AT&T made weblines yesterday with their unexpected news that they would open up their data 3G network to voice applications. The cell phone and desk phone have experienced similar evolution paths. On the desk (via PBX), first there was simple analog. PBX makers then offered digital phones with more features over voice grade physical cabling, and then (presently) the systems migrated to IP phones over a converged network. Cell phones started off in analog, then moved to a better quality digital technology, and eventually are expected to become pure data networking devices supporting voice over a packet network technology (4G?). Cell phones today are still in the middle step.
The difference between a normal phone and a great phone (or network) is its data capabilities. The way we use our cell phones is dramatically changing--we want data and more data. Communication paths are migrating from audible to textual; Twitter, Facebook, SMS, MMS, Email, and more. Don't want to use your phone for calls, there's an app for that. As we consume bandwidth, the carriers can charge more.
The problem AT&T had was people are installing all kinds of wonderful applications on their phones, in fact this is the very reason why the phones are so popular. But some of these applications can provide voice services. In theory, you could drop/decrease calling minutes for a lower plan and migrate calls to the unlimited data network.
As JP Morgan analyst Mike McCormack notes, voice accounts for $50-$60 of the $95 in monthly revenue generated by the typical iPhone user. If the average user were to drop AT&T's unlimited voice plan ($99.99/month) in favor of its cheapest ($39.99/month), the carrier could lose upward of 20 percent of voice revenue.
This is why no one really expected AT&T to allow voice services over the data network. Everyone seemed to understand that doing so would have a bad impact to their revenue model. But that's no excuse. Business models change, resistance is futile. I give credit to AT&T for realizing that and accepting it head-on. IP in particular is something to take seriously - market after market demonstrates that fighting IP is a losing battle. Microsoft fought TCP/IP on the desktop and the Internet in general - all the way up until they embraced it and led the world with the number one browser.
When business models change, there can be lots of disruption. But in this case, the only shift is one wireless technology to another. The wireless carriers are not too scared. I don't see a lot of risk in this AT&T decision. The perceived fear is that customers will use the unlimited IP network instead of more expensive (precious) calling minutes. I don't think so, and here is why:
1. We are talking Apple iPhone users. If they wanted things complicated they wouldn't be on the iPhone. Setting up a VoIP client and service and making calls to save some money on long distance is not the M.O. of the group that bought the single most expensive cell phone on the planet.
2. Although Apple blocked the actual iPhone application, Google Voice today works with iPhones (all cell phones) and can be used for inexpensive international calling. Google Voice does not use the data network, but does provide cell phone customers a fairly inexpensive way to make international calls. The point is that this announcement does not suddenly break the monopoly on expensive international dialing.
3. It isn't an unlimited data plan. In fact, the AT&T data network (as any iPhone user will tell you) is highly limited. Voice over 3G will not be comparable to voice minutes. It will be a fun curiosity, but it isn't practical enough for a major shift.
4. Maybe the above points are wrong, and by the end of the year calling on voice minutes will be considered "so 2009". In that case, AT&T will change their rates. It is arguably already backwards (customers actually place more value on the data than the voice). Sometime, in the not so distant future don't be surprised by a plan that offers metered data and unlimited voice.
Not only is there little risk in AT&Ts decision, actually there is quite a bit of upside.
1. The iPhone development community is the largest within the mobile space. It is clear the apps drive sales, and the iPhone has been great for Apple and by association AT&T. It isn't clear (and soon will be) if iPhone customers will stay with AT&T once there is a choice. Verizon and Google announced new applications that will work only on Verizon. AT&T needs to attract developers to create applications that are attached to their network.
2. Voice over packet wireless is going to be increasingly important. AT&T will start to collect information about network performance and application demands.
3. Most likely other carriers will be making similar announcements. AT&T has enough PR problems - better be early than late.
The reality is that AT&T has received favorable press over this risk free announcement. A break they needed. A large number of Android phones are being introduced this year end. Verizon has started their attack ads (there is a map for that) and expectations of the end of iPhone exclusivity are high. They need to break out with innovative news and services, and this was an easy one. Expect more.
