A Seattle startup launched its new “online cable TV system” this week offering a 30-day free trial of 27 live feeds of over-the-air television stations from New York and Seattle.

Dubbed ‘ivi,’ the online video service expects to charge customers $5 a month for the package of broadcasters delivering shows from all of the major American networks, plus several superstations most Americans haven’t seen on their cable lineup since the early 1990s.

‘ivi’ claims it offers more content than Hulu — providing online access to every network and syndicated show seen on New York and Seattle TV screens, and for an introductory price of $0.99 more per month, the company plans to turn your home computer into a giant DVR, capable of recording and storing any of the programming on ivi’s lineup for later viewing.

“The cable industry has spent countless millions of dollars on so-called ‘TV Everywhere’ solutions in a blind effort to prop-up outdated technology and business models” said Todd Weaver, founder and CEO of ivi, Inc. “However, ivi empowers its users to experience TV Anywhere, offering them major broadcast channels delivered live to their laptop or desktop, anywhere on the planet. Whether eventually integrated into Google TV, Apple TV, or meshed with an existing platform’s digital strategy, ivi makes the set-top-box and any ‘Web to TV’ products obsolete. Instead of attempting to bring the Web to the TV, ivi intuitively brings TV to the Web.”

The ivi TV player is currently available for download to any Windows, Apple, or Linux computer, and will soon be available on other platforms, including mobile devices, tablets, and set-top-boxes.  It allows customers to access its lineup anywhere in the world where a broadband connection exists.

The company provides over-the-air stations in both New York and Seattle to serve different time zones, but the lineup also provides viewers the flexibility of catching a network show twice — once on East Coast time and again three hours later.

The lineup covers all the bases, particularly from America’s top television market — New York City.  Spanish language programming from New York stations provides access to Estrella TV, Univision, TeleFutura, and Telemundo.  Since many stations have agreements to use their digital sub-channels to deliver additional programming, ivi viewers also get access to RTV – The Retro TV Network, Universal Sports, This TV from MGM, and a handful of specialty PBS feeds.  KONG-TV from Seattle, a classic independent station not affiliated with any network, is also included.

Some other less notable stations making it to the lineup include Cedarburg TV, a public access channel from Cedarburg, Wisconsin, which spends part of its broadcast day airing NASA-TV, Radio Tele-Luxembourg, a station from the Grand Duchy of Luxembourg in Europe, CCTV-9, the English language TV network from the People’s Republic of China, and PlayTV — a music video channel.

Stop the Cap! snagged a copy of the Windows version of the player and gave the service a test run.  Those seeking a free trial can apply on the company’s website, but you will have to supply a valid credit card number to participate (if you cancel within 30 days, you will not be charged).  If you are concerned about this, consider using a “one time” credit card number, a service often available from credit card companies that generates a one-time-use credit card number.

The player, like ivi’s website, is apparently a work in progress — fairly spartan in design and looking somewhat outdated.  But the player is less than three megabytes in size, a welcome change from oversized “bloatware.”  It was also nice to see versions for Linux and the Mac during launch week, instead of the more typical “coming soon” attitude other new ventures rely on.

The player is generally intuitive to operate, letting you control how much bandwidth to use for the service.  The version we tested allows you to pause, rewind, and fast forward paused programming.  A channel guide offers basic program information customized for your particular time zone.

ivi's electronic program guide

Playback quality has issues, however.  Despite setting our player for “high definition” playback, the encoding rate was far too low to actually deliver anything close to HD viewing.  In fact, viewing artifacts ranging from shading errors to soft pixelization were readily apparent even in a reduced-size player window.  At full screen, playback reminded me of a medium-quality RealVideo stream from an earlier era.  It was watchable, but I wouldn’t call it a “cable-TV killer.”  On a large screen TV, it’s likely to be even more problematic.

Still, for $5 a month, it might be worth it, especially if you have dropped cable and don’t get reasonable reception of broadcast signals, or your local TV market doesn’t offer broadcast affiliates of the CW, MyNetwork TV, or those networks made-for-broadcast-subchannels — RTV and This TV.

Besides, if you sign up for the free trial today, you may not even have to pay a cent if the broadcasting industry sues the pants off the founders and shuts it all down before the end of the month.

Remarkably, ivi founder and CEO Todd Weaver told the Puget Sound Business Journal he was unaware of any other startup company attempting to deliver live TV feeds.

We here at Stop the Cap! do.  Weaver might want to talk to Bill Craig, founder of a very similar Canadian venture called iCraveTV in December, 1999.  We remember iCraveTV very well, because it delivered 17 channels of programming from Canadian over-the-air broadcasters and several network affiliates from nearby Buffalo, N.Y.  We especially remember the blizzard of lawsuits that promptly followed, all because the Canadian startup never bothered to get permission from the stations involved and they let Americans watch.

Weaver offers conflicting accounts about whether ivi secured permission from the stations it started streaming this week.

FierceIPTV reports the company hasn’t.

At the moment, the company has no contracts with any broadcasters, but ivi claims it doesn’t need to, since it’s an online cable system and, as long as it pays fees to the U.S. Copyright Office–which get disbursed to the broadcasters–it’s covered. Although Weaver says it’s not inconceivable that the company will face some legal challenges.

But the Puget Sound Business Journal reports the opposite:

The company has secured the rights to deliver live television feeds from local affiliates in Seattle and New York, with plans to expand to LA, San Francisco and other markets in the near future. Ivi pays the stations an undisclosed amount to pick up the signal, which it does by either placing a physical encoder device at the station or capturing it from satellite or antennae.

The folks at iCraveTV thought they were covered so long as they paid copyright fees, too.  Craig said Canadian laws gave it the right to retransmit broadcast television signals, in the same way that cable companies and satellite companies do. As long as the company doesn’t tamper with the programming and paid copyright holders for their work, he argued, iCraveTV was completely legal.

The National Football League, horrified by the prospect of this venture airing its football games to Canadian and American viewers without a contract, promptly found a judge in Pittsburgh who issued a restraining order — the beginning of the end of iCraveTV and the start of some hefty legal bills.  When it was all over, 10 Hollywood studios, the Motion Picture Association of America, three major American television networks, and three television stations in Buffalo either filed or contemplated filing lawsuits asking for at least $5 million in damages from the venture.

Considering ivi was reportedly bankrolled for less than $1 million in “angel financing,” they better have a liability policy bigger than that.

“Whenever someone first hears that we are carrying their linear feed, the knee jerk reaction is: ‘I must protect my content, always,'” said Weaver. However, he noted that some broadcasters see ivi as a means to sell more advertising and a new distribution mechanism altogether. “We do not disrupt the existing live distribution models,” he said.

While that may be true for Cedarburg, Wisconsin’s public access channel, the major American networks that own the network-affiliated stations in New York are unlikely to see things that way, unless they own and control the venture, of course.  Neither will local network affiliates, who stand to lose local advertising revenue should large numbers of viewers flock to web-based, out-of-area network stations.  Local broadcasters effectively stopped satellite providers from reselling access to distant network stations in areas where local stations already provided that service, so it’s very likely they’ll strongly oppose ivi for the same reasons.

Still unsure how the industry will react?  Consider a combined Comcast-NBC network facing an online venture that promotes itself as a “cable cord cutter” asking NBC for permission to stream its programming online so viewers can cancel their Comcast subscriptions.

Enjoy ivi while you can.

Shaw's flyer distributed to Novus customers

The Supreme Court of British Columbia has thrown out Novus Entertainment’s 2009 lawsuit against Shaw Cable accusing western Canada’s largest cable operator of predatory pricing and other anti-competitive acts.

Last summer, Stop the Cap! gave considerable attention to the price war that broke out between Novus Entertainment, a fiber provider serving many Vancouver apartment buildings and condos vs. incumbent cable provider Shaw Cable.

Novus, which entered the BC market well after Shaw, faced what it alleged were incidents of fixing prices below cost and false advertising in an effort to drive competition out of the market.

At one point, last summer’s battle dropped prices as low as $30 a month for a package of HD cable, unlimited phone, and 16Mbps broadband service from Shaw.  Novus accused Shaw of recouping their losses in Vancouver from other Shaw cable subscribers across Canada who made up the difference with higher cable rates.

Novus sought relief before The Honourable Mr. Justice Greyell, in the Supreme Court of British Columbia.  Novus argued that under the recently expanded Competition Act, the court could order Shaw to cease unfair competition and face punitive fines for the cable company’s bad behavior.

Novus recited details of the price war:

Commencing February 2009, Shaw began a series of marketing campaigns specifically targeted at Novus’ existing customers in high-rise, multiple-dwelling units (“MDUs”) developments in Vancouver and Burnaby, British Columbia.

In February 2009, Shaw offered very low pricing on its Cable Television Services, Internet, and digital telephone services to certain Novus customers.  Customers were free to take one, two or all three of the services offered.  There were no contracts or commitments required:

• Cable Television Services:  Shaw’s “High-Definition TV” package including over 100 digital and HD channels, plus 1 year free rental of a high-definition personal video recorder (“HDPVR”), free for the first two months, and $9.95 for the next ten months (twelve months in total).
• Digital Telephone:  Shaw’s “Digital Phone Basic” package, which includes local calling and call display, free for the first two months, and $14.95 for the next ten months (twelve months in total).
• High-speed Internet:  Shaw’s “Xtreme-I Internet” package, free for the first two months, and $19.95 for the next ten months (twelve months in total).

In March 2009, Shaw began offering a free HPDVR to keep, plus the first month of service for free, to customers that switch back to Shaw. Customers were only required to commit to six months of pre-authorized payments.

In July 2009, Shaw offered even lower pricing than it marketed in February:

• Cable Television Services:  More than 200 digital channels, including all analogue and digital television channels, 25 high-definition television (“HDTV”) channels, a movie channel package, plus two rental HDTV set-top boxes with personal video recorder (“HPDVR”), free for the first two months, and $9.95 for the next ten months (twelve months in total).
• Digital Telephone:  Shaw’s “Digital Phone” package, including local telephone service, over a dozen calling features including voicemail, call display and call waiting, unlimited calling within Canada and the US, 1,000 International minutes to selected countries per month,”) free for the first two months, and $9.95 for the next ten months (twelve months in total).
• Shaw’s “Xtreme-I” high-speed Internet: with advertised download speeds of up to 16 Mbps, “Powerboost”, 10 personal email addresses and 100 GB monthly data transfer”), free for the first two months, and $9.95 for the next ten months (twelve months in total).

To add insult to injury, according to Novus, Shaw began advertising Internet “now 50 percent faster.”  In Novus’ opinion, the advertising implied Shaw’s Internet service was now 50 percent faster than broadband offered by Novus.

The text from Shaw’s ad read:

Feel the need for extra speed?  Shaw high-speed Internet is now 50% faster that’s fast.  Downloading your favourite music, videogames, and movies will take no time at all.  Plus Shaw high-speed Internet comes loaded with no cost extras like Powerboost, Shaw Secure and much more.  Get Shaw high-speed Internet for the amazing new price of only $19.95 per month for the first three months including modem and installation.  There’s never been a better time to order.  Call 310-Shaw today.

Signs sponsored by Shaw Cable were placed in front of buildings wired by Novus

The decision by Mr. Justice Greyell was carefully watched across Canada as it represented the first test of expanded authority granted by Parliament for courts to impose significant monetary fines against bad actors.  Commentators noted the new authority theoretically granted courts the power to determine anti-competitive activity itself — a power formerly held by Canada’s Competition Tribunal.

Those commentators need not have worried if the BC Supreme Court decision stands intact.

Mr. Justice Greyell dismissed Novus’ claims and ruled that in the absence of a determination of anti-competitive behavior by the Competition Tribunal, the court had no right to declare Shaw guilty of such behavior in the case.

“I conclude that in the absence of an order from the [Competition] Tribunal under s. 79 of the [Competition] Act, those portions of the statement of claim alleging a breach of s. 79 of the Act be struck out,” the chief justice ruled, effectively dismissing Novus’ anti-competitive claims against Shaw.

Mr. Justice Greyell also was unconvinced consumers would be confused by Shaw’s “50 percent faster” advertisement, believing the cable company now delivered faster service than Novus.

“In applying these tests to the ‘Now 50% Faster’ advertisement I am unable to conclude a reasonable person would view the words used as referring to the plaintiff’s business.  I am of the view the interpretation any reasonable person would place on the words is that Shaw is directing the advertisement to its own customers, and anyone else who might be interested, that its services are 50% faster than they used to be.  This fact is made clear by Shaw’s use of the word ‘Now’ – which implies that in the past Shaw’s services were slower and that Shaw has ‘Now’ improved the speed of its services   The advertisement makes no reference to Novus or to any Shaw competitor,” the chief justice ruled.

Novus effectively walks away from the BC Supreme Court empty-handed, and a little lighter in the wallet.  The chief justice also ruled Novus is responsible for Shaw’s legal bills associated with defending itself against Novus’ lawsuit.

[flv width=”630″ height=”375″]http://www.phillipdampier.com/video/Novus – 10 Bucks Too.flv[/flv]

Novus released this video as part of an outreach campaign arguing cable customers across western Canada should qualify for the same incredibly low promotional pricing Vancouver residents pay for Shaw Cable. (2 minutes)

A Pennsylvania police chief is in hot water with his wife after AT&T combed through his calling records at her request and confirmed what she has suspected — he was calling an ex-lover on his cell phone and allegedly lying about it.

Garold Ray Miller, police chief of Industry, filed suit against AT&T for disclosing his call records to his wife, whose name was not on the cell phone account.

The lawsuit makes public the formerly private affair, and it’s now fodder for the Pittsburgh Post-Gazette:

According to the complaint, Mr. Miller’s wife confronted him in the spring of 2008 in regard to his communicating with a woman about a criminal investigation.

“Miller denied having communicated with the woman in question, as he had known the woman growing up and had also dated her in high school, and he did not wish to alarm his wife,” the lawsuit said.

However, it continued, Mr. Miller’s wife insisted he was lying and later told him that she had gotten access to his phone records from AT&T to prove it.

“His wife also revealed that the [AT&T] representative conducted a number search on his records, in order for her to confirm her suspicions that he was communicating with this woman.”

The complaint goes on to say the relationship between Mr. Miller and his wife became severely burdened. Further, when they went out for drinks one night, “Miller’s wife became violently ill, confessing that she had been troubled by her suspicions.”

Because of the invasion of privacy by AT&T, Mr. Miller contends, he suffered psychological pain and suffering, as well as humiliation, shame, embarrassment, self-revulsion and damage to his self-esteem.

AT&T won’t comment on the case except to say it values its customers and takes its obligation to protect customer data very seriously.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WTAE Pittsburgh Industry Police Chief Suing ATT For Releasing Phone Records To Wife 7-28-10.flv[/flv]

WTAE Pittsburgh covered the lawsuit between a Pennsylvania police chief and AT&T over the disclosure of his cell phone calling records.  (2 minutes)

A full page ad from Verizon mocks Apple's iPhone reception problems (click to enlarge)

Apple wants customers to believe it’s not a head-slapping design flaw that is bringing iPhone reception to its knees when holding the phone, it’s the software that is telling you AT&T’s reception quality is better than it really is. Change the formula to calculate how many bars of signal strength AT&T is not delivering to its customers, problem solved.

But just how will Apple make its fan base believe those dropped calls and lousy data transmission rates, made worse when holding the phone “the wrong way” are just the result of some software bug?

In a statement released Friday, Apple told worried customers the latest version of the phone remained the best it had ever produced, and the lack of signal shown on the display is a software problem (inferring AT&T’s usual network issues), not a fundamental design flaw:

Upon investigation, we were stunned to find that the formula we use to calculate how many bars of signal strength to display is totally wrong. Our formula, in many instances, mistakenly displays 2 more bars than it should for a given signal strength. For example, we sometimes display 4 bars when we should be displaying as few as 2 bars. Users observing a drop of several bars when they grip their iPhone in a certain way are most likely in an area with very weak signal strength, but they don’t know it because we are erroneously displaying 4 or 5 bars. Their big drop in bars is because their high bars were never real in the first place.

To fix this, we are adopting AT&T’s recently recommended formula for calculating how many bars to display for a given signal strength. The real signal strength remains the same, but the iPhone’s bars will report it far more accurately, providing users a much better indication of the reception they will get in a given area. We are also making bars 1, 2 and 3 a bit taller so they will be easier to see.

We will issue a free software update within a few weeks that incorporates the corrected formula. Since this mistake has been present since the original iPhone, this software update will also be available for the iPhone 3GS and iPhone 3G.

In other words, Apple is banking that its fans are so enamored with the company and its products that just making a software change will convince customers the phone isn’t the problem. Will AT&T’s already lousy customer rating take an even bigger hit when Apple passes the buck for its design flaws to the cell phone provider?

The ongoing revelations of the flaws in the latest iteration of the Apple iPhone are stunning, if only because they were completely missed during beta testing by company employees. As we learned several weeks ago from the Apple employee who left his phone behind in a California bar, some prototype phones didn’t use the “innovative” case design now implicated in the “grip of death.”  Perhaps other Bay Area testers just assumed the bouncing signal strength meter was simply AT&T-as-usual.

Now that the signal issue, among others, has been made the star of the iPhone show on YouTube, Apple has launched into damage control mode.  What Apple does to regain your trust depends on what type of customer you are:

Tech-minded, Informed Consumers: Apple will have the most trouble convincing these customers to sign-on the iPhone bandwagon, especially now.  Many have refused to hop on board all-along, unwilling to sacrifice their wireless phone service to AT&T.  While many of these customers would happily buy an iPhone… from Verizon, news of technical defects and design faults will not inspire confidence.

Tech-minded Early-Adopters: Apple will need to fix its problems with the iPhone to keep these customers happy.  They are the first to buy new products and are more forgiving of early manufacturing faults (and are among those who probably first documented and reported them), but they won’t forgive intransigence and PR nonsense.  These customers want honest answers, a schedule for a solution, and mitigation — a few free iPhone case bumpers as a consolation would probably make many of these customers happy.

Non-technical Apple Devotees: If it’s from Apple, these people will buy it.  They don’t have the first clue about the technical mumbo-jumbo that explains the design flawed antenna on the newest phone, and probably don’t care.  They are loyal Apple customers, but they’ll happily slam AT&T for dropping their calls.  Most of these customers are probably blaming any reception issues exclusively on AT&T already.

The Fanboys & Fashion-Minded: These are the folks who perennially set up the lawn chairs in front of Apple stores 15 hours before the launch of every version of the iPhone.  A criticism of Apple is a personal affront, and they’ve probably already bought the company explanation for the issue.  The fashion-minded treat the iPhone as a must-have personal accessory.  Nothing short of a total failure of the phone will pry them loose from grabbing the latest version of the phone they need to be seen with.

For those without (or who don’t care about) iPhones, watching customers wait in long lines, proclaiming all things from Apple to be good — quickly followed by torch-bearing complaints when they are not so good brings  rolling eyes and mutterings about why someone would punish themselves over a phone.

Potentially the most irritating of all is the fact Apple could make money from its design failure — by advocating consumers spend a ludicrous $30 on what is little more than a rubber band to protect the rim of the phone from your hand.  Apple is selling their “bumper” case one to a package in multiple colors.  For that amount of money, consumers should get one of every color.  A company memo underscored the fact Apple was not about to give these out for free to aggravated customers.  Why lose an opportunity to extract even more cash from devoted customers?

[flv width=”536″ height=”420″]http://www.phillipdampier.com/video/MSNBC iPhone Troubles 7-6-2010.flv[/flv]

MSNBC’s ‘Morning Joe’ was unimpressed with customers who first lauded and then “whined” about their iPhone purchases, after revelations of inherent design flaws and other quality control issues threaten to turn the product sensation into the Toyota of telephones. (3 minutes)

Class action law firms are salivating at the prospects, and attorneys claim no “software fix” is going to suddenly make the iPhone’s antenna design issues go away:

• One suit filed on behalf of Steve Tietze and others in the U.S. District Court for the Northern District of California seeks class action status. Tietze accuses Apple of unfair competition, false and misleading advertising, breach of warranty, and violation of the Consumer Legal Remedies Act.
• A second was filed in the U.S. District Court for the District of Maryland on behalf of Kevin McCaffrey, Linda Wrinn, and others accusing Apple and AT&T of knowingly distributing a phone with a malfunctioning antenna. The suit charges general negligence, defect in design, manufacture, and assembly, breach of warranty, deceptive trade practices, intentional and negligent misrepresentation, and fraud by concealment.
• Two others: Alan Benvenisty v. Apple, 10-2885, and Christopher Dydyk v. Apple, 10-2897, U.S. District Court, Northern District of California (San Francisco).  “Apple’s sale of the iPhone with this unannounced defect, assuming Apple’s prior knowledge of the defect, constitutes misrepresentation and fraud,” said Christopher Dydyk of Cambridge, Massachusetts in his complaint. “In omitting to disclose the defect in the iPhone 4, Apple perpetrated a massive fraud upon hundreds of thousands of unsuspecting customers.”  Dydyk wants Apple to hand out free “bumper” cases that cover the antenna in rubber to prevent signal issues.

[flv]http://www.phillipdampier.com/video/WJZ Baltimore Lawsuits Filed Over New iPhone 4 7-2-10.flv[/flv]

WJZ-TV in Baltimore covers the Maryland lawsuit seeking class action status.  Baltimore area residents filed the suit against both AT&T and Apple.  (1 minute)

Other phone manufacturers are laughing themselves silly at Apple’s declaration that all smartphones lose reception and drop calls based on how you hold the phone. Nokia is having a field day at Apple’s expense, promoting the fact you can hold their phones anyway you like and won’t suffer signal degradation:

One of the main things we’ve found about the 1 billion plus Nokia devices that are in use today is that when making a phone call, people generally tend to hold their phone like a…. well, like a phone. Providing a wide range of methods and grips for people to hold their phones, without interfering with the antennae, has been an essential feature of every device Nokia has built.

Of course, feel free to ignore all of the above because realistically, you’re free to hold your Nokia device any way you like. And you won’t suffer any signal loss. Cool, huh?

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/WTTG Washington iPhone Signal Strength Can Drop 7-5-10.flv[/flv]

WTTG-TV in Washington spoke with Washington Post Tech Reporter Rob Pegoraro who discussed the signal ‘death grip’ and characterized AT&T’s service quality: “we have terrible coverage and we were lying to you [about it] all along.” The report also seriously questions Apple’s claims of a “software glitch” asking why a software problem would cause calls to drop when holding the phone “the wrong way.”  (4 minutes)

Apple’s public relations problem continued to grow this week when it declared earlier reports of terse e-mails purporting to be from Steve Jobs as fakes.  Boy Genius Report, who compensated one recipient of the e-mails, posted e-mail headers that they represent proves the messages did, in fact, come from Apple.

Apple also was caught in a case of bad timing when blogs discovered the company posting help wanted ads seeking antenna engineers, which seemed ironic coming after the release of the much-anticipated iPhone 4.

One biochemist offered his advice for free:

Subject: HowToFix for minimal cost — hydrophobic organic thin film layer

Hi,

In truth, Apple’s explanation for iPhone 4 signal reception problem is inaccurate at best and disingenuous at worst. iPhone users are in some of the hottest and most humid parts of the country this summer and have salty, damp hands especially at events such as baseball games, barbecues, or other outdoor activities. having bare metal antennae purposely handled will absolutely short the signal. This problem will be difficult to reproduce in Apple’s labs because the engineers are required to wash their hands before touching devices, which also strips off the natural hand electrolytes that are ever-present in the field on a hot day.

Anyway, the solution is not a redesign of the phone, but rather an electrically insulating organic hydrophobic layer atop the bare metal. a variety of plastics will work, such as polyethers, polystyrenes, or nylons. you could even use the plastic labels ever-present on aluminum soda cans, which likewise have an electrically insulating effect when holding said cans. these plastic coatings can be very very thin films which do not ruin the aesthetics of the device, and would require a minimal change of your production line. More importantly, this coating in no way affects the ability to recycle the aluminum — the organic thin film layer will burn away cleanly during the aluminum remelt process. Phones that have already shipped could easily be coated with this new layer at any Apple retail store or with a simple kit you could send to your customers.

In summary, this is a problem of electrochemistry, and certainly NOT a problem of software design, nor one that can possibly be solved by a software update.

Apple needs to hire some chemists.

Best regards,
XXXXXXXXXX, Ph.D.

KWGN-TV in Denver noted job postings from Apple seeking the help of experienced antenna engineers to help with their iPhone product line.  (3 minutes)

Several additional videos detailing the saga of the iPhone 4’s bugs are included below the jump.

… Continue Reading

Don't touch this -- Bridging the gap (circled) can drive your iPhone's signal bars into a ditch

The long lines are over.  The hype that drove some Apple fanboys to wait hours in line, even with an advance reservation for the phone, has died down.  The people in the office you irritated bragging about your conquest have moved on with their lives.  For a growing number of early iPhone 4 buyers, that exhilaration is now being replaced with a realization: you are a beta tester for a new product that has some nagging design problems and defects.  And you are still stuck with AT&T, the nation’s least favorite wireless carrier.  Only now, it’s not just AT&T dropping your calls — it’s the iPhone itself.

A growing number of buyers have discovered a flaw so obvious even the most rudimentary testing, even from the drunk guy who left his phone in that California bar, should have picked up — if you hold the phone in your hand a certain way to make a call, the iPhone has a tendency to drop it.  That problem has grown so significant, Apple had to lock the message thread discussing the matter because it was crashing the browsers of support forum visitors.

You didn’t buy the iPhone to actually make calls, did you?

Sorting out whether the dropped calls are Apple’s fault or just business as usual at AT&T is now underway.

Apple’s answer to this particular problem is to turn the potential marketing crisis into an opportunity — by selling you a $30 “bumper”-case to keep your hands from actually touching the phone’s side, which is part of the antenna system.  The case’s odd design, which only covers the sides of the phone, has some speculating Apple knew about this problem all along and designed a case to mitigate the problem, and pocket the proceeds.

A leaked memo from Apple includes talking points to calm customers who have concerns Apple thinks are non-issues.  Apple even insists its representatives take a moment to summon up the proper “tone” when dealing with customers:

1. Keep all of the positioning statements in the BN handy – your tone when delivering this information is important.

• The iPhone 4’s wireless performance is the best we have ever shipped. Our testing shows that iPhone 4’s overall antenna performance is better than iPhone 3GS.
• Gripping almost any mobile phone in certain places will reduce its reception. This is true of the iPhone 4, the iPhone 3GS, and many other phones we have tested. It is a fact of life in the wireless world.
• If you are experiencing this on your iPhone 3GS, avoid covering the bottom-right side with your hand.
• If you are experiencing this on your iPhone 4, avoid covering the black strip in the lower-left corner of the metal band.
• The use of a case or Bumper that is made out of rubber or plastic may improve wireless performance by keeping your hand from directly covering these areas.

2. Do not perform warranty service. Use the positioning above for any customer questions or concerns.

3. Don’t forget YOU STILL NEED to probe and troubleshoot. If a customer calls about their reception while the phone is sitting on a table (not being held) it is not the metal band.

4. ONLY escalate if the issue exists when the phone is not held AND you cannot resolve it.

5. We ARE NOT appeasing customers with free bumpers – DON’T promise a free bumper to customers.

The yellow blotch problem

This week, even more problems are showing up:

• The Glitchy Proximity Sensor: PC World covers the iPhone’s sudden activation of the menu screen while talking on the phone.  With one’s face next to the screen, customers are reporting calls suddenly switched to speakerphone mode, muted, or throwing blasts of touchtones at callers.
• AT&T “Still Sucks”: Customers in San Francisco and Los Angeles, among other large cities, report “Bermuda Triangle” reception zones where calls regularly drop and cannot be made.  Randomly dropped calls are also still a major problem, and some customers believe the latest iPhone is more prone to showing “no service” than earlier models.
• Yellow Screen Blotches: Yellow-tinted blotches are visible on several owners’ iPhone screens.  Apple claims this is residue from the manufacturing process to bind the glass to the screen and will disappear with use as the adhesive fully dries.  Gizmodo reports these phones were likely rushed through manufacturing and shipped in time for the iPhone release day.  While some customers confirm the blotches do seem to be fading, others have been instructed by Apple to return yellow-tinged phones for replacement.
• Easily-Scratchable: Despite the hype about breakthrough glass technology making the phone more scratch resistant than ever, folks on Engadget found it was quite easy to tear up the phone when placed in a pocket with keys or other scratchy things.

Engadget received photos of scratched iPods hours after being unboxed (click to enlarge)

A Sacramento law firm, Kershaw, Cutter & Ratinoff has already started looking for customers experiencing poor reception quality and dropped calls, presumably to consider a class action lawsuit against Apple, AT&T, or both.  As of now, the law firm has received more than 400 complaints.

The signal loss problem has the prospect of becoming the most notorious — for both Apple and AT&T — especially when it is easily reproduced by reporters on the local evening news (see below).  But Steve Jobs thinks the complaints are overblown, writing back to one complainer, “Non issue. Just avoid holding it in that way.”

Despite that,  Gizmodo launched a petition urging Apple to give free cases to all iPhone 4 owners.

Every product launch has its bugs. We’ve seen a lot this time. Many issues, like the yellow screens, will go away as manufacturing fine tunes and adjusts to solve the problems. But the antenna issue is a fundamental one, a design flaw, that won’t go away as easily without adjusting the product in a deeper way.

So with all these great things, it’s terrible that buyers should have this excellent phone ruined for them because of a single, but serious, design problem. And even worse that Apple should suggest users use their phones in unnatural ways or shell out $30—for what is essentially a double wide livestrong armband—to fix it.

According to some Apple-watchers, the company plans a software fix, suggesting the signal meter displayed on the phone is the real issue, not the actual quality of reception from AT&T.  If the software fix only re-calibrates the signal meter and consumers still see dropped calls and reception problems, additional complaints are likely.

After a week of made-for-TV-lines outside of Apple stores across the country, reality has set in and several stations are now turning their attention to the iPhone 4’s pesky problems.

We have a number of videos for you to watch below the jump!

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