WSJ writer: Why AT&T killed Google Voice for Apple’s iPhone

“Earlier this month, Apple rejected an application for the iPhone called Google Voice. The uproar set off a chain of events—Google’s CEO Eric Schmidt resigning from Apple’s board, and the Federal Communications Commission (FCC) investigating wireless open access and handset exclusivity—that may finally end the 135-year-old Alexander Graham Bell era,” Andy Kessler writes for The Wall Street Journal. “It’s about time.”

“Apple has an exclusive deal with AT&T in the U.S., stirring up rumors that AT&T was the one behind Apple rejecting Google Voice. How could AT&T not object? AT&T clings to the old business of charging for voice calls in minutes,” Kessler writes.

“What this episode really uncovers is that AT&T is dying. AT&T is dragging down the rest of us by overcharging us for voice calls and stifling innovation in a mobile data market critical to the U.S. economy,” Kessler writes. “Wireless data service is AT&T’s only bright spot, up a whopping 26% per customer… With my iPhone, I pay $30 a month for unlimited data service (actually, one gigabyte per month). Is it worth that? The à la carte price for other not-so-smart phones is $5 per megabyte (one-thousandth of a gigabyte) per month. So we buy monthly plans. Margins in AT&T’s Wireless segment are an embarrassingly high 25%.”

“The trick in any communications and media business is to own a pipe between you and your customers so you can charge what you like. Cellphone companies don’t have wired pipes, but by owning spectrum they do have a pipe and pricing power,” Kessler writes. “By the way, Apple also has a pipe—call it a virtual pipe—to customers. Its iTunes music service (now up to one-quarter of all music sales, according to NPD Market Research) works exclusively with iPods and iPhones. The new Palm Pre, another exclusive deal, this time by Verizon Wireless, tricked iTunes into thinking it was an iPod. Apple quickly changed its software to lock the Pre out, and one would expect Apple locking out any Google phone from using iTunes.”

MacDailyNews Take: Andy’s confused here. For the umpteenth fargin’ time: iTunes is a software jukebox; iTunes Store is an online media store. Any not-so-smart phone user can install iTunes on their Mac or Windows PC and buy and play media to their hearts’ content. Reputable companies that are not on life support, like RIM, unlike Palm, provide simple software to transfer those iTunes Store files to their devices. iTunes Store does not require iPods/iPhones. iPods/iPhones do not require iTunes Store. And, the Palm Pre is currently exclusive to Sprint. Verizon Wireless’ fake iPhone du jour is RIM’s BlackBerry Storm.

Kessler continues, “It’s inexcusable that new, feature-rich and productive applications like Google Voice are being held back, just to prop up AT&T while we wait for it to transition away from its legacy of voice communications. How many productive apps beyond Google Voice are waiting in the wings? …So now the FCC and its new Chairman Julius Genachowski are getting involved. Usually this means a set of convoluted rules to make up for past errors in allocating scarce resources that—in the name of ‘fairness’—end up creating a new mess.”

MacDailyNews Take: As we often write, “Legislation is bound to complicate matters further – along with introducing unintended and/or unforeseen consequences.”

Kessler continues, “Some might say it is time to rethink our national communications policy. But even that’s obsolete. I’d start with a simple idea. There is no such thing as voice or text or music or TV shows or video. They are all just data. We need a national data policy, and here are four suggestions:”

• End phone exclusivity
• Transition away from “owning” airwaves
• End municipal exclusivity deals for cable companies
• Encourage faster and faster data connections to our homes and phones

Full article here.

MacDailyNews Take: First of all, data it data. It’s absurd and a scam that SMS (texting) is charged separately and extra. But, the consumer agreed to be fleeced this way, did they not? People over a certain age email and rarely, if ever, text (not so much because they’re “old, out-of-touch, and uncool,” but because they’re the ones who pay the wireless bills).

Now, we’ll deal with just Kessler’s first bullet point to illustrate the actual complexity behind what sounds like a nice pie-in-the-sky wish list (as bullet lists often do). We’re not saying that it’d be impossible for government to intervene perfectly without disrupting something else they did not intend to affect, just extremely improbable. So, multiple the following by four. Back in June, regarding news of a U.S. Senate panel exploring the Apple-AT&T iPhone exclusive deal, we wrote:

Who’s up next? The CEO of Joe’s Burger Shack complaining that McDonald’s Big Mac should be available to all burger joints because not having it is damaging to his business, limits consumer choice, and – sob – people in rural areas are particularly hard hit? Puleeze. Normally, we’d say, “Not in the United States of America,” but, lately… Hey, maybe the government could take over the U.S. wireless industry, too? iPhone MMS and tethering coming summer 3009! Don’t worry, government health care will get us all there in fine shape (wink). Yes, we know all about “the public airwaves.” We also know that without AT&T’s willingness to subsidize 2/3rds of the iPhone’s retail price upfront in exchange for competitive advantage, the iPhone platform would be much smaller and less vibrant, if it even existed at all. By the way, the last time we looked at the U.S. Constitution, owning an iPhone wasn’t a right. All that said, the idea of a limit to the length of exclusive deals is an intriguing idea. What do you think?

Did you know that just before General Motors’ CEO Rick Wagoner “resigned” at the “request” of the Obama administration, he visited a congressional committee and held up a list of the top 14 vehicles, including the Toyota Camry, that are *gasp* locked down in “exclusives” with other car dealerships? “That puts a big dent in our dealerships’ ability” to serve customers, he told the committee. It sure did.

As we mused above, a limit to the duration of exclusive deals between carriers and handset makers would still allow for revolutionary products such the iPhone to be developed and sold successfully while also providing for such innovations to eventually spread to more people. The big problem with that, of course, is what happens say a year or so before the law stipulates that deal must end? Do the subsidies dry up? In other words: Does the iPhone 3G S start at $699 for everyone when it arrives in the last year of legal exclusivity?

This is a complicated issue and any legislation is bound to complicate matters further – along with introducing unintended and/or unforeseen consequences. If we let the market decide, then the market has already decided: The exclusive AT&T and Apple iPhone deal is a raging success. At some point, market forces might require Apple to end their exclusive agreement with AT&T without government intervention (imagine that).

Could iPhone be more of a success with government intervention? That would depend on how you define “success.”

An end to exclusivity would likely more market share for iPhone, but not necessarily more profits for carriers and/or Apple. Would carriers’ incentive to improve their services be impacted? Would competing handset makers even be able to compete without the advantage of being on networks that don’t offer the iPhone? Imagine if iPhone was available on Verizon right now: How long would the pretend iPhone makers last? And, who would pay their employees’ unemployment checks? iPhone users, that’s who.

Would the U.S. government force Apple to make device compatible with other wireless standards so it can work on, for example, Verizon’s iPhone-incompatible CDMA network? How many different devices would Apple be legally bound to produce? How much would that cost Apple? Should the government subsidize Apple with our tax dollars for having to produce compatible iPhones under new laws? Would congress require carriers to allow all of iPhone’s features or would they get to alter/exclude those that impact their own services?

What if, even with an iPhone, Sprint keeps hemorrhaging customers? Would Apple have to keep supplying iPhones to carriers with bad service, thereby damaging Apple’s brand? Does the government compensate Apple for requiring them to damage their brand by providing iPhones to carriers that can’t offer quality service? Do all devices have to have an exclusivity limit or just successful devices? After all, it wouldn’t be cost effective to require multiple versions of unsuccessful devices for all qualifying carriers. And what constitutes a qualifying carrier anyway? What would the law define as a successful enough device to trigger exclusivity limits?

We could go on, but you get the point: It’s a can of worms. It always is.

54 Comments

  1. Cellphone companies in the USA are ripping us off big time, forget for a moment the current iPhone issues and consider this:

    In Europe and most (if not all of) the rest of the world Carriers don’t charge the receiving party for cell phone calls – ie: only the caller gets charged. It’s been like than for over 10 years…

    Not only that but the transmission/voice/line quality are far superior than in the US (even in South Africa 13 years ago the voice quality was pristine and crystal clear)

    That’s millions if not billions of dollars being double billed while we have the shittiest quality service in the world .

    This is what all Cell Phone users in the US should be up in arms about – Why is it that both the caller and the receiver get billed for the same call. Cellphone companies here can’t stop laughing at how stupid the American consumer is – They ream us all day every day.

  2. You may want to believe that the government can intervene without unintended consequences, but I know of no such example.

    Even in what seem like simple cases, things can go south quickly. Look at what happened when the Carter Administration tried to “punish the rich” by jacking up yacht taxes:

    “Given that only the super rich can afford a yacht, this should have been the ideal tax on the rich. But the Carter Administration overlooked two things. First, the rich, like everyone else, hates to waste money. Second, and more important, while only the rich buy yachts, it is middle class workers who build yachts. As a result of the tax, most rich people did one of two things in that they either made do with last year’s yacht or purchased a new one abroad where the tax did not apply. In doing so, the small American yacht industry was destroyed (one New Jersey town whose economy was totally dependent on yacht building faced economic disaster) and associated jobs and income tax revenues (unemployed people generally pay little or no income tax) were lost. This little episode only served to further weaken the nation’s economy.”

    “The yacht tax fiasco, which even if it had been successful, was never projected to generate significant revenue. It was instead, driven more by a desire to punish the rich for their success than to raise revenue. However, the yacht tax is a clear demonstration of the truth of former President Regan’s observation that Washington doesn’t solve our problems, it IS the problem.”

    http://hubpages.com/hub/Problems-with-Taxing-the-Rich

  3. If Apple didn’t charge so much for its products, there wouldn’t be as large a subsidy, which means they wouldn’t have to recoup so much from the data plan.

    In the end, it’s Apple that causes us to pay through the nose, not AT&T

  4. @Macs King,

    As much as MDN’s take is often wrongheaded, they were not saying RIM was on life support; but that Palm was. The writing was poor, but its clear what was meant:

    “Reputable companies that are not on life support, like RIM, unlike Palm, provide simple software to transfer those iTunes Store files to their devices.”

  5. RIM is still bleeding jobs and dramatically missing market forecasts and lowering financial expectations. That’s what they mean.

    Still MDN should proof their articles better. Two missing words or errors in the article at publication. They make a good point, but could serve to proof their own work.

  6. ApplePi,

    You display a severe lack of basic business understanding.

    How are Apple to recoup their tremendous R&D;outlay to create and develop the iPhone?

    You obviously have no idea howe much went went into the creation of the iPhone or what each device really costs Apple (R&D;past and present, components, marketing, support, etc.)

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