Two things happened this month that have bearing on the course of the evolution of the broadband network. One was seen as momentous but, to me, is ultimately a non-event, a tempest in a teapot. The other was regarded as a manic sideshow, but is an important landmark in the profoundly competitive and innovative broadband market’s ongoing transformation.

The inconsequential event was the proposed merger of ATT and T-Mobile.

The manic landmark was the release of the iPad 2.

Maybe I’ll get to the merger today, maybe I’ll let it go a few days. Why not? For one, the issue isn’t going away, but more importantly, when we look back at March, 2011 years from now, the fact that ATT and T-Mobile merged (presuming they will) will be regarded as an afterthought, much the way we now regard the merger of Price Waterhouse and Cooper & Lybrand, or perhaps Sprint an Nextel, or perhaps, more autobiographically, Burroughs and Sperry. I’d spend time explaining my nonchalance, but there are more important things to do.

Like talk about the iPad. Of course, I don’t have one. Younger people do. People wonder why older people don’t get this stuff, and I can tell you why. It’s not technology aversion. It’s that if you have an iPad you can do cool stuff and older people don’t do cool stuff. And it’s a shame, because now, for the first time, the full functionality of (personal) computing and information processing look to be mobile – it’s one of the two great Rubicons that everyone ever involved in information technology has always anticipated – computing on the fly (check), and voice activation and recognition (not yet, but Jack Donaghe’s working on it with remote controls). And if that’s where we are – if we now have a device that makes computing mobile, bridging the wired and wireless worlds, then we need to consider a new model of competition in a new, multi-dimensional, integrated market for broadband services and applications.

When I was at Unisys, our Chairman, a very solid, self-possessed guy from South Dakota named Jim Unruh, once told me, as if sharing a grim joke, “Every time we sell a computer, two companies make money – unfortunately, they’re Intel and Microsoft.” Let’s see, how have Unisys, Microsoft, and Intel done in those intervening 20 years? – OK, write one down for Jim.

His remark, back then, was an eye-opener, because for most of the commercial computer’s life to that point, computational power was the miracle, let alone the product. But the paradox was that as compute power burgeoned, compute power became less important to its user, much like aluminum was once regarded as a precious metal until they found a whole bunch of it. Value migrated “up the stack” from compute power to actual “solutions” that made that power do stuff.

Signal is going the same way. The central paradox of broadband is that the more signal innovates and the better it gets, the more it encourages other innovations that compete with it to create value. The more there is of it, and the better it is, the more that rests on top of it and intermediates its relationship with the consumer. And the iPad lies at the heart of that.

Long ago in the Dark Ages – say, the beginning of this decade – the selling point of wireless was signal quality – “Can you hear me now?”, the sound of a pin dropping, that was the pitch. Well, signal today is by-and-large incredible – quality, coverage, reliability, all continue to improve. A decade ago, we were thrilled by 144 kbs. But 4G now delivers 5 to 12 mps or better – faster than a wire to the home a few years ago. So the companies that invested tens of billions to make that happen must be raking in the chips, right?

No, wrong – because the better these signals became, the greater the rush to create value using them, starting with the handset. The handset is now competing with the network as the prime value-generating part of the total signal-device-application-service package. And it was the iPhone that changed all that, that allowed the device to exist on par with the signal ; there’s no greater proof of this proposition that people willingly signed up with ATT to have it. It was like the old joke about the Klopman Diamond – a woman is on an airplane and she’s wearing a magnificent diamond pendant, and her seatmate admires it; “Oh, that’s a remarkable diamond,” says the seatmate. “Well, yes, it’s the Klopman Diamond,” the woman answers, and then adds, soto voce, “But it has a curse!” “Really!” says the seatmate – what is the Klopman Diamond curse?” And the woman answers confidentially, “Mr. Klopman.” ATT was Mr. Klopman to the iPhone Klopman Diamond – the curse that came with it. It was such an obvious issue that Jon Stewart went nuts about it when Verizon cut its deal to bring the iPhone to its network.

But two points ought to be made about ATT’s network problems. The first is that they demonstrate that while signal quality and coverage still count, but they’re not the sole concern. The second is that the surge of traffic ATT realized once the iPhone and its bit-eating applications forced ATT to improve itself, and ended up making it a better competitor, and forced ATT’s competitors to keep innovating as well. The iPhone did to ATT – and to all signal providers – what a textbook competitor does – forced them to invest, innovate, and create more customer value.

And if the iPhone set in motion a virtuous circle in which innovation in devices led to innovation in applications and improvement in networks, which then allowed applications to burgeon (a $4 billion industry that didn’t exist five years ago) and led the cycle to start all over again, the iPad takes us into hyperspace. With its longer battery life, ability to handle video, the power to do what laptops and desktops (remember them?) can do – the iPad offers a way for consumers not only to stay connected with today’s high speed wireless networks but to “compute” in a way not really possible even with bulky and more battery-constrained laptops, netbooks, or whatever else. But the iPad, Xoom and other tablets, along with the introduction of 4G networks that make video better and easier, now offer a real alternative to fixed wire broadband networks, and they will transform competition even more dramatically than the iPhone did. It will make video and gaming apps even more important, will make the “cloud” even more important, and force signal providers to stay on the treadmill of investment, innovation, and improvement. And the consumer is again in charge — the apps, the devices, the operating systems and the networks can be mixed and matched in countless ways. And as consumers sort this out, the circle keeps spinning – better devices lead to better networks, which lead to better applications (I’m still trying to figure out who’s watching a movie on their phone, but the point is you can), which lead to networks expanding, which permits more applications and better devices on which to run them.

The iPad, therefore, is a major step forward in the ongoing transformation of the broadband market, and the best way to state that transformation is this — where once the consumer decided how to approach the wireless world by deciding who had the best signal at the best price, there are now many different players at many different levels vying for the right to be the consumers’ gateway to this integrated package of signal, devices, and applications and services. Do you pick a signal carrier and then a device? Or do you pick a device and then a signal carrier? Or will you end up picking an application – Facebook? Google? – and then picking the device and, therefore, signal that best hosts it?

This changes the terms of competition – signal, devices, and applications all compete to capture the lion’s share of the value they create in combination. And when each improves, the others must race to fill the gap, lest their competitors do – whether it’s apps that sit on improved devices or devices that use up faster and more reliable signal, or signal that improves to entice more sophisticated devices. We used to think about competition as being like a track and field event, with the race going to the swift. But that image doesn’t fit what’s going on today in a multidimensional market for signal, devices, and applications. If there’s a metaphor for it, it’s one of those theatrical (to use a nice word) wrestling cage matches in which a dozen guys go into a cage and wail on each other until someone’s left standing. The wrestlers immediately go about forming and reforming alliances, alternatively co-operating and beating on each other — and while they form these transient alliances, they ultimately all compete, because that’s how they win. The only difference is that in the broadband competition world, the match continues forever as the wrestlers, like Sisyphus, never reach the end of their labor, and new wrestlers – be they Facebook or Clearwire, or new wrestling moves – be they Xoom or Pandora – keep entering the cage.

That’s what’s going on in the broadband world today. There’s still vigorous competition among signal carriers – heck, the U.S. market is singular in that it has competition among signal platforms – telcos, cable, and wireless – but there’s then the device manufacturers, the competing operating systems behind them, and the giant applications, starting with Facebook and Google (and Google’s stepchild, YouTube), all of whom compete for a larger share of the value generated by the integration of all the parts. Like wrestlers in a cage match, they form and reforms alliances, but ultimately have interests that put them at odds with everyone in the group.

The iPad takes that to the next level. It only exists because of the ongoing innovation in signal yet it competes with that signal for the consumer’s attention. It is both is a symbol and trigger of this profound transformation. It has forced imitators to match its new functionality while catalyzing more investment and innovation at every stage of the integrated broadband value proposition and giving consumers a new tool to manage their involvement with both wired and wireless broadband.

While the debate begins over whether ATT/T-Mobile is good or bad for competition (a debate, I’d point out, in which every one of T-Mobile’s and ATT’s customers are on one side – can you imagine having T-Mobile service and being unhappy about it?), the real action is happening not only elsewhere, but all around us. That’s what we’ll remember about this moment years from now. It’s time for the people in the teapot to look up and witness the Schumpeterian tempest.

[This post originally appeared on Ev Ehrlich’s Everyday Economics blog.]