OPINION
AUGUST 19, 2009
Why AT&T Killed Google Voice
By ANDY KESSLER
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. It's about time.
With Google Voice, you have one Google phone number that callers use to reach you, and you pick
up whichever phone—office, home or cellular—rings. You can screen calls, listen in before
answering, record calls, read transcripts of your voicemails, and do free conference calls.
Domestic calls and texting are free, and international calls to Europe are two cents a minute.
In other words, a unified voice system, something a real phone company should have offered years
ago.
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. It takes not much more than 10 kilobits per second of
data to handle voice. In a world of megabit per-second connections, that's nothing—hence
Google's proposal to offer voice calls for no cost and heap on features galore.
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.
For the latest quarter, AT&T reported local voice revenue down 12%, long distance down 15%. With
customers unplugging home phones and using flat-rate Internet services for long-distance calls
(again, voice is just data), AT&T's wireline operating income is down 36%. Even in the wireless
segment, which grew 10% overall, per-customer voice revenue is down 7%.
Wireless data service is AT&T's only bright spot, up a whopping 26% per customer. How so? As any
parent of teenagers knows, text messages are 20 cents each, or $5,000 per megabyte. After the
first month and a $320 bill, we all pony up $10 a month for unlimited texting plans. Same for
Internet access. 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.
Aren't there phone competitors to knock down the price? Hardly. Verizon Wireless, T-Mobile and
others all joined AT&T in bidding huge amounts for wireless spectrum in FCC auctions, some
$70-plus billion since the mid-1990s. That all gets passed along to you and me in the form of
higher fees and friendly oligopolies that don't much compete on price. Google Voice is the new
competition.
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.
It wouldn't be so bad if we were just overpaying for our mobile plans. Americans are used to
that—see mail, milk and medicine. But 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.
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. Any device should work on any network. Data flows
freely.
• Transition away from "owning" airwaves. 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. Cellphone coverage from huge cell
towers will naturally migrate seamlessly into offices and even homes via Wi-Fi networking. No
more dropped calls in the bathroom.
• End municipal exclusivity deals for cable companies. TV channels are like voice pipes, part of
an era that is about to pass. A little competition for cable will help the transition to paying
for shows instead of overpaying for little-watched networks. Competition brings de facto network
neutrality and open access (if you don't like one service blocking apps, use another), thus one
less set of artificial rules to be gamed.
• 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.
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.
Data is toxic to old communications and media pipes. Instead, data gains value as it hops around
in the packets that make up the Internet structure. New services like Twitter don't need to file
with the FCC.
And new features for apps like Google Voice are only limited by the imagination. Mother-in-law
location alerts? Video messaging? Whatever. The FCC better not treat AT&T and Verizon like
Citigroup, GM and the Post Office. Cellphone operators aren't too big to fail. Rather, the
telecom sector is too important to be allowed to hold back the rest of us.
—Mr. Kessler, a former hedge-fund manager, is the author of "How We Got Here" (Collins, 2005).
Printed in The Wall Street Journal, page A15
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
http://online.wsj.com/article/SB20001424052970204683204574358552882901262.html
*************************************************************************
** List info, subscription management, list rules, archives, privacy **
** policy, calmness, a member map, and more at http://www.cguys.org/ **
*************************************************************************