According to wireless guru John Stanton, he and Steve Jobs repeatedly discussed the feasibility of creating a "synthetic carrier" over Wi-Fi connections—thereby squeezing out AT&T—between 2005 and 2007. Stanton didn't elaborate on why he abandoned the idea, though I'd guess it's because Jobs figured out how to get Sprint to give him $15.5 billion for the right to sell iPhones. Further analysis is available at Computerworld.
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