By Jon Fortt
July 16, 2010

I’m here at Apple headquarters in Cupertino, ready to live blog the iPhone 4 press conference when it starts at 10 a.m. PT/1 p.m. ET.

It’s a critical moment for Apple’s (AAPL) most important product: over the past week, the pressure has mounted for the company to address complaints that the phone can drop its reception when users touch part of the antenna, which runs along the outside of the body. Will Apple offer free covers to disgruntled customers? Apply a special coating to protect the antenna? Offer another software fix? Find out here.

They’ve let us into the room. We’ll probably be starting soon.

Apple’s showing a YouTube comedy video about the iPhone “death grip.” Which is frankly kind of refreshing. You know, that they’re not taking themselves too seriously.

Steve Jobs is on stage, says good morning, thanks for coming — they saw that on YouTube this morning and couldn’t help but share. This will be about 15 minutes and then Q&A.

We’re not perfect, Jobs says, and phones aren’t perfect either, but Apple wants to make users happy. He’s going to talk about how Apple’s going to do that.

First he’s going to talk about the problems, and the data that illuminated exactly what those problems are.

Jobs says Apple has sold well over 3 million since its launch 3 weeks ago. Numerous publications have praised it, and consumer reaction has been the best ever. But people have been having problems with the antenna. A video hit the web.

Apple has been working on this for the 22 days since this hit the web. Apple wants to find out what the real problem is before issuing a solution. “Working our butts off,” as Apple puts it.

“Antennagate” — it doesn’t seem like a good idea if you can grip your phone and the bars go away. But you can find videos on YouTube of other phones from Nokia, Blackberry and other phones doing the same thing.

He shows a video of a Blackberry user gripping a Blackberry and having the bars go down to none. Now the same thing with the HTC Droid Eris. Same thing – when gripped it goes down from four bars to none. Samsung Omnia II – same thing. (This is pretty convincing stuff, actually – the problem isn’t unique to the iPhone 4.) “This is life in the smartphone world. Phones aren’t perfect. And it’s a challenge for the phone industry. … But every phone has weak spots.”

The problem for Apple was they put a line in the stainless steel to show exactly where to touch it to cause the problem – and the software in the phone made the drop-off look too dramatic.

Jobs shows a picture of the antenna lab, looking at the reception from every angle, showing the biggest testing room. (Apple has never shown this amount of info about their internal operations for product development.) Apple has 17 anechoic chambers, 18 PhD scientists and engineers doing advanced antenna design, a $100 million investment. “We didn’t think it would be a big problem,” Jobs said of this particular antenna issue, “because every smartphone has this problem.”

What have we learned?

First, all smartphones have weak spots.

Second, AppleCare data shows that the percentage of iPhone 4 users who have complained about the antenna is just one half of one percent — 0.55%. “Historically for us, this is not a large number.”

The AT&T return rate for early shipments of the iPhone 3GS was 6% — the return rate for the iPhone 4 is just 1.7%. That’s less than a third of the return rate for the 3GS. (This is very significant.)

One more data point: AT&T has given us the early call drop rate a couple of days ago, Job says. Apple can’t give out the absolute call drop data. But they’re going to release the delta to the 3GS. How do call drops on iPhone 4 compare to the 3GS? Even though Apple believes the antenna is superior, the data shows it drops more calls than the 3GS. How many more?

The iPhone 4 drops less than 1 additional call per hundred than the 3GS.

Even less than 1 is too many for us, Jobs says. I have my own pet theory, Jobs says. With the 3GS, 80% of users bought a case with the phone. Because the design has changes, only 20% of people leave with a case for the iPhone 4. (I must say — Jobs is making an impressively compelling case for what’s actually happening here. But he’s also making the case that they need to hurry these bumpers out.)

When we look at this data, Jobs says, it’s very hard to escape the conclusion that there is a problem, but that problem is affecting a very small percentage of users. Jobs says he has gotten more than 500 emails from users saying their iPhone 4 works perfectly and they can’t figure out with the issue is about. (I’m impressed that he counted them.) But we care about every user, and we’re not going to stop until every user is happy.

“Let me tell you what we’re going to do,” Jobs says.

Yesterday Apple released a bug fix that addressed the signal bar issue.

Why not give everyone a case? Jobs says Apple is going to give everyone a free case. If you’ve already got a bumper, you’ll get a full refund for the bumper. Apple will give users a choice of cases. You can apply on the website for a free case starting next week.

If you’re still not happy before or after getting the free case, bring the phone back for a full refund, no restocking fee, within 30 days. “We are going to take care of everyone. We want every user to be happy.”

Some other updates: Apple is tracking some problems with the proximity sensor and hopes to get it fixed with a software update. White iPhones will start shipping at the end of July. At the end of July (7/30) it’s coming to 17 more countries.

In conclusion, Jobs wants to give a feel for what Apple cares about: We love our users, and we try very hard to surprise and delight them. “We work our asses off for them,” he says. He’s naming the products. (You can tell he cares about the brand and the impact of the products here.) “We love our users so much that we’ve built 300 Apple retail stores for them,” he says. (Some might cynically say the stores benefit Apple plenty, but he has a point here – Apple committed to the stores before it was clear that they would work.) When we succeed, they reward us by staying our users.

When people criticize Apple, Apple takes it really personally. (If a user’s have a problem it’s our problem, Jobs says.)

The heart of the problem is, smartphones have weak spots. We made ours extremely visible. Some folks took advantage of that. For the small number of customers who are having problems, Apple is going to give cases. For those who aren’t happy, full refunds. The data supports the idea that there is no “Antennagate.”

And that’s the presentation.

Tim Cook and Bob Mansfield, the COO and hardware chief. Jobs mentions that he came back from vacation in Hawaii to address this.

First question: How’s Jobs’s health? He says he’s fine.

Will Apple change the antenna design? Jobs says Apple’s is pretty happy with the design – the one issue might have been putting the black line in the phone to show where the problem spot would be.

If we could do this all over again, I think we would have tried to come up with some mitigation, but so far no one has been able to fix that, Jobs says.

Bob Mansfield is addressing why a single finger can stifle the signal on an iPhone (in low coverage) while it takes a whole hand for other phones. Basically, the antenna is designed that way.

Jobs is asked about the Bloomberg article. “It’s a total crock,” Jobs says. “We’ve talked with all the people involved.” Apple engineers debate everything, including “how to tie your shoes.” So if someone had raised that issue, Apple would have dispatched someone to fix it. “I talked to Reuben, and Reuben said it’s total bullshit from his point of view, too.”

Jobs is asked whether he’ll apologize to investors for the hit the stock has taken over this. Jobs says he apologizes to the customers who are having problems over this. “As far as investors go, we want investors who are in it for the long haul,” not people who are trading quickly. So no, he’s not going to apologize for that. “It’s just like having kids,” he says, from the perspective of, “things happen, and you roll with it.”

WSJ asks whether Apple is a company that asks users to choose between form and function. “No – we try to do both,” Jobs says, and gives some examples. (From previous press conferences, I can say that Jobs at times might have been a bit snippier with his answers to some of these questions in other times, but he’s been very measured here.)

Jobs is asked whether he could have said anything differently during the keynote to keep expectations from being so high. Maybe Apple could have shipped the phone with a better algorithm to show bars, he says. He says he’s thought a lot about that. What we’re learning, he said, is that part of Apple’s role as a leader is to educate the market about these issues. And that takes data. (He says maybe one way to address the antenna issue would be to make a huge phone, but then no one would buy it.) “I can tell you up front, we are not perfect,” Jobs says. “We don’t know everything … but we figure it out pretty fast.”

Why the free bumper through September 30 only? Maybe Apple will have a better idea, maybe it won’t be needed, maybe something else.

Will the refund apply to people who bought cases from folks other than Apple? No, Jobs says. Why not tell the case makers what the iPhone 4 dimensions will be so the cases would be ready? Because when product designs leak early, it hurts sales of current products, and case makers tend to leak, Jobs says – there are good economic reasons. “It’s one of those things where there’s no easy answer.”

(He’s taking a lot of questions.)

“Do any of you carry your iPhone 4s with a bumper?” asks John Gruber asks. Tim, Steve and Bob all pull out their phones at once, and show that they’re bumper-less. Jobs says he has historically gotten bad reception at home, but with iPhone 4 is better.

What has Jobs learned that will change the way Apple does these phone launches? Jobs says he’s not sure yet, he needs to get some distance. But he offers that while Apple knew it cared about its users, and was stunned and upset by the Consumer Reports rating, he didn’t have the data any earlier about what the problem was (or wasn’t). We’re an engineering company. We think like engineers. “We’ve got cots in parts of the engineering areas that deal with this stuff,” he says. “I don’t know how we could work any harder.” I guess it’s just human nature that when an organization gets big or successful, people want to tear it down, Jobs says.

And now it’s interesting – he says that people are doing the same thing to Google, and “Google’s a great company.” He says that in search of eyeballs, websites don’t care what they leave in their wake. “I look at this whole Antennagate thing and say “Wow – Apple’s been around for 34 years. Haven’t we earned enough credibility from the press” to let Apple explain itself? “I’m not saying we’re not at fault,” he says, because Apple didn’t educate enough, and Apple didn’t realize that by visually showing the antenna problem they were possibly highlighting a problem.

Is there possibly a hardware fix for the iPhone 4? Jobs says this is an industry-wise challenge, and so this isn’t a unique issue for Apple. (So, it sounds like he’s leaving the door open for that, but of course isn’t going to pre-announce anything.)

Did Apple consider a recall? “When you love your customers as much as we do, nothing’s off the table,” Jobs says, but Apple looked at the data. Apple sent Apple engineers to the homes of people who emailed Jobs about antenna issues (with permission, Mansfield notes) and wheeled  equipment in. (So he’s saying that Apple looked closely at the problem and determined that it wasn’t warranted.)

Scott Forstall, the head software guy, says the New York Times article that suggested a software fix (related to a big) would address the issue wasn’t accurate.

Will there be any change in Apple’s messaging about the iPhone 4 as it rolls out worldwide? No, Jobs says.

Why have the sales tracked the way they have, after 1.7 million units moved in the past three days? Apple built up inventory ahead of the launch, and is still selling every iPhone it can make.

Jobs gets a question about the role the iPhone plays in congestion on AT&T’s network. Jobs says AT&T has to put up more antennas to improve service, and it can take three years to get approval for that.

(This is probably the most questions Apple has taken during a Q&A for a long time.)

Jobs says one of Apple’s insights eight years ago was that it doesn’t want to get into any business where it doesn’t own or control the primary technology. In PCs, that’s software. He says now there’s a shift: the most important component in consumer electronics is now software, just like the PC business. The iPod proved that Apple’s inclination about this was correct. In part because of this philosophy and approach Apple has been able to distribute major software updates to its devices more easily (and affordably) than had ever been done before, and has reaped benefits.

I just asked whether Jobs’ approach to responding to consumers has shifted. It seems like he’s been communicating directly with customers these days,  more than he used to. He says he’s always communicated, lately they’re ending up online. More on that later, perhaps.

The Q&A is over.

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