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 Sprint, 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.