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.


  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.”

  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.)

  7. Ottawa Mark,

    Leave the writing criticism to others. MDN’s writing is fine.


    Bzzzt! You obviously can’t read, either. And you therefore look quite stupid proclaiming that MDN should proof their articles better.

  8. Whew! What a heavy dose of “beggar thy neighbor” is being served up here!

    Grow up, ApplePi, and do it quickly. Nobody is forcing you to buy an iPhone–or a Mercedes–or a Rolex–or a Cadillac–or any other product of quality, superior workmanship, and unparalleled design. Apple offers its products for sale in the marketplace: only YOU decide whether you wish to complete the transaction, you dolt. NOT THEM!

    Your whining and paucity of mature, rational understanding of market forces and actions are astonishing and pathetic. You are truly a perfect example of the “me-want-it-now-and-me-want-it-for-free” generation. How I do loathe you and your tribe.

  9. “Transition away from “owning” airwaves” – and transitition to what exactly? In economic terms, private property is extremely effecient and productive while shared property suffers from the “tradegy of the commons.” you can’t just say “end ownership of the airwaves” without suggesting some sort of reasonable alternative.

  10. MDN, can you provide a version of your site without your comments? It will save me time having to click the ‘Read Article Here’ link so I don’t have to read to your ubalanced (and sometimes political) viewpoint. I am a fan of Apple but not to the point of dismissing any other company, product or opinion.

    I commend you on providing a great source of Apple articles, good job there, the only reason I look here.

  11. Brian
    I think the author is VERY confused.

    ” End phone exclusivity. Any device should work on any network. Data flows freely.”

    WTF does that even mean? “Freely” how?

    “As we’ve seen with license-free bandwidth via Wi-Fi networking, we can share the airwaves without interfering with each other. Let new carriers emerge based on quality of service rather than spectrum owned.”

    Deep pockets would own any area they want, until smaller carriers go under, by undercharging, thereby establishing the need for a ‘floor’ on pricing (in some minds), which leads to even more problems, because then quality deteriorates.

    “End municipal exclusivity deals for cable companies…. A little competition for cable will help the transition to paying for shows instead of overpaying for little-watched networks”

    Does this guy live in a desert? Has he not heard of DSL, FIOS, Dirrect TV, or wireless cable? Exclusivity is designed to give a system the confidence to invest in an area, just like any service contract does. When it is up for renewal, the city can look at other cable companies, but unless the area actually OWNS the infrastructure, and the cable company merely managed it, most companies will not invest with a municipality that may kick them out in three years. Would you?

    And BTW, there are many trade off in cable negotiations that benefit the municipality, such as free advertising, public access, EAS, and free bandwidth for essential services.

    ” Encourage faster and faster data connections to our homes and phones. It should more than double every two years. To homes, five megabits today should be 10 megabits in 2011, 25 megabits in 2013 and 100 megabits in 2017. These data-connection speeds are technically doable today, with obsolete voice and video policy holding it back.”

    Sure, just snap your fingers. You don’t just change out a piece of equipment in the head-end and wa-fscking-la everyone has faster internet. The FCC actually mandates ANALOG signals still be used for basic cable for the next three years, eating up a shitload of bandwidth. There is new systems on the horizon constantly, but which do you invest in? And every two years, you have to rebuild a huge part of the system. Guess who pays for that?

    “Technology doesn’t wait around, so it’s all going to happen anyway, but it will take longer under today’s rules. A weak economy is not the time to stifle change.”

    No, but it does stifle investment, dumbshit.

  12. 1. MDN keep on doing exactly what you’re doing. The MDN Takes make this site.

    2. DGUS, it’s painfully obvious that you do not refute any MDN’s points, but due to your discomfort at being confronted with ideas that are not readily broadcast to Americans on ABC, CBS, NBC, MSNBC, CNN, etc. you resort to calling for their elimination. Sad, yet typical.

    3. MDN is correct, as usual.

  13. How would everyone feel if “carrier exclusivity” extended beyond cellphones to the entire Internet? As a hypothetical example: because you have Comcast high-speed internet, you can only select from these two computer brands (say only Dell and HP) to connect to their wires. Nope, no Macs for you! If you want the coolest computers you’ll have to switch your ISP to Verizon, the ISP with the “exclusive” on all Apple computer products… Too bad if you don’t like Verizon’s prices, coverage (nope, not on your street, please move), rules (no Google Voice apps, no “big downloads”), etc., because you have a “choice” when it comes to your ISP.

    By analogy, this is what MDN is arguing for. Though correct about CDMA vs. GSM technology (Verizon and Sprint networks could not support the current iPhone), T-Mobile USA could (it is also GSM) but it is not “allowed to” due to this antiquated subsidy model. In about 2 years, Verizon, AT&T;, and all the other carriers will be using LTE for 4G connections, and Apple will only have to build one iPhone. The technological barrier will have fallen completely, so the others ones should have too.

  14. Let’s talk the public option! Washington thinks it will work for health care reform so, let us apply “the Public Option” to the cell phone industry.

    The US government will build a massive cellular Network using existing unused Government control spectrum for Trillions of Dollars.
    The Network will cover 99.9% of the complete US.
    It will use a G6 speed type of technology but, will be GDM (Government Does Mobile) standard and not compatible with any other network or device.
    To build a GDM device you must be a qualify hand set maker, which means you have no exclusive deals with carriers and you do not allow carriers to subsidize your devices cost to the public. you’ve pay the license fee to the US government to build the device and then pay a fee for each and everyone built.
    The Public can use the Government GDM network for one tenth the yearly flat rate cost of the private networks.
    The Government Option has no customer service but, no limits and the unlimited flat-rate service must be prepaid in 12 month blocks, low income people and families can apply for reduced costs, a monthly billed plan, or free service.

  15. Kessler: “Transition away from ‘owning’ the airwaves”

    Uh, the carriers payed BILLIONS for the rights to those airwaves. (An acquaintance of mine at the FCC was involved in those spectrum auctions.) This is the market at work. Those who believed they can make most efficient use (i.e. make money) bid for those rights. Those who suddenly want to make them “free” will have to deal with the Constitution’s “takings” clause.

  16. One thing I do agree with is the absurdity of having to sign long term contracts to get cell phone service. I have signed my last contract! It expired a few months ago and I will not sign another one. So far Verizon has kept me on my existing contract which is a very good deal. Good enough that I am not tempted by the iPhone due to the huge increase in monthly cost I would have to absorb.

    The other day I went into a couple of phone stores and asked this “Since your contract includes a subsidy for my phone, if I BUY the phone at FULL price, will you give me a cut in the monthly rate?” They looked at me like I was asking for a one-way ticket to Afghanstan!!

    I want to be able to buy a phone – iPhone, Pre, Android, Nokia, whatever – and use it on any network it will work on. Period. My car runs on any gasoline I want to buy, my coffee maker uses any coffee I buy, my TV picks up any channel in my area, why can’t my phone be used on an GSM network?

    Enough of this nonsense!!!!!!!

  17. I don’t understand why AT&T;is the only phone company getting this kind of abuse. Every other carrier in the US is the same way! Their voice + unlimited data plans start at $70 just like AT&T;’s. So if you want to talk about an overhaul of carriers in general, that’s fine. But stop singling out AT&T;and Apple just because they have a desirable product. This article was the ranting of an idiot who is letting emotion get in the way of logical and objectivity.

  18. Josh
    “My car runs on any gasoline”
    the iPhone runs on a battery.

    Now try buying, for instance, that new Camaro at a Honda dealer.
    Then tell them you want a HEMI in it, and want Ford to warranty it.

    There’s your correlation.

  19. @Josh,

    Eventually that choice will be available for all phones. Most US carriers offer pay as you go phones now.

    Until the carriers have a unified network system (like land lines or internet) it will be hard for one phone to use any network.

    One of the biggest issues is that technology is changing rapidly in the mobile arena. EDGE, 3G, now 4G. Phone capabilities vary so choice will be limited that way.

    It is pretty clear that the ATT subsidies helped the iPhone be successful. I doubt that so people would have spent $600 up front for an iPhone. It certainly would have been a barrier for me because we would have to buy 2 phones and the initial bill would have been close to $1500.

    The price gouging is very obvious and I can’t believe companies make you pay for data and text separately.

    All this stuff will play out very soon. Apple are in a win-win situation because by the time the monopolies are eliminated, Apple will have the economics of scale to compete head to head with any phone maker.

  20. I think the whole business of carier exclusivity is just total BS. Look at how much the exclusive deal with AT&T;is harming rather than aiding the user. No MMS. No tethering! Sure they are coming sometime soon! And pigs will fly.

    In France carier exclusivity is illegal and the iPhone is available on all networks. This has meant that the networks have to compete on features and quality to get iPhone customers. The French government doesn’t force any cellphone manufacturer to make their phone compatible with every network. The onus is on the network to make put the technology in place, but what they can’t do is artificially restrict customer choise by saying a particular phone is only available from a single carrier. In France the iPhone would be available to Verizon for sale but if it can’t work with Verizon’s technology then too bad for Verizon. As for phone features, visual voicemail is only available on one of the three networks, so if you want it you go to that network. If you don’t particularly care then you can go elsewhere.

    On that point MDN really has to get its facts straight. There is a big fallacy that if governments insist of customers having choice then it would mean governments having to get involved in running businesses. That has been proven in several cases to be just not the case. I can assure you that Apple aren’t complaining about the extra business they are getting in France by being available on all networks and none of the networks are crying about regularly selling all their stock either.

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