Apple, Not AT&T, was Behind iPhone Google Voice Rejection

So it turns out AT&T was telling the truth all along: it had nothing to do with Apple's rejection of the Google Voice application for the iPhone.

"Apple is acting alone and has not consulted with AT&T about whether or not to approve the Google Voice application," Apple says on its Web site. "No contractual conditions or non-contractual understandings with AT&T have been a factor in Apple’s decision-making process in this matter."

AT&T has been insistent on this from the start of the controversy. "Let me state unequivocally, AT&T had no role in any decision by Apple to not accept the Google Voice application for inclusion in the Apple App Store," says Jim Cicconi, AT&T senior executive vice president for external and legislative affairs.

To be sure, Apple claims the rejection of the application was because of user interface implications, not a blanket rejection of VoIP or Google's approach to providing services, which is better described as Web activated than VoIP.

Apple says it has not rejected the Google Voice application, and continues to study it. The application has not been approved because, "as submitted for review, it appears to alter the iPhone’s distinctive user experience by replacing the iPhone’s core mobile telephone functionality and Apple user interface with its own user interface for telephone calls, text messaging and voicemail," Apple says.

"AT&T was not asked about the matter by Apple at any time, nor did we offer any view one way or the other," Cicconi said in a statement, accompanying a response to a regulatory inquiry into the rejection of Google's voice application by Apple.

On an iPhone, the “Phone” icon that is always shown at the bottom of the Home Screen launches Apple’s mobile telephone application, providing access to Favorites, Recents, Contacts, a Keypad, and Visual Voicemail.

The Google Voice application replaces Apple’s Visual Voicemail by routing calls through a separate Google Voice telephone number that stores any voicemail, preventing voicemail from being stored on the iPhone, Apple says.

"In addition, the iPhone user’s entire 'Contacts' database is transferred to Google’s servers, and we have yet to obtain any assurances from Google that this data will only be used in appropriate ways," Apple says.

AT&T, Apple and Google have been asked by the Federal Communications Commission for clarification of the issue.

What is interesting is that most observers seemed to think AT&T was behind the ban, attempting to protect its mobile voice business. Some suggested Apple was developing its own voice service.

To be sure, the wording of the Apple statement seems to imply that if the user interface issues and data privacy issues can be worked out, that the Google Voice app would be reconsidered.

In fairness to Apple, its stated reasons for rejecting Google Voice--user interface and functionality--are things the company tends to be meticulous about. Given Apple's past fastidiousness on that score, the initial rejection is not unusual.

What remains to be seen is whether Google Voice can be reconfigured to Google's satisfaction, as well as to Apple's. The big news is that AT&T was not involved in the decision.

Smart Phone Sales Soar, Feature Phones Narrow Gap

Feature phone sales fell five percentage points to 72 percent of new handset sales in the second quarter of 2009, while sales of new smartphones reached 28 percent of overall consumer purchases, a 47 percent increase in the category’s share since last year, according to The NPD Group.

Lower prices appear to be the reason. “Despite their ties to pricey data plans, the rich Internet access capabilities of smart phones are attracting consumers wooed by lower device prices,” says Ross Rubin, NPD Group director of industry analysis.

Overall handset sales volume in the U.S. grew 14 percent year over year in the second quarter, as sales revenue increased 18 percent.

The average selling price of all mobile phones increased four percent year over year, reaching $87.

Wi-Fi capability increased three-fold since last year, with 20 percent of all new handsets equipped with this capability. Touch screens on both feature phones and smartphones grew to 26 percent of all new handsets purchased in the quarter.

QWERTY keyboards were available in 35 percent of handsets sold.

In some ways, the differences between feature phones and smart phones are decreasing, NPD Group says.

“Feature phones are taking on more of the physical characteristics of smartphones, and often offer greater exposure to carrier services,” Rubin says. “Although their user interfaces continue to improve, the depth of their applications generally lags behind those of smartphones. With the price gap between smartphones and feature phones narrowing, to remain competitive feature phones need to develop a better Web experience, drive utility via widgets, and sidestep the applications arms race.”

VoIP Pioneer Elon Ganor Starts New Firm

Former VocalTec CEO Elon Ganor has started a new company, Nucleix, in the life sciences area. You might say it is a case of an entrepreneur doing wht entrepreneurs do: start new companies.

Though anecdotal, you might also conclude something else: venture capital is looking at life sciences more than VoIP, and entrepreneurs are responding to what they see as higher-growth, more-lucrative fields.

It's anecdotal, but possibly telling. Lots of others are focusing on micro-blogging or wireless, especially mobility applications.

Rural Broadband Penetration Close to 100% of Internet Users?

Use of broadbnd in rural areas now is close to 100 percent of Internet users, new data from comScore suggests. In 2007 the U.S. Department of Agriculture Economic Research Service estimated that 63 percent of all rural households had at least one member access the Internet.

If rural broadband penetration now is up to 75 percent, as comScore indicates, that would imply that Internet usage is at least that high, allowing for some households that continue to use dial-up access.

That would seem to have implications both for setting of national broadband policy and policy in rural areas. For starters, the new data suggest that rural broadband is growing robustly, without any additional government activity.

Some might argue that broadband usage remains lower in rural areas than in metro areas, and that remains true. Metro broadband penetration is at 89 percent. But virtually every study has shown that Internet usage also is lower in rural areas.

Broadband pentration in U.S. rural areas increased 16 percent from 2007 to 2009, while metro area broadband penetration grew 11 percent, according to comScore.

In part, that is because rural markets have more room to grow. The analogy is wireless voice growth, which is highest in places such as India, China and Africa, where penetration is lowest.

“With low-speed DSL priced at about the same level as dial-up in many areas, there is little incentive for households to remain on dial-up,” says Brian urutka, comScore VP.

Rural markets with a population less than 10,000 grew broadband penetration by 16 percentage points. Areas with population between 10,000-50,000 grew penetration 14 percentage points while metropolitan areas with populations of 50,000 or more grew penetration by 11 percentage points.

Critics sometimes say that even if access is not a problem, access speeds are, and that is an argument that makes more sense. The issue there, though, quite often is the "middle mile" trunking between major points of presence and the actual rural communities.

Basically, the problem is not the Internet backbones, and not even so much the local access networks, as it is the trunking network to backhaul traffic to the Internet PoPs. Many rural ISPs find, for example, that they have access to a T1 or two T1s in the middle milde. That makes it tough to deliver faster broadband access to customers on the local access networks, for obvious reasons.

The Internet backbone is a firehouse. So are the access networks, for the most part. But the middle mile is a straw.

That isn't to say there are no communities or isolated locations without broadband access availability from at least one terrestrial provider, and two satellite providers. It is to point out that the "problems" often have more to do with trunking facilities than local access, and that any gaps between urban and rural use of the Internet and broadband are rapidly closing.

Cost to Acquire, Sustain, Retain Customers Rising, Execs Say

There is fairly broad agreement among chief marketing officers at global telco, cable, wireless, satellite, Internet service provider and long distance carrier firms that competition is having a huge effect on customer retention, acquisition and broad company strategies, primarily affecting product pricing and customer retention.

Over 84 percent of respondents to a survey conducted by the CMO Council report increases in the cost of acquiring and sustaining customer relationships and, not surprisingly, 63 percent are seeing higher rates of customer churn and attrition.

The new global study by the Customer Experience Board of the Chief Marketing Officer Council also shows that price competition, for example, now is a chief issue. According to 55 percent of respondents, emerging competitors and market disrupters are undercutting or discounting prices, with an additional 37 percent indicating these contenders often target the most lucrative customers.

So there's a new focus on customer experience, as satisfying and retaining current customers is three to 10 times cheaper than acquiring new customers, and a typical company receives around 65 percent of its business from existing customers.

A five percent reduction in the customer defection rate can increase profits by 25 to 80

percent, McKinsey analysts say.

Also, seven out of 10 customers who switch to a competitor do so because of poor

service, McKinsey says. And the small number of customers a firm normally hears from are typically just the tip of the iceberg.

A typical business only hears from four percent of its dissatisfi ed customers, while the other 96

percent leave quietly. Of that 96 percent, 68 percent never reveal their dissatisfaction

because they perceive an attitude of indiff erence in the owner, manager or employee, researchers at the University of Pennsylvania.

In a more-crowded and competitive environment, 56 percent of respondents also say they are finding the task of creating brand preference more difficult. In fact, creating a differentiated presence in the marketplace was seen as the top challenge, overall.

But 55 percent of respondents also say the need for innovation, price pressures and competition from new and adjacent competitors is among the top-five challenges.

About 47 percent of surveyed executives say the need to rapidly develop new services and applications was a top concern as well. Churn likewise was seen as a top issue by 40 percent of executives. Also, 66 percent of executives say churn rates are increasing.

One major trend of key importance for operators of wired networks is a shift to increased wireless dependence, as 36 percent of marketers see a growing shift to wireless-only households and 32 percent see a trend towards wireless dependence for life, work and community tasks.

People Would Give Up Vacations Before Broadband

Recession-hit consumers would sooner give up vacations and dining out than spend less on communications services, Ofcom, the U.K. regulator says. While 47 percent of people would cut back on eating out and 41 percent on vacations, just 19 percent would lower their mobile spending , 16 percent their TV subscriptions and 10 percent broadband.

And while customers are making adjustments, those attitudes seem to mirror what we also have seen in the U.S. market.

Those findings are roughly in line with recent surveys of U.S. consumers, which tend to find that broadband access is the single most-important service.

Does Netflix Model have Legs?

One of the enduring lessons of new technology adoption is that the transition from older patterns to newer patterns can take quite a long time. One of the other lessons is that older ways of doing things sometimes do not fall before the new.

There was a time when TCP/IP was considered a transitional signaling method that would be replaced by the open systems interconnection model promulgated by the International Organization for Standardization. That never happened.

There was a time when Integrated Services Digital Network was seen as a replacement for time division multiplexing networks, on the way to a next generation network based on B-ISDN using asynchronous transfer mode. ATM proved a modest success, but has been eclipsed by IP.

Everybody "knows" that linear video will someday soon be eclipsed, possibly replaced by, Internet-delivered video, consumed on an on-demand basis. So far, that transition is proceeding slowly, which is typical for most technology substitutions.

What is more interesting: the extent to which the Netflix "DVD by mail" channel has more legs than people suspect. Though both the Blockbuster retail model and the Netflix models have been considered "toast" for some years, Netflix keeps defying expectations, even as it readies itself for the digital delivery shift.

Kaufman Bros. analyst Aaron Kessler has raised his rating on Netflix to "buy" from "hold," based at least in part on a survey of 700 Internet users, which found that 20 percent of all respondents that aren’t currently Netflix subscribers plan to sign up for DVD by mail service in the next five years. Repeat: "five years."

Kessler argues that, over the next five years, the country as a whole could reach near 20 percent Netflix subscription penetration.

The “DVD by mail life cycle may be longer than current thinking,” he says. “While we would agree that a large percentage of the DVD rental market will move to digital in the long term, our survey indicates that the current life cycle of physical rentals may be longer than people think."

Specifically, 68 percent of respondents indicated that “the ability to watch videos on the Internet versus renting from a physical store or by mail” is not important to them.

About 26 percent said online video was "somewhat" important and only six percent said it was " "important." Ultimately, much will hinge on how broadly content owners and ISPs support Internet delivery, as well as pricing models they choose to employ.

But it is worth noting how indifferent most users say they are to Internet-delivered on-demand programming compared to retail rental or DVD by mail alternatives.

In the communications and computing business, one always has a fundamental choice: substitute local processing for remote processing, and local storage for remote storage. In other words, one always can make an engineering trade off between communications and local processing and storage.

The "DVD by mail" alternative substitutes local processing for communications (physical media is an alternative to network delivery).

Online video substitututes communications for local resources, in the same way that "broadcast" video substitututes communications for local processing and storage.

Though the conventional wisdom is that users value and want on-demand video, Kessler's survey suggests otherwise. Users don't care as much as we sometimes think. Unlike news, sports and other "real time" content, where immediacy, in fact "shared experience" is important, movie content can be time shifted, place shifted or device shifted with little apparent downside.

That suggests demand for news, sports and other "real time" content will shift to online faster than "non-real time" pre-recorded video.

All of which is a reminder that we all have to be careful about assuming we know very much about what users actually want, how much they value various delivery and consumption channels and what they are willing to pay for experiences.

Netflix might prove to have a longer-lasting future than most of us now think. But that has been true for several years.

Might the same be true for other applications and services most of us assume are "toast?"

Internet Ads Work As Well as TV Ads, says comScore

Internet advertising is just as effective, if not more effective, than traditional TV advertising, comScore has found in a recent study.

Over the course of twelve weeks, online ad campaigns with an average reach of 40 percent of their target segment successfully grew retail sales of the advertised brands by an average of nine percent, says comScore. This compares to an average lift of eight percent for TV advertising as measured by Information Resources, Inc.

About 80 percent of the Internet campaigns showed statistically-significant sales lift, compared to 36 percent of the TV campaigns, comScore says.

The comScore research was based on results from 200,000 panelists who are members of supermarket loyalty programs and whose retail buying behavior was measured through point-of-sale UPC scanners when the panelists presented their membership cards at the checkout lanes of participating supermarket stores.

Those results are for campaigns supporting consumer packaged goods. It is not clear how business-to-business campaigns might compare.

Prepaid Slowdown?

There's a bit of a cloud now hanging over the mobile prepaid segment as some larger prepaid providers have reported financial results that indicate slower growth.

Most-recent MetroPCS, Leap Wireless and Virgin Mobile USA quaterly results show slower customer growth. This will bear watching. Prepaid had been on a tear over the last year or so so investors are a bit rattled by the slowdown.

Prepaid wireless has been much more popular in Europe and elsewhere in the world than in the United States. About 19 percent of U.S. accounts are billed using prepad mechanisms, according to Pali Research.

In Western Europe, the prepaid share of total mobile connections varies significantly by country, but on average it was 57 percent at the end of 2008, according to the Yankee Group. That might decline to 47 percent by 2013.

In developing markets, prepaid dominates. For example, in Latin America prepaid accounts for 84 percent of mobile connections today. Yankee Group is predicting this percentage will remain flat during the next five years.

There are a couple of big questions about the U.S. market. The first is whether users who seem to be migrating to prepaid because of the recession will stay in prepaid mode after the recession ends. The other question is whether the market segments prepaid represents will change. Up to this point prepaid has been aimed at a lower-income user.

But wtih the growth of prepaid unlimited plans in the $45 to $50 range, one wonders how long it can be before smart phones start to become available, enticing users that would otherwise be buyers of post-paid service.

For Mobile Web, "Developed" and "Developing" Markets Are the Same

Is “Developing Market” a meaningless term where it comes to use of the mobile Web? Declan Lonergan, Yankee Group analyst, thinks so. That doesn't mean the markets are identical. Developing markets rely on handsets whose monthly cost is $5, developed market users often pay $40 to $80 a month.

Despite those differences, consumers everywhere want access to the mobile Web. When they get it, their usage profiles are surprisingly consistent, Longergan says.

The top 10 countries for Opera Mini usage during June 2009 were Russia, Indonesia, India, China, Ukraine, South Africa, U.S., U.K., Poland and Nigeria. India continued to move up the rankings, overtaking China for third place, Opera reports. These results demonstrate the huge appetite for access to the mobile Web in developing markets.

Yankee Group in 2008 found use of the top-10 most popular mobile phone services were almost identical in developed and developing regions.

Penetration of mobile Web browsing in the Gulf (11 percent) and in Europe (14 percent) was also very close.

América Móvil (AMX) as a point of reference. AMX is a leading provider of mobile services in Latin America, with subsidiaries in 18 countries including Brazil, Argentina and Colombia. As of June 30, 2009, it had more than 190 million mobile customers and three million land lines in the Americas. In most countries, AMX targets primarily low-ARPU prepaid customers. It has 42 percent mobile customer market share in Latin America. Its closest challenger is Telefonica with 29 percent.

The differences between developed and developing markets are small, Lonergan says. The most successful services are consistently messaging (dominated by SMS), mobile broadband, personalization (ringtones) and mobile Web. Mobile Web use is being driven by consumers accessing social networking sites like Facebook.

AMX is emphasizing mobile social networking by providing access to brands like Facebook, MySpace and Orkut (Google) in Brazil. It also offers branded chat, photo and video blog services. AMX’s subsidiaries Telcel and Comcel provide public photo- and video-sharing sites.

Telcel offers a B2C interface that allows amateur contributions to be uploaded and purchased.

The most frequently visited sites by customers using Vodafone’s mobile Internet service are Facebook, Google, BBC, YouTube, Windows Live, Bebo and eBay "We can conclude, therefore, that operators in developing and developed markets are offering broadly similar MI service portfolios," says Lonergan.

But some differences will persist, particularly when we focus on the least advanced markets. The use of SMS is one example. In sub-Saharan Africa, SMS remains a critical platform for service innovation and will continue to be the focal point for local entrepreneurial initiatives.

Mobile data services account for 15 percent of AMX’s revenue today while European operators typically achieve 20 to 30 percent.

"In our conversations with various players throughout developing regions, we have heard evidence of average consumption of up to 1.5 GB per month per user," says Lonergan. "This is close to levels generally seen among low-end users on land line connections."

How Long Before Mobiles Eclipse PCs as Internet Platform?

It long has been the conventional wisdom that mobile phones will be the way most people in developing markets access the Internet. And though that likely will not prove true in developed markets, it does seem inevitable that a significant percentage of total Internet and Web usage originates from smart phones.

Whether it is ultimately 25 percent or 50 percent of usage that is initiated from mobiles is not clear. What is clear is that the percentage of Web and Internet application usage from mobiles is growing with no natural limit in sight.

And at least some observers think 2010 could be the year more sessions originate from mobiles than from PCs. To be sure, that prediction assumes heavy use of social networking, instant messaging and other communications activities, plus Web-based entertainment, will drive mobile Web activities.

The prediction likely would not be correct if one counted the length of sessions or Web browsing activities. But social networking is an application growing fast, and which is ideally suited for mobile sharing and updating.

Demand for smart phones will make up 70 per cent of new device sales by 2012, while sales of "mid-tier" feature phones declines, according to researchers at Gartner.

Worldwide mobile phone sales totalled 286.1 million units in the second quarter of 2009, a 6.1 per cent decrease from the second quarter of 2008, but smart phone sales surpassed 40 million units, a 27 per cent increase from the same period last year, representing the fastest-growing segment of the mobile-devices market.

Leap Wireless Applies for Stimulus Funds

Though major telcos and cable companies, as well as many independent rural telcos seem to be passing on applying for broadband stimulus funds, it appears wireless firms are active.

Leap Wireless says it has applied for a grant to supply 23,000 low-income families in Baltimore, Houston, Memphis, San Diego and Washington, D.C. broadband access and digital literacy training.

Yonder Media, a Reno-based wireless broadband provider to rural communities, also has applied for funds to deploy 150 3G rural wireless broadband networks, serving 400 communities.

Qwest, Comcast, AT&T and Verizon did not apply, and that was not unexpected. The Rural Utilities Service rules generally bar firms such as Qwest from applying for support for their rural operations if they also serve at least one metro market in a state. And none of the major providers were too happy about strings attached to the receipt of funds, which affect the business models and practices the companies can use.

Level 3 Communications likely will apply for funds to support middle-mile facilities that can be used by local access providers.

Sprint Launches 4G in Las Vegas, Atlanta and Portland, Ore.

Sprint Nextel has launch its 4G mobile broadband service in Las Vegas, Atlanta and Portland metro areas. The service offers peak downlink speeds of more than 10 Mbps and average downlink speeds of 3 Mbps to 6 Mbps, three to five times faster than the 3G service offered by any carrier today, based on average download speeds, and without bandwidth caps, for $70 a month.

If you are a typical 3G user the unlimited service won't mean that much. Few 3G users use anywhere near the 5 Gbyte monthly cap, costing $60 a month.

Heavy video users might want to consider it, though. The additonal bandwidth is more than adequate for quality video viewing, and the lack of a cap means you won't have to worry about blasting through your cap.

Of course, the decision also depends on where you live, and where you use mobile broadband. If you are a road warrior, the coverage simply isn't wide enough to be of exceptional use, though the modem also will allow you to use the Sprint 3G network anyplace there is 3G service.

For users who normally use 3G, Sprint Nextel offers a $10 a day pass that allows 4G access when a user is in an activated market.

DirecTV Launches Broadband-Only Sunday Ticket

Broadband access providers rightly are concerned that their big broadband pipes over time will allow users to bypass service provider voice and video services, and DirecTV just fired a limited shot in that direction.

Though direct competition from Hulu and other sites is a bit muted since those services typically make sure online content is not made available at the same time the same content is showing on the linear networks, the new Sunday Ticket package will do precisely that.

Though I frankly don't know how DirecTV is going to ascertain which consumers, in which locations, actually cannot get a DirecTV signal, users who are in that predicament will be able to buy the National Football League "Sunday Ticket" package as a stand-alone, without paying for a subscription to DirecTV's other linear video offerings, and have that programming delivered over their broadband Internet access connections.

There will be some locations where landlords or property associations may not allow satellite dishes, which might be easier to ascertain. But it will be harder to determine, without a site visit, where direct line of sight is not available.

The new offering is an "over the top" service that does not require DirecTV to pay a cent to the broadband access providers whose access services are used to support it.

The package will sell for $349, $100 more than most DirecTV subscribers pay.

O2 Germany Now Fully Supports Mobile VoIP

Generally speaking, potentially-disruptive innovation in the mobile business happens when a smaller provider launches new assaults. That appears to be the case in the German mobile market, as Telefónica's O2 Germany business launches mobile Internet packages that allow users total access to VoIP services at no extra charge.

The operator is pushing two data plans in particluar: Internet-Pack-M and Internet-Pack-L. Pack M gives the subscriber a data limit of 200 MB per month for 10 euros. The larger plan, Internet Pack L, increases this limit to 5 GBytes for 25 euros a month. Neither of the plans actually cuts users off when they hit those limits, but connection speeds are reduced.

“We operate one of the most modern and most rapid mobile data networks in Europe and our customers are to experience it without limitations, no matter whether they surf, email, use instant messaging or make phone calls”, says Lutz Schüler, Managing Director Marketing & Sales, Telefónica O2 Germany. “By opening our mobile high-speed network for VoIP services, we set new standards in the area of the mobile internet.”

The issue in the U.S. market is probably when, not "if" some provider ultimately will decide to take that gamble as well. And it might not even be an upstart provider, though that likely makes the most sense. At some point, leading providers with their own termination facilities and backbone networks might well conclude that it makes sense to do so.

When AT&T launched its "Digital One Rate" plan, which eliminated the distinction between local and long distance calls, it revolutionized pricing industry wide.

Sprint Nextel and Clearwire would seem perennial candidates to launch a disruptive attack, in part because they have no landline voice revenues to cannibalize.

That was one reason AT&T thought Digital One Rate would work (before its acquisition by or merger with SBC Communications, AT&T had no significant local access customers, and none supported over owned facilities).

Right now the leading providers probably are right in concluding they are better off avoiding such disruption. Voice revenues still are too important to risk. But that will change with time. And then an O2-style move will make more sense.