Google Voice, Apple and ATT

There is an increasing buzz around Apple's "rejection" of the Google Voice application for the iPhone. Andy Kessler, writing in the Wall Street Journal, lays out the usual case against Apple. Apple meanwhile has denied that it even rejected the app -- claiming it is just studying the issue -- and denies talking to its partner AT&T about it. See this article by Saul Hansell in the NYT, for instance.

There are many interesting aspects to this case, all worthy of careful thought.

One of my first reactions is: history does repeat itself. Many years ago, a startup long distance company called MCI forced AT&T, then the sole long distance carrier in the US, to allow MCI access to its trunk lines. MCI had a business model of leasing lines from AT&T and selling long distance service to business customers at a significantly lower price than AT&T. At least initially, AT&T did not want to lease lines to entrants like MCI, for obvious reasons.

This case also smells a bit like the big antitrust case against Microsoft, particularly in regard to the claim that Microsoft forced computer sellers to put only Internet Explorer on their desktops.

So the claim against Apple/AT&T is essentially one of creating barriers to entry through exclusion. (Besides the antitrust issues here, there are the usual "free internet" folks who hate to see any kind of proprietary/exclusionary activity on the internet.)

There are of course some serious differences in these situations, and I certainly don't agree with all of the antitrust claims against Microsoft anyway.

Both Apple and AT&T potentially have something to lose from the Google Voice app. (The app is pretty neat, one has to admit. It consolidates all one's phone numbers in one Google phone number, allows free domestic calls and text messages, cheap international calls, and some other very nice service features. It is available as a standalone service; the current controversy concerns only the offering of Google Voice via an iPhone application.) Apple may have a concern about Google gaining a foothold in the mobile phone market -- similar to claims that Microsoft by excluding Netscape was trying to protect its operating system market. AT&T's concerns are more direct: if its customers use Google Voice for texts and calls, it loses revenues immediately.

Apple/AT&T have several defenses that are very credible. Foremost would be the simple argument that Google is freeriding. Apple and AT&T have invested to build the iPhone business, and are continuing to invest to make it better (such as -- listen up, AT&T -- getting 3G service in places like Hanover). In order to recoup those costs, AT&T has to charge somehow. Demand elasticities make the pricing of things like international calls, and maybe text messaging, the best place to extract revenues. Along comes Google, essentially saying, "thank you very much for building this platform and discovering all these customers; now I will simply go in-between you and the customer and offer them a better deal." Google of course does not need to recover the costs of that big national wireless network of AT&T's, which is one of the major factors giving such a large customer base to the iPhone.

Imagine Coca Cola building up a customer base who love the taste of its product, and acquiring a fully owned/integrated bottler network to distribute its product. How would we feel in forcing Coke to let a coke imitator use the Coke bottling network to distribute its free-riding product to Coke's customers?

Apple and AT&T also do not have the kind of market power that one might have ascribed to AT&T of old and even Microsoft. There are numerous competitors to the iPhone, and there are good competitors for the AT&T network as well. Just look at RIM and Verizon. What we have going on is really a very healthy competition between different mobile phone platforms. Apple, true to form, is going with a fully integrated model (well, AT&T is not owned by Apple but it is a pretty tight partnership). RIM/Blackberry and others are more like the Microsoft/Windows model: don't worry so much about a fully integrated system, instead let competition at each stage determine the best parts and "hope" that they work together well. Why would we want the government to get involved in this battle that should be determined by the consumer? If consumers don't like the Apple/AT&T exclusionary model, then let them eat cake...oops, sorry, I mean let them buy a Blackberry and sign up with Verizon.

I do think though that AT&T in particular needs to be careful about its pricing of some services. It's international roaming rates are horrendously high, for example. One of the beauties of the iPhone/AT&T deal is unlimited internet access and virtually unlimited domestic calls and text messages (with the right plan). For some customers, however, I suspect the global charges are going to be the margin where purchase decisions are made.