commonly called 3G TV.
There are many other things that could be considered, such as the removable memory card slot, a removable battery, FM radio, etc. But these would not be strongly requested by the operators/carriers, so they would more be up to Apple's own opinions of what a good customer experience warrants.
Thats my quick handicapping of what to expect from the new iPhone. I do think Apple will listen to its customers - remember it is the mobile operator/carrier who buys the iPhone from Apple - and will prioritize these customer needs very highly.
Still, I honestly don't know, and I am very curious to see what the first 3G iPhone will be like. I hope it will be a superphone, something awesome; so much more than the current iPhone, like the Macintosh was beyond the Lisa.. We'll see it soon.