Why AT&T Killed Google Voice

[David Farber <dave () farber net>]

AUGUST 18, 2009, 7:26 P.M. ET
Why AT&T Killed Google Voice
Telecom operators are yesterday's business. It's time for a national  
data policy that encourages innovation.
By ANDY KESSLER
<http://online.wsj.com/article/SB10001424052970204683204574358552882901262.html?mod=rss_opinion_main# 
>

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.
...

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