“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.
I know saying this is a waste of time, but I really wish MDN would stick to Apple issues and stay out of political punditry. You guys are do a good job of staying on top of Mac and other Apple news, but your take on politics is embarrassingly bad. You have no balance, you have no particular insight, you just repeat the same old conservative talking points. Snore.
TanZing,
And how much does an iPhone cost in France, genius?
Sticktomac,
Can’t refute MDN’s points, so you demand their silence?
@Regular Reader
I did not ask for “elimination” (are you a gun toting republican by any chance?) I asked for the option (you understand that by asking for a version of their site without the comments, that means option right. . . just checking, like the public heathcare OPTION!).
I did not say I agreed with MDN (why would I otherwise ask for the option of a version without their commnets), I did say I like the fact they bring a lot of good Apple news together in one place. That they do well and I like. Just because I don’t like the biased and unilateral viewpoints of MDN does not mean I am not interested in facts. You will rarely see news on Apple on any of the chanels you list (normally the day they launch something but that is not why we all look here right).
Kessler is an idiot.
He decries ATT’s “embarrassingly high” wireless margins (25%) while failing to acknowledge that prices are set by ready, willing and able buyers and sellers. ATT’s wireless business is growing faster than any others in the US: ergo buyers don’t think ATT’s prices are too high. Further, one of the prime reasons ATT’s wireless business is growing so fast is buyers desire to get the iPhone, which enjoy gross margin of 57%.
The rest of Kessler’s diatribe is chock full of equally stupid statements
Can’t believe you write this ‘analysis’!
“First of all, data is 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?”
1 – I don’t know anyone who AGREED to the telecom scam. What planet are you on?
2 – The additional network cost of a texting iPhone user (already paying $30/mo for ‘unlimited’ data) is a rounding error to AT&T;.
How can they legitimately charge 40 cents a msg (sender and receiver) or $20 extra a month for something that costs nearly nothing?
Note this: Wrt to the iPhone, AT&T;is a monopolist.
I hate analogies. For the most part, they are innaccurate. If you actually believe that molecules are little marbles, you will make all kinds of erroneous assumptions about the nature of matter. For another, analogies are rife with biases and are many times an attempt to drive the discussion down another track.
For the most part, the car analogy works for description of exclusivity arrangements between handset makers and carriers. But it gets away, to some extent, from the rather simple reasons Apple sought an exclusive arraingment: they had never made a phone before. Throwing an untested, unproven device with a 700 dollar price point at every carrier with no support from said carriers would have been a disaster. The arraingment between AT&T;and Apple allowed a degree of integration and flexibility but also control over availability and distribution.
Had Apple had their own wireless bandwidth, this would all be a very different story. But they aren’t an ISP.
Please see the bottom of the WSJ article: “Mr. Kessler is a former hedge-fund manager…” Yeah, I’m going to take any advice on business futures from THIS guy? And the blatant Verizon/Sprint mistake about the Pre should give another clue that Mr. Kessler has an inherent inability to scope the landscape. Give him a show on Fox News, but keep him out of intelligent discourse.
Josh the iMac Guy said:
…”I have signed my last contract! It expired a few months ago and I will not sign another one.”
In today’s mobile market place, that is foolish! You are donating your money to Verizon!
I never let my contract expire without renewing it and getting a new phone in the process. Here’s why.
When you are on a monthly plan (voice, with or without data), you are paying the minimum of $40 for voice, plus $20-30 for data. With AT&T, this is the absolute minimum, and with most other carriers, it is the same; there aren’t any cheaper monthly plans. In other words, if you want a cellphone on a monthly plan, you cannot have it for less than $40 per month. Now, this monthly price includes a subsidy for a phone. When you pay your monthly plan 18 months, part of that money goes towards your free phone. When those 18 months expire, you continue to pay the same money, only now, AT&T (or the carrier of your choice) gets to keep that part. Your monthly bill won’t get reduced, now that you have paid off your phone.
As soon as I become eligible for a new subsidised phone, I order it from AT&T. As soon as I get the phone, I ask AT&T for the unlocking instructions and they always give them to me (8 unlocked phones so far). I immediately sell the old (unlocked) phone on eBay. Usually, it fetches between $100 – 150. That way, I have recovered some of the money I have given AT&T for that phone (nominal subsidy is around $200-250). In the end, my actual phone bill is reduced by $7-10 per month, after the sale of the old phone on eBay. In addition, at any given time, my phone is never older than 18 months, which means that there will never be a period of more than 6 months that my phone would be out or warranty.
Letting your two-year subsidised contract expire without getting a new phone is throwing your hard earned money at your carrier. If for any reason you ever need to get out of your contract before it expires, you can always use one of those contract swapping sites (cellswapper.com, celltradeusa.com). You give your existing subsidised phone away, together with the remainder of your contract and you’re free of any monthly contract and can sign with whomever you wish.
While the author is wrong about “exclusivity” (no, Apple should not be forced to make a CDMA phone), I agree that tying the iPhone to AT&T is bad.
I have no problem with the idea that AT&T subsidizes the phones, making them available to more people. I just want the option to buy the phone from the manufacturer and take it to a compatible network provider.
If I want to use an iPhone, I should be able to go to Apple and pay $599 to get an iPhone and go to T-mobile (a GSM provider) and say, “I want to use this phone on this network.” If the hardware will support it, there’s no reason I shouldn’t be able to do this.
I don’t have a problem with the fact that not all features will be supported. I won’t get 3G speeds because T-Mobile uses a different frequency than AT&T (though it would be good if Apple allowed me to change frequency, if such a thing is possible). I won’t get Visual Voicemail because the provider doesn’t support it (although the provider should be able to get/license the specs from Apple if they want to implement it themselves).
In other words, I can go into AT&T, sign up for their service and get an iPhone for $199 (plus $70/month for two years). Or I can get the specs and info for the iPhone and check with other providers in my area and see what kind of support they offer and buy the phone outright and attach it to their network, with the appropriate caveats.
I think most people will take the “simple” plan. But they at least have an option.
I agree with the author. The data path is like roads. You don’t have each car maker or oil company building their own roads. They are a public good and should be funded like any public good. What we have now is cell phone companies and cable companies and landline companies all trying to build and maintain their own separate toll roads.
Time to recognize data transfer for what it is, a commodity level public good. Let companies develop brilliant apps and sell them, or brilliant hardware that uses the data transfer infrastructure and sell that. Time for America to have a road (data) to every home.
i hate that exclusive deal with AT&T;as well. so, what is new? AT&T;pretty much has spotty coverage where i live.
So, until that opens up… i really could care less about all the crying going on.
Wouldn’t Google Voice have at least been awesome with an iPod Touch? Anyway, i don’t have that either… Just my laptop Mac.
the iPhone Mac will wait.
@David,
An iPhone in France starts at €89 (US$125) for a 3G and €159 (US$224.5) for a 3GS and that’s including a sales tax of 19.6%). Check for yourself,
http://www.laboutique.bouyguestelecom.fr/selection-telephone-mobiles41.html
All contract phones are subsidised in France without the carrier lock in. Please check your facts and backup your arguments before trying to resort to insults.
And for your information I am a member of MENSA http://www.mensa.org/
@David,
Also in France, by law, a carrier must unlock your phone from the network for free if you ask them to after 6 months. You can also break your contract without at anytime without paying a penalty if you can provide a compelling reason for doind so, such as leaving the country.
So much for big bad socialist Europe.
My apologies in advance as this isn’t really a political argument and politics should never be brought into it.
MDN, get a grip. You speculate too far on this Exclusivity issue, and your arguments have no merit. Let me answer your silly questions:
Who’s up next?
– Anyone who competes unfairly according to US and/or international laws.
Maybe the government could take over the U.S. wireless industry, too?
– Not bloody likely. Since wireless carriers charge 40-50% higher than European carriers for plans with greater restictions and fees, however, some regulation is in order.
The idea of a limit to the length of exclusive deals is an intriguing idea. What do you think?
– Damn good idea. Likewise, patents and copyrights should be limited to shorter durations than their current overgenerous limits. Hey, if you want “free market”, then don’t rely on IP protection so that you can have a little monopoly for a while. If you’re so ingenious and innovative, then there is no need at all for government or laws to prevent vultures from stealing your ideas or copying your inventions. Why are anticompetitive exclusive deals (“trusts”, in 19th century lingo) acceptable?
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?
– No, but let’s not gloss over the details. What specific exlusives were Toyota dealers allowed to offer that GM was not?
The big problem with that [limited-term exclusive deals], 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?
– Doubtful that federal law would ever legislate pricing. All a deal time limitation would do to the iPhone is allow other wireless carriers to make deals with Apple — and likely they would have to pay Apple more or offer some other sweetener than the first carrier in order to compete for the business. This is how a free market is supposed to operate, no?
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).
– raging success for keeping a crappy company like AT&T;in the green
Could iPhone be more of a success with government intervention?
– Yes. Other carriers would have to ante up to get Apple’s business. It’s not like any other “exclusive” handheld device is keeping the other carriers competitive.
continued answers to silly MDN questions:
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.
– must we go off into mindless speculation of the worst possible outcome? Fact is, the iPhone rocks. Nothing else is going to compete with it for a few years. However, other carriers DO want to pay Apple a premium to support it, and they can’t, because Apple sold its soul to AT&T;. It was necessary at first to get the iPhone in the hands of the most people in the shortest period of time, but now the time has come to expand beyond AT&T;’s corral. Funny, but laws against exclusive partnerships in Europe work great, and no company suffers — while the consumers benefit immensely.
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?
– No. That’s a misunderstanding of Antitrust law.
How many different devices would Apple be legally bound to produce?
– zero.
How much would that cost Apple?
– zero.
Should the government subsidize Apple with our tax dollars for having to produce compatible iPhones under new laws?
– going off topic again, MDN, aren’t we? Wireless carriers need no subsidation because, with the exception of inept Sprint, they can practically print money.
Would congress require carriers to allow all of iPhone’s features or would they get to alter/exclude those that impact their own services?
– no requirements, no guarantees except that wireless carriers would finally have the chance to deal with Apple rather than being locked out.
What if, even with an iPhone, Sprint keeps hemorrhaging customers?
– then Sprint will lose income. let’s not act too stupid, MDN!
Would Apple have to keep supplying iPhones to carriers with bad service, thereby damaging Apple’s brand?
– of course not. Apple wouldn’t be REQUIRED to do business with any wireless carrier, they would simply not be bound by AT&T;.
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?
– honestly, MDN, you’re losing it. May i suggest that you read and understand anti-exclusivity laws that exist in other nations before speculating on how evil they are. In France, for example: Apple has an exlusivity contract with Orange, which of course allows Orange to offer a “subsidized” iPhone that costs little up front. However, French law requires Apple to make available to the public unlocked iPhones (which, being unsubsidized, are a very expensive single purchase). Law also requires that wireless providers that are compatible with the iPhone support the iPhone, even if they didn’t sell it — they make their money by selling time on their networks. Everyone wins, nobody loses. More freedom than the archaic USA, if I do say so myself.
@ TanZing: good job
@ David: mmmm, mmmmm. Tasty crow. Eat up, arrogant boy.
TanZing,
If you were bright enough to be a member of MENSA, you would see that your example shows how controlling Socialist France is over large businesses.
Squeezing company profits lowers taxes. Lowered taxes reduce social benefits. Reduced social benefits causes more protest riots. It’s a vicious circle in France.
The more you give the rabble, the more the rabble wants.
Tell me how this puts socialist France in a good light.
@ DGUS;
Your lack of comprehension as to what MDN is, is mind boggling (are you a brain dead Liberal Democrat by any chance?).
Never mind, I answered my own question.
@Big Als MBP,
Please explain how a country that overwhelmingly elected a centre-right government is a socialist country?
Please site examples of where company profits have been squeezed and precisely what taxes have been lowered leading to a reduction in social benefits.I think you will find that French big business is doing very well thank you.
http://money.cnn.com/magazines/fortune/global500/2009/countries/France.html
If you do your research, you will find that the rioting that has occured in France have more to do with reaction to police action and friction between different echelons of society rather reduction of social benefits. http://riotsfrance.ssrc.org/Roy/
The baseline principle of the original broadcast (all frequencies) legal code was this: the airways belong to the people. Frequencies could only be leased. The FCC was be the watchdog agency and all licenses had to be renewed through public hearings to guard against monopolistic accretion, price gauging, over commercialization, and incitement to violence. All this went out the window during Reagan and Bush administrations. ATT should be in fear of losing their frequencies, but they are not.
Tower, I must disagree with you. the comparison would be if I went into the Verizon store and demanded a contract with ATT or Sprint. But, a phone is a phone and they can and do work on multiple networks in places like Europe.
I can easily get a no contract prepay phone for $50 a month or less that gives me more talk time, more ‘free’ text message and enough data megabytes to cover my needs. All this at a price that is less than what I pay under the contract. The only thing the contract buys me is a ‘free’ or reduced price phone. The prepay phone might cost me an additional $100. I make this up in 5 to 6 months due to the lower monthly chargesof the prepay plan.
As I said, if Verizon ever decides to do away with my plan, I am going to a prepay.
Apple has the right to sign an exclusive contract with ATT or wish to. I have the right to not buy an iPhone if I cant get it with the provider I want at the price I want. It’s that simple.
@Mike
@TanZing
Bravo! Well done! Good job to both of you!
I’ve had the experience of buying service in France and Japan, and I must say that US carriers are much better. Our prices our pretty low, especially given the coverage areas. Japan and France are tiny compared to the US. Yet they charge about the same as we do. In fact, email or texting with a cell phone is usually how communication is done b/c of the exorbitant cost of voice calls there.
People who state that AT&T;should be forced out of exclusivity with Apple should remember that it’s the exclusivity deal that brought the iPhone deal in the first place. If contracts like this can be torn up, what is the likelihood that they would be created in the future?
Also, please note that AT&T;has over 9 billion dollars invested in bettering its network this year. http://sprintconnection.kansascity.com/?q=node/995