Apple 2.0

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What AT&T's bombshell means for Apple

October 7, 2009: 8:22 AM ET
Skype on the iPhone. Photo: iTunes

Skype on the iPhone. Photo: iTunes

AT&T's (T) surprise decision Tuesday to reverse course and permit low-cost Internet calls over its cellular network is good news for iPhone owners, but it leaves Apple (AAPL) with some explaining to do.

Apple was quick to welcome AT&T's change of heart. "We are very happy that AT&T is now supporting VoIP [Voice over Internet Protocol] applications," said Apple spokeswoman Natalie Kerris. She promised that the company would get updated versions of Internet-calling apps -- such as those made by Vonage (VG) and eBay's (EBAY) Skype -- up on the iPhone App Store soon as possible.

But Apple had nothing new to say about Google (GOOG) Voice, the high-profile telephone management application that Apple declined to approve last August -- triggering a government inquiry that revealed that it was Apple, not AT&T, that blocked it.

So why is Apple OK with Skype and Vonage, but not with Google Voice?

Many observers have commented on the inconsistency, but none more bluntly than TechCrunch's Michael Arrington.

First some background. Skype and Vonage use the Internet to carry voice and video conversations between computers and cellphones, allowing callers to avoid paying long-distance charges or local connection fees to AT&T and the other remnants of Ma Bell's old telephone monopoly. AT&T didn't object to these calls being made over Wi-Fi networks, which have limited range, but it resisted letting the apps work over its cellular network until pressure from the Obama Administration's FCC finally forced its hand.

Google Voice is a another story. It's a comprehensive phone management system that allows users to consolidate all their telephone accounts into a single phone number and then use a variety of sophisticated tools for managing voice mail, away messages, etc. Because it still requires a regular cellphone voice link, AT&T doesn't consider it a VoIP service, and the carrier insists it had no hand in the app's rejection.

That was Apple's doing -- although the company still says, despite evidence to the contrary, that it never rejected Google Voice and is, in fact, still considering it.

The problem Apple had with Google Voice, according to the company's response to the FCC inquiry, was that the app replaced the iPhone's "core mobile telephone functionality and Apple user interface with its own user interface for telephone calls."

The problem with that explanation, as Arrington points out, is that the same is true of Vonage and to a lesser extent Skype. Both replace the iPhone's core mobile telephone functionality and user interface with their own.

"The truth is this," writes Arrington in an article entitled Apple Isn't Even Bothering To Lie Anymore, "Apple isn't threatened by Vonage...

"We all know that the real reason Apple won't let Google Voice through is that they are scared out of their mind that Android and Google Voice will eat their iPhone lunch over the long term. Apple can't win the fight over the long term, but they sure are willing to say and do anything in the short term to stop the advance of Google."

Unless Apple relents and does for Google Voice what it did for Vonage and Skype, the company makes it look like Arrington is right -- that Apple will do anything to stop the advance of Google.

In this context comes Google and Verizon's announcement Tuesday that they are bringing Google's Android operating system -- and its Google Voice app -- to Verizon's network.

The pressure on Apple is mounting, although with an installed base of 30 million iPhones and 85,000 apps, it still has the upper hand.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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