Last week during Steve Jobs’ interviews at D8 an audience member asked him about AT&T’s network. iPhone users are deeply familiar with the issues—dead connections, dropped calls, bad coverage, and intermittent data.

Everyone was wondering how Steve would answer. Using his masterful ability to demonstrate empathy, Steve disarmed the audience almost immediately (see video), replying that AT&T’s best experts tell him “things should be getting a lot better soon – certainly by the end of the summer”.

Contrary to Steve’s answer, AT&T’s issues are not primarily around spectrum or backhaul. Instead, they center around 'signaling', which smartphones rely on for polling, status and control updates.

Ironically, as Jobs talked about a summer solution, we’re on the precipice of an event which will likely make AT&T’s network dramatically WORSE very soon: iOS 4 multitasking.

This is because multitasking will increase signaling usage by 3-5x. Imagine streaming Pandora, buying the song on iTunes while listening, receiving Twitter timeline updates and updated World Cup scores, and checking in on Foursquare – simultaneously! Or exiting the subway with 5 open apps and waiting while each establishes a new network connection. Without a doubt this will bring AT&T’s signaling layer to its knees.

And no amount of additional spectrum or backhaul can solve signaling issues. The longer term solution is re-architected LTE networks, but their deployment will take many years. Adding femtocells is another solution, which is exactly why AT&T is the first carrier in the US to aggressively push their use.

But here’s the fascinating point: the signaling issues aren’t just AT&T’s fault. In a quest to extend battery life on the iPhone, Apple did something 'non-standard' which compounds the issues – the iPhone constantly drops connections, going in to an idle state. Keepalives within the apps then reestablish a new connection after only a few seconds. Network equipment makers never anticipated this. Think of it as hanging up during a phone call when the line is silent, and then redialing to respond.

Though RIM was doing this earlier than Apple, the iPhone is the first device to really push use of idle disconnects, as Apple looked for every way to extend battery life. If Apple stopped their use in iOS 4, technical experts almost universally agree that signaling problems would subside. But it would also result in reduced iPhone battery life, which is why Apple won’t agree to do so. Steve Jobs almost certainly knows this.

Perhaps most fascinating is that this problem is another testament to Apple’s marketing muscle and ability to control partners and suppliers.

How so? AT&T knows full well about the signaling issues, but has been okay taking public blame, even though the 'solution' is in the handsets just as much as the network. Psychologically speaking AT&T and Apple know that people prefer to have one primary scapegoat. If instead AT&T subscribers knew that their horrible service was in part due to Apple’s design choices, it’s likely they’d be less loyal. In exchange for its constant bashing, AT&T enjoys the lowest subscriber churn in the industry.

So Steve Jobs is much smarter than his answer at D8 suggests. He knows that there is a pretty simple solution to a complex problem—for Apple to roll back use of idle disconnects. But this almost certainly won’t happen since for Apple it’s not a zero sum game – the entire network would benefit, while Apple would lose its edge in battery life against Android. Which is why your service is likely to continue getting worse for a long time to come, not better...

See Also: iPhone 4: Everything You Need To Know