GOOGLE VOICE ILLUMINATES BATTLE FOR DOMINANCE

					Whitaker Associates



GOOGLE VOICE
ILLUMINATES
BATTLE FOR
DOMINANCE
GOOGLE, APPLE, AT&T, SKYPE, AND OTHERS PURSUE STRATEGIES FOR
SUCCESS (Revised)




Stuart M. Whitaker
9/27/2009
                              GOOGLE VOICE ILLUMINATES BATTLE FOR DOMINANCE (Revised)




                                                                       Contents
Highlights ...................................................................................................................................................... 3
Introduction .................................................................................................................................................. 3
Google Voice Explained................................................................................................................................. 4
Long-distance Calling: a Consumer Inducement .......................................................................................... 6
Government Investigation .......................................................................................................................... 10
   FCC Questions, Apple’s Response ........................................................................................................... 10
   FCC Questions, AT&T’s Response ........................................................................................................... 12
   FCC Questions, Google’s Response ......................................................................................................... 15
   Federal Trade Commission (FTC) Action ................................................................................................. 16
   Summary ................................................................................................................................................. 17
A Dog in This Fight....................................................................................................................................... 17

                                                                    Tables
Table 1: Price Comparison ............................................................................................................................ 8
Table 2: Price Range ...................................................................................................................................... 8
Table 3: Price Ranking ................................................................................................................................... 9
Table 4: Top Ten Global Economies .............................................................................................................. 9




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Highlights
    -   Google Voice is a key part of the expansion of the Google “platform;”
    -   Google Voice offers Google powerful monetization opportunities that raise significant privacy
        issues;
    -   Google Voice represents a threat to a variety of businesses, including other publishers, carriers,
        handset providers, enterprise telecommunication equipment providers, and others;
    -   Businesses that find themselves threatened by Google Voice should focus on strategies that
        deliver high consumer value rather than depending on the continuation of unsustainable
        “economic profit.”


Introduction


                             Google says its mission is “to organize the world's information and make it
universally accessible and useful,” and the words “to Google” are now widely understood to mean to
initiate a search. Google is widely recognized as having a dramatic impact on the business of print,
electronic, and voice information services. Google’s support of the Open Handset Alliance’s
development of the Android operating system has often been described as a means by which Google
could ensure mobile access to “Google” information and, by extension, one means to ensure that
Google could monetize mobile search.

Apple’s recent decision to reject Google’s application for its Google Voice application and the
resignation by Google CEO Eric Schmidt from Apple’s board suggests that Google is getting too close to
Apple’s “core.” What prompted Apple to make this decision? One suggestion is that Apple made its
decision because Google Voice violates an iPhone developer prohibition against duplicating iPhone
functionality. Another suggestion is that AT&T influenced Apple’s decision, though AT&T says it doesn’t
control iPhone application approval. Apple’s decision has prompted enquiries from US regulators and is
bringing more attention to Apple and AT&T’s control over mobile services than either company would
like.

Regardless of the precise chain of events that caused Apple to reject Google Voice, the Google Voice
application is just one in a long string of information and communications technology (ICT) innovations
that have eroded various once-profitable markets. The US Federal Communications Commission’s (FCC)
(www.fcc.gov) Carterfone decision in 1968 opened the door to innovation in telecommunications
equipment by permitting the attachment of new devices to the US public telephone network. The
Carterfone principle has not been extended to the US mobile communications industry at least so far
because the mobile industry has successfully argued that such an extension is unnecessary in what the
mobile industry argues is a sufficiently competitive market.

This analysis looks at Google Voice and the collision between Google, Apple, AT&T, and others in the
quest for continued growth.




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Google Voice Explained
We have a Google Voice number and have looked closely at its capabilities. Google Voice is clearly much
more than a simple voice service. Though Google Voice is currently available only by invite, Google is
already promoting Google Voice in a variety of ways, including providing twenty-five free business cards
to every Google Voice user—printed with their Google Voice number, of course (see below).

Like many other Google services, the Google Voice service is distinguished by its external simplicity.
Google describes this service as simply providing one number for all your voice calls and Short
Messenging Service (SMS) messages, providing easy voicemail, and providing a few other "cool things."
(SMS messages are often also referred to as text messages.) Yet for all this simplicity, Google Voice
offers a phenomenally powerful set of features made more powerful by everything that is going on
behind the scenes. Here are the main features of Google Voice:

One Number for All Your Calls and SMS

    -   “Call screening” offers a means of automatically handling incoming calls. Call screening can be
        set to ask for identification either from all unknown callers (those not in your Google address
        book, which is part of your Gmail account) or only from callers who have blocked their caller ID.
        This offers a technological solution to unwanted calls;
    -   “listen in” functions like a home answering machine, allowing you to listen in as a voice message
        is being recorded and, if desired, to begin speaking to the caller at any time while the message is
        being recorded;
    -   “block calls” allows you to selectively enable an official-sounding recording that says "we're
        sorry, you have reached a number that has been disconnected or is no longer in service." This
        feature can only be enabled after a call has been received from the phone you wish to block;
    -   “SMS” allows subscribers to receive and to send SMS messages in the US for free. Messages
        received on your Google Voice number may be automatically retransmitted to one or more
        other phones. Users may reply to messages via SMS from their mobile phone or with a browser
        at Google Voice. Messages are stored in the Google Voice SMS inbox;
    -   “place calls” allows users to originate calls from their Google address book using a browser on a
        computer or mobile phone, from their telephone while using Google Voice voicemail, or from a
        browser to a number that is manually entered. When calling from your computer, Google Voice
        will first call your phone, and then connect to the desired number. Calls to the continental US
        are free. The user’s Google Voice phone number will be used as the outgoing the Caller ID;
    -   “taking calls” allows subscribers to answer any phone that they have configured to ring when
        they receive an incoming call; when a phone is answered, the caller is announced and the
        subscriber is given the option of accepting the call, of sending the caller to voicemail, of listening
        in on the voicemail as it is being recorded, or of accepting the call and recording the
        conversation;
    -   “phone routing” allows subscribers to control handling of incoming calls depending on
        originating number and time of day. Settings may be established for whole groups in your
        address book, or for individual phone numbers. Incoming calls may be sent directly to voicemail,
        to the spam folder, or blocked altogether;
    -   “forwarding” allows for inclusion and configuration of phones to be rung when your Google
        Voice number is called.



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Voicemail with Transcripts

    -   “voicemail transcripts” allows voicemails to be automatically transcribed and sent to your
        voicemail box and to your phone by text;
    -   “listen to voicemail” offers powerful features, including the ability to search voicemail for
        messages by name of the caller, by text in the transcribed message, and by the name or text of
        SMS messages;
    -   “notifications” allows subscribers to receive email and SMS notifications of receipt of new
        voicemail and SMS messages;
    -   “personalized greetings” allows users to record customized greetings for any group or individual
        in your address book;
    -   “share voicemail” allows users to forward the audio and transcribed text of voicemail messages
        via email, to save a copy of voicemail messages to your computer, and to embed voicemail
        messages in a website or blog.

Other “Cool” Things

    -   “conference calling” allows subscribers who are on an existing call to conference in callers who
        call the subscriber’s Google Voice number;
    -   “call record” allows subscribers to turn recording on and off during a call; the audio and a
        transcription of the call will appear in the subscriber’s inbox;
    -   “call switch” allows a subscriber to switch to another registered phone while on a call without a
        break in the connection;
    -   “mobile site” allows subscribers with web-enabled mobile devices that can play mp3 files, to log
        onto www.google.com/voice/m to see and play voicemail, to view contacts, and edit settings;
    -   “GOOG-411” allows subscribers to reach Goog-411 by calling their own Google Voice number,
        and selecting option 3;
    -   “manage groups” allows the creation and management of groups in your address book; other
        settings, such as phone routing, can be configured to operate on entire groups.

Google Voice Problems

While Google Voice represents a radical advance in communication, it is not without its flaws, which
presumably is one reason that it is currently available by invite only. While voice transcription is a great
idea, current quality is too often so poor that the transcripts are useless. We tested the transcription
service by recording the introduction to the Magna Carta. A recording of this call can be heard by
following this link: http://whitaker.com/GoogleVoice.aspx. As you can see by comparing the original text
to the transcribed text, below, the transcription is so poor as to make it useless:

    -   Original Text: "THE GREAT CHARTER OF THE LIBERTIES OF ENGLAND, AND OF THE LIBERTIES OF
        THE FOREST; CONFIRMED BY KING EDWARD, IN THE TWENTY-FIFTH YEAR OF HIS REIGN."
        (www.statutelaw.gov.uk/content.aspx?activeTextDocId=1517519).
    -   Transcribed Text: “The Great charter of the Liberty today and end of the liberties of the
        forest confirmed, biking, Edward in the 25th year. Okay is ring.”




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                    GOOGLE VOICE ILLUMINATES BATTLE FOR DOMINANCE (Revised)


Other problems with Google Voice include:

    -   Voicemail on the web allows search and review of all messages. However, voicemail over a voice
        connection doesn't provide search or review of previously received messages;
    -   Conference calls allows a subscriber to add an incoming caller to an existing call but doesn't
        seem to allow the subscriber to initiate the addition of a new conference participant;
    -   Goog-411 won't send text messages to calls initiated through Google Voice;
    -   While we haven't been able to find a statement specifying the capacity of Google's address
        book, it seems to be less than 2,500: we were unable to import 2,500 records, but succeeded in
        importing 1,600 records.


Long-distance Calling: a Consumer Inducement
US telecommunication tariffs are dramatically different from European tariffs and as a result, consumer
behavior is dramatically different as well. Mobile pricing and minutes of use (MOU) are a case in point.
According to the US FCC’s most recent Annual Report on State of Competition in the Wireless Industry
(January, 2009), the average revenue per minute for US mobile phones was $ 0.06, less than one-third
the average revenue per minute for Western European mobile phones of US$ 0.20. US MOU per
subscriber, at 769, was almost five times Western Europe’s MOU per subscriber, at 161 (2007 data).

We compared the prices for calls originating from Google Voice, AT&T Wireless, and Skype to fixed
numbers and mobile numbers in the ten largest global economies (we also compared pricing to Alaska
and Hawaii, the two US states that are not part of the continental US and to which Google and Skype
charge higher prices than they do to continental US states). For AT&T, we used two tariff rates—their
standard rate, and their discounted rate which is available to AT&T Wireless subscribers for a flat US$
3.99 per month. Skype was included in this analysis because it has become the largest provider of
international (trans-border) voice communications in the world in just five years, capturing 8% of all
international traffic (Telegeography.com).

While Skype’s tremendous growth has been due to its free and low cost pricing, Skype’s pricing
advantage has been lost to Google Voice. For the twenty-one calls that we priced, Google was the
lowest for fifteen calls, while Skype was the lowest for four calls, and AT&T Wireless standard and
discount plans were the lowest for three calls (the numbers add up to twenty-five, more than the
twenty-one calls that are priced, because in some instances, multiple providers offer the same “lowest”
price). We believe that it is unlikely that many individual consumers will switch from one carrier to
another for a 10 to 20% savings on international calls—especially where one carrier may be less
expensive to one destination but more expensive to another destination (though least-cost-routing
applications can automatically route individual calls over the lowest cost network). However, the
consistent price advantage held by Google is likely to gain attention, especially given that Google has
developed a reputation for being free. Google Voice pricing only serves to reinforce Google’s existing
reputation. What’s more, Google offers free calls to the US—the largest market—while Skype charges
US$ 0.021 per minute. Though the US$ 0.021 price per minute differential isn’t huge, “free” is one of the
most powerful four letter words in the English language, and “free” Google Voice calls will have a
powerful impact.

The three calls for which AT&T wireless offers the lowest price are the three calls to the US: continental
US, Alaska, and Hawaii.

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On the upper end of the pricing schedule, the most expensive call, at US$ 3.64 per minute, is one
originating from an AT&T subscriber on a standard rate plan and terminating on a Japanese mobile
phone. The greatest absolute price difference for a call to the same destination is US$ 3.50, found
between a Google Voice call to a Japanese mobile phone at US$ 0.140, and an AT&T Mobile standard
rate call to a Japanese mobile phone, at US$ 3.64. The difference relative price difference for a call to
the same destination is one hundred ten times, found between a Google Voice call to a Chinese landline
at US$ 0.20, and an AT&T Mobile standard rate call to a Chinese landline at US$ 2.170.

While Google Voice will (when it becomes widely available) and Skype currently does attract price-
conscious subscribers, AT&T may find it attractive to maintain its current pricing structure to capture
revenue from price-insensitive customers.

Note: It is also important to point out that Google Voice calls always have two segments, and that a call
entails first a call to the subscriber’s phone, followed by a call to the desired destination. The subscriber
is thus likely to consume minutes on the fixed or wireless network (though VoIP is possible) for which
the subscriber is responsible for payment. The price for this first call segment not reflected in this
analysis.




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Table 1: Price Comparison                           Table 2: Price Range

                  Price Comparison                                    Price Range
Destination       Google Skype AT&T         AT&T    Destination       Min     Max       Max
                                                                                      Max
                  USD      USD     Mob      Mob                                         /
                                                                                      - Min
                                   Disc.    Std.                                        Min
                                   USD      USD     United            0.000 0.021 0.021 NA
United            0.000    0.021 0.000      0.000   States
States                                              United            0.000 0.056 0.056 NA
United            0.040     0.056   0.000   0.000   States Alaska
States Alaska                                       United            0.000 0.021 0.021 NA
United            0.020     0.021   0.000   0.000   States
States                                              Hawaii
Hawaii                                              Japan             0.023   3.490   3.467   151.7
Japan             0.030     0.023   0.090   3.490   Japan Mobile      0.140   3.640   3.500   26.0
Japan Mobile      0.140     0.154   0.240   3.640   China             0.020   2.190   2.170   109.5
China             0.020     0.021   0.150   2.190   China Mobile      0.021   2.280   2.259   108.6
China Mobile      NA        0.021   0.180   2.280   Germany           0.020   1.490   1.470   74.5
Germany           0.020     0.021   0.090   1.490   Germany           0.180   1.660   1.480   9.2
Germany           0.180     0.246   0.260   1.660   Mobile
Mobile                                              France            0.020 1.490 1.470 74.5
France            0.020     0.021   0.090   1.490   France            0.150 1.620 1.470 10.8
France            0.150     0.203   0.220   1.620   Mobile
Mobile                                              United            0.020 1.490 1.470 74.5
United            0.020     0.021   0.080   1.490   Kingdom
Kingdom                                             United            0.190 1.690 1.500 8.9
United            0.190     0.253   0.280   1.690   Kingdom
Kingdom                                             Mobile
Mobile                                              Italy             0.020   1.490   1.470   74.5
Italy             0.020     0.021   0.090   1.490   Italy Mobile      0.250   1.660   1.410   6.6
Italy Mobile      0.250     0.308   0.260   1.660   Russia            0.048   2.290   2.242   47.7
Russia            0.060     0.048   0.200   2.290   Russia            0.071   2.340   2.269   33.0
Russia            0.080     0.071   0.250   2.340   Mobile
Mobile                                              Spain             0.020   1.490   1.470   74.5
Spain             0.020     0.021   0.090   1.490   Spain Mobile      0.190   1.650   1.460   8.7
Spain Mobile      0.190     0.271   0.250   1.650   Brazil            0.040   2.190   2.150   54.8
Brazil            0.040     0.054   0.150   2.190   Brazil Mobile     0.190   2.400   2.210   12.6
Brazil Mobile     0.190     0.213   0.360   2.400




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Table 3: Price Ranking                                 Table 4: Top Ten Global Economies

                   Price Ranking                                              GDP USD B    GDP
Destination        Google Skype AT&T AT&T              National Economy       *            Rank
                   Price    Price Mob Mob              United States          14,265       1
                   Rank     Rank Disc. Std.            Japan                  4,924        2
                                  Price Price          China                  4,402        3
                                  Rank Rank
                                                       Germany                3,668        4
United             1        4     1     1
                                                       France                 2,866        5
States
                                                       United Kingdom         2,674        6
United             3         4       1     1
States Alaska                                          Italy                  2,314        7
United             3         4       1     1           Russia                 1,677        8
States                                                 Spain                  1,612        9
Hawaii                                                 Brazil                 1,573        10
Japan              2         1       3     4           * International Monetary Fund
Japan Mobile       1         2       3     4           (IMF)
China              1         2       3     4
China Mobile       NA        1       2     3
Germany            1         2       3     4
Germany            1         2       3     4
Mobile
France             1         2       3     4
France             1         2       3     4
Mobile
United             1         2       3     4
Kingdom
United             1         2       3     4
Kingdom
Mobile
Italy              1         2       3     4
Italy Mobile       1         3       2     4
Russia             2         1       3     4
Russia             2         1       3     4
Mobile
Spain              1         2       3     4
Spain Mobile       1         3       2     4
Brazil             1         2       3     4
Brazil Mobile      1         2       3     4
Price Leader:      15        4       3     3




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Government Investigation
The US FCC, headed now by Obama appointee chairman Julius Genachowski, is investigating the
arrangements between mobile phone manufacturers and the carriers. The FCC published letters sent by
the Wireless Bureau Acting Chief James Schlichting to the three key players.

Continued profitability often depends on growth from an expanded reach and from delivering an
increasing number of services. When the largest firms in a sector look for increased profitability they will
almost inevitably run across other leading firms in their sector. So it is that Apple, ranked number fifteen
in market capitalization at US$ 165 billion, AT&T, ranked number sixteen at US$ 160 billion, and Google,
ranked at US$ 157 billion (September, 2009), can't avoid competing, partnering, or competing and
partnering with each other in the mobile information space.

In response to FCC Wireless Bureau Acting Chief James Schlicting's request, Apple, AT&T, and Google
each provided information concerning Apple's reported rejection of Google's Google Voice iPhone
application. Though there is some difference in recounting of the specific details, there is no evidence of
collusion between Apple and AT&T against Google. It appears that Apple has sufficient business interest
on its own to reject Google Voice—which Google says Apple had done, though Apple says it is only still
evaluating the application.

FCC Questions, Apple’s Response

Apple says the iPhone established a new standard for an integrated device with a phone, web browser,
HTML email, iPod, and more, and that its App Store offers over 65,000 iPhone applications and has
downloaded over 1.5 billion applications in only one year. Apple says its agreement with AT&T in 2006
gives Apple freedom to decide which software to make available; Apple reviews every application to
protect privacy, safeguard children, and avoid degrading the core experience of the iPhone. Most
rejections are based on bugs; 95% of applications are approved within 14 days of submission. With
respect to specific questions:

Question 1: Why did Apple reject the Google Voice application for iPhone and remove related third-
party applications from its App Store? In addition to Google Voice, which related third-party applications
were removed or have been rejected? Please provide the specific name of each application and the
contact information for the developer.

Response: Apple says it hasn't rejected Google Voice but continues to study it. The application is being
held up because it alters the iPhone’s distinctive experience by replacing the core mobile phone
functionality and user interface. Google Voice would replace Apple's Visual Voicemail by routing calls
through a separate Google Voice number that stores voicemail, preventing voicemail from being stored
on the iPhone; SMS messages would be managed through the Google hub; and the contacts database
would be transferred to Google's servers.

Question 2: Did Apple act alone, or in consultation with AT&T, in deciding to reject the Google Voice
application and related applications? If the latter, please describe the communications between Apple
and AT&T in connection with the decision to reject Google Voice. Are there any contractual conditions
or non-contractual understandings with AT&T that affected Apple’s decision in this matter?

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Response: Apple did not consult with AT&T about this application and says no understandings with
AT&T were a factor in this decision.

Question 3: Does AT&T have any role in the approval of iPhone applications generally (or in certain
cases)? If so, under what circumstances, and what role does it play? What roles are specified in the
contractual provisions between Apple and AT&T (or any non-contractual understandings) regarding the
consideration of particular iPhone applications?

Response: Apple makes the final decision regarding iPhone application, though Apple says there is a
provision in Apple's agreement with AT&T that obligates Apple not to include functionality in any Apple
phones that enables a customer to use AT&T's cellular network for VoIP sessions without AT&T’s
approval. Apple also respects AT&T's customer Terms of Service, which prohibit for example an AT&T
customer from using AT&T's service to redirect a TV signal to an iPhone.

Question 4: Please explain any differences between the Google Voice iPhone application and any Voice
over Internet Protocol (VoIP) applications that Apple has approved for the iPhone. Are any of the
approved VoIP applications allowed to operate on AT&T’s 3G network?

Response: Apple doesn't know if there is a VoIP element to Google Voice. Apple has approved
numerous VoIP applications such as Skype, Nimbuzz, and iCall for use over Wi-Fi but not over AT&T's 3G
network.

Question 5: What other applications have been rejected for use on the iPhone and for what reasons? Is
there a list of prohibited applications or of categories of applications that is provided to potential
vendors/developers? If so, is this posted on the iTunes website or otherwise disclosed to consumers?

Response: Apple provided the following section of its developer agreement providing an example of
prohibited categories of applications:

“Applications may be rejected if they contain content or materials of any kind (text, graphics, images,
photographs, sounds, etc.) that in Apple’s reasonable judgment may be found objectionable, for
example, materials that may be considered obscene, pornographic, or defamatory; and

Applications must not contain any malware, malicious or harmful code, program, or other internal
component (e.g. computer viruses, Trojan horses, ‘backdoors’) which could damage, destroy, or
adversely affect other software, firmware, hardware, data, systems, services, or networks."

Question 6: What are the standards for considering and approving iPhone applications? What is the
approval process for such applications (timing, reasons for rejection, appeal process, etc.)? What is the
percentage of applications that are rejected? What are the major reasons for rejecting an application?

Response: Apple reports that "95% of applications are approved within 14 days of being submitted,"
that it receives 8,500 new applications and updates each week, and that it has reviewed more than
200,000 applications and updates.




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FCC Questions, AT&T’s Response

AT&T says that it had no role in Apple's decision, that it was not asked about the matter by Apple at any
time, nor did it offer any view. AT&T says it doesn't block consumers from accessing any lawful website
on the Internet and that consumers can launch Google Voice and other applications through wireless
devices without need to use the App Store.

AT&T points out that it offers only one component—broad Internet connectivity—necessary for
consumers to use wireless broadband service. The other components are the handset, an operating
system, and an application. Though 700 MHz C Block licensees are subject to "any device / any
application" open access requirements, such requirements do not apply generally. With respect to
specific questions:

Question 1: What role, if any, did AT&T play in Apple’s consideration of the Google Voice and related
applications? What role, if any, does AT&T play in consideration of iPhone applications generally? What
roles are specified in the contractual provisions between Apple and AT&T (or in any non-contractual
understanding between the companies) regarding the consideration of particular iPhone applications?

Response: AT&T says it had no role in consideration of Google Voice. While AT&T isn't usually involved
in App Store discussions, AT&T has had discussions regarding a handful of applications where there were
concerns that the application might create significant network congestions. Discussions were held on
the following:

    -   Audio applications proposed by Pandora and AOL. Apple upgraded its technology for better
        network optimization.
    -   Streaming live audio and video by MobiTV and CBS. MobiTV and CBS modified the application to
        deliver live video, audio, and scores over Wi-Fi, and live audio, still photos, and scores over
        AT&T's 3G network.

While AT&T and Apple agreed that Apple would "not take affirmative steps to enable and iPhone to use
AT&T's wireless services" to make VoIP calls without AT&T's consent, Apple has no obligation to take
action against any third party that may enable an iPhone to make VoIP calls using AT&T's wireless
services. During the course of this agreement, AT&T consented to Apple enabling VoIP applications for
the iPhone that use Wi-Fi connectivity, including AT&T's 20,000 hotspots at no additional charge rather
than AT&T's 2G or 3G service.

AT&T has indicated to Apple that applications that redirect TV signals to an iPhone would violate AT&T's
terms and conditions and Apple indicated that it would not enable such applications for use with such
data service. AT&T does not object to television redirection that uses Wi-Fi connectivity, including
AT&T's 20,000 Wi-Fi hotspots that can be used for no additional charge.

Question 2: Did Apple consult with AT&T in the process of deciding to reject the Google Voice
application? If so, please describe any communications between AT&T and Apple or Google on this
topic, including the parties involved and a summary of any meetings or discussions.

Response: No.



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Question 3: Please explain AT&T’s understanding of any differences between the Google Voice iPhone
application and any Voice over Internet Protocol applications that are currently used on the AT&T
network, either via the iPhone or via handsets other than the iPhone.

Response: While AT&T disclaims direct knowledge, it says it does not believe that Google Voice is a VoIP
application but rather is a collection of different services that Google provides through a browser-based
application on any web-enabled application. AT&T says it understands that these services include a
domestic / international service that performs audio bridging and says it "looks forward" to learning
more about Google's position on the regulatory classification of Google Voice and the intercarrier
compensation applicable to calls made using the Google Voice platform.

Question 4: To AT&T’s knowledge, what other applications have been rejected for use on the iPhone?
Which of these applications were designed to operate on AT&T’s 3G network? What was AT&T’s role in
considering whether such applications would be approved or rejected?

Response: While AT&T isn't normally involved in App Store decisions, it identified three applications that
it was involved with.

The first was an application that retrieved customer usage information from AT&T myWireless website
and incorporated that information into the application. Such activity violated the myWireless terms of
use, which treat customer usage data as proprietary to AT&T and prohibit commercial use by third
parties. The provider withdrew the application.

The second was an application that facilitated access to AT&T Wi-Fi hotspots but bypassed review and
acceptance of AT&T's terms of service. AT&T believes that the application was modified.

The third was an SMS application that delivered a poor quality of service for non-iPhone users. AT&T
believes that the applications had been modified.

Question 5: Please detail any conditions included in AT&T’s agreements or contracts with Apple for the
iPhone related to the certification of applications or any particular application’s ability to use AT&T’s 3G
network.

Response: AT&T’s agreement with Apple for the iPhone was entered into before the App Store existed,
and the agreement does not address certification. Use of AT&T’s 3G network is discussed elsewhere.

Question 6: Are there any terms in AT&T’s customer agreements that limit customer usage of certain
third-party applications? If so, please indicate how consumers are informed of such limitations and
whether such limitations are posted on the iTunes website as well. In general, what is AT&T’s role in
certifying applications on devices that run over AT&T’s 3G network? What, if any, applications require
AT&T’s approval to be added to a device? Are there any differences between AT&T’s treatment of the
iPhone and other devices used on its 3G network?

Response: AT&T's user agreement prohibits subscribers from causing extreme network capacity issues
or interference contains an acceptable use policy. While AT&T certifies applications distributed through
its own MEdiaMall, it does not participate in Apple's iPhone application certification.



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                   GOOGLE VOICE ILLUMINATES BATTLE FOR DOMINANCE (Revised)


Question 7: Please list the services / applications that AT&T provides for the iPhone, and whether there
any similar, competing iPhone applications offered by other providers in Apple’s App Store.

Response: AT&T identified the following applications that it developed and that are available in the App
Store:

    -   AT&T Virtual Receptionist (automated receptionist capabilities for small businesses);
    -   YPmobile (mobile access to YELLOWPAGES.COM);
    -   Mobile Banking on AT&T (online banking services);
    -   AT&T U-verse TV Mobile Remote Access (remote control of DVR functions);
    -   AT&T Navigator (GPS navigation);
    -   AT&T myWireless Mobile;
    -   Have2P (restroom locator);
    -   Have2Eat (restaurant locator);
    -   Have2Drink (locator for coffee shops, bars);
    -   Have2Snack (convenience store locator);
    -   Speak4it (voice activated local search).

Though AT&T is not involved in day-to-day consideration of App Store applications, AT&T identified the
following applications that compete with AT&T's applications:

    -   GPS Navigation: MotionX GPS; NAVIGON MobileNavigator; MapQuest 4 Mobile; Beacon;
        TomTom U.S. & Canada;
    -   Directory Listings: YellowPages; AirYell; WhitePages Mobile; Google Mobile; People; Yelp;
    -   Mobile Banking: Bank of America Mobile Banking; Chase Mobile; Wells Fargo Mobile; PNC
        Mobile Banking; Citi Mobile; IBC Mobile;
    -   Receptionist Functionality: RingCentral Mobile; OmniEx; Avaya One-X mobile;
    -   Restroom Locator: SitOrSquat; Toilet Finder; Central Park NYC - Classic; Imagine Central Park;
        Charleston City Slicker;
    -   Restaurant Locator: Find a Restaurant; Zagat to Go ’09; VegOut – Vegetarian Restaurant Guide;
        McLocator; BBQ Finder; GoodFoodNearYou; Munch; Urban Spoon;
    -   Beverage Locator: Coffee Seeker; Coffee & Café Findrr; iLocate Coffee Shops; FanFinder - Sports
        Bar Locator; The Beer Finder; Barfly; Citysearch; AroundMe;
    -   Convenience Store Locator: Convenience Store; Go-7-11; Mango;
    -   Voice Activated Local Search: Google Mobile;
    -   VoIP: iCall Free VoIP; WalkieTalkieVoIP; Nimbuzz; FriendCaller Instant VoIP; Vopium VoIP Caller;
        Barablu; Call Global App; WCell International; Skype;
    -   Text Messaging: iText Free; Free Texting SMS; Freedom SMS; Textfree Unlimited; Free SMS; Blue
        ShortcutSMS.

Question 8: Do any devices that operate on AT&T’s network allow use of the Google Voice application?
Do any devices that operate on AT&T’s network allow use of other applications that have been rejected
for the iPhone?

Response: Google Voice can be used through the web on AT&T's network. In addition, Google Voice is
available for Blackberries operated on AT&T's network.



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                   GOOGLE VOICE ILLUMINATES BATTLE FOR DOMINANCE (Revised)


Question 9: Please explain whether, on AT&T’s network, consumers’ access to and usage of Google
Voice is disabled on the iPhone but permitted on other handsets, including Research in Motion’s
BlackBerry devices.

Response: See response to Question 8.

FCC Questions, Google’s Response

Most of us like openness and competition—except when we are forced to be open and to compete.
Google’s stated mission—to organize the world's information and make it universally accessible and
useful—doesn’t seem apply to itself, though, as was made clear when Google’s response to the FCC’s
request for information about Google Voice came in marked CONFIDENTIAL, NOT FOR PUBLIC
INSPECTION and accompanied by an original and four copies of Google’s Request for Confidential
Treatment. Google cited section 0.459 of the Commission's rules and the "sensitive nature of
commercial discussions." Under public pressure, including Freedom of Information Act (FOIA) requests,
Google dropped its confidentiality claim and their submission has been made public.

Contradicting Apple’s claims that Google Voice is still being “pondered,” Google says it was informed on
July 7th that Google Voice was being rejected because it duplicates iPhone’s core dialer functionality.
With respect to specific questions:

Question 1: Please provide a description of the proposed Google Voice application for iPhone. What are
the key features, and how does it operate (over a voice or data network, etc.)?

Response: Google Voice is an enhanced voice and data messaging application that provides number
management and related services to users who have one or more existing wireline or mobile phone
services. Google summarized the Google Voice operation, saying that it allows users to use their iPhone
to manage their phone numbers and voicemail, integrate contacts, place outbound calls, and send SMS
messages.

Question 2: What explanation was given (if any) for Apple’s rejection of the Google Voice application
(and for any other Google applications for iPhone that have been rejected, such as Google Latitude)?
Please describe any communications between Google and AT&T or Apple on this topic and a summary of
any meetings or discussion.

Response: Google said Apple informed Google that Google Voice was rejected because the application
duplicated the core dialer functionality and Apple did not want applications that replaced such
functionality. While there was no communication between Google and AT&T on this matter, there were
a number of communications from July 5th to July 28th regarding the Google Voice application
submitted on June 2nd. Alan Eustace, Google Senior VP of Engineering and Research, was informed on
July 7th by Phil Schiller, Apple Senior VP of Worldwide Product Marketing, that Google Voice was being
rejected.

Google said Apple informed it earlier in the year that Google Latitude, a mapping application, was being
rejected because (i) it had the potential to replace the preloaded maps application, (ii) it would create
confusion with the preloaded Google Maps application, and (iii) it would offer new features not on the
preloaded maps application. There were a number of communications from March 5th to April 10th


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                    GOOGLE VOICE ILLUMINATES BATTLE FOR DOMINANCE (Revised)


regarding the Google Latitude application submitted on February 27th. Schiller informed Eustace on
April 10th that Apple was rejecting Google Latitude.

Question 3: Has Apple approved any Google applications for the Apple App Store? If so, what services
do they provide, and, in Google’s opinion, are they similar to any Apple/AT&T-provided applications?

Response: Apple has approved Google Earth, an image application similar to the iPhone maps
application provided by Google, and Google Mobile, which provides text and voice search and access to
other Google services.

Question 4: Does Google have any other proposed applications pending with Apple, and if so, what
services do they provide?

Response: No.

Question 5: Are there other mechanisms by which an iPhone user will be able to access either some or
all of the features of Google Voice? If so, please explain how and to what extent iPhone users can utilize
Google Voice despite the fact that it is not available through Apple’s App Store.

Response: Google Voice can be accessed by a browser and by calling the Google Voice number but with
more limited features. For instance, only the App Store version provides direct access to the iPhone
address book and can dial directly from the application. In addition, the App Store is the most popular
way of accessing iPhone applications.

Question 6: Please provide a description of the standards for considering and approving applications
with respect to Google’s Android platform. What is the approval process for such applications (timing,
reasons for rejection, appeal process, etc.)? What is the percentage of applications that are rejected?
What are the major reasons for rejecting an application?

Response: Google says the Android Market is an open distribution channel and as such there is no pre-
approval process before applications are available for download. There is an automated analysis that
identifies technical issues that would prevent installation by the issuer and that notifies the developer of
these issues, but this process does not screen or reject applications on the basis of content or
functionality. Android applications may also be obtained through any source users choose.

The Android community can flag applications and applications which receive a threshold number of flags
are reviewed.

Applications may be removed if they violate Google's Developer Distribution Agreement (see
www.android.com/us/developer-distribution-agreement.html) or Google's Content Policies (see
www.android.com/market/terms/developer-content-policy.html). Approximately 1% of all applications
have been taken down, primarily for impermissible adult content or in response to Digital Millennium
Copyright Act (DMCA) notices.

Federal Trade Commission (FTC) Action

Separately, US Federal Trade Commission (FTC) Bureau of Competition Director Richard Feinstein
released a statement saying that the FTC has been "investigating the Google / Apple interlocking

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                   GOOGLE VOICE ILLUMINATES BATTLE FOR DOMINANCE (Revised)


directorates issue for some time and commend them for recognizing that sharing directors raises
competitive issues, as Google and Apple increasingly compete with each other . . . we will continue to
investigate remaining interlocking directorates between the companies.”


Summary

It would appear that the Google Voice application presents issues that Apple had not anticipated in its
developer agreement. Apple did not cite any language in its developer agreement that prohibits a
developer from doing what Apple says it objects to, e.g., "altering the iPhone's distinctive user
experience."

While Apple reports that "95% of applications are approved within 14 days of being submitted," it is
unclear whether this means that 95% of all applications are approved in this period, or only that 95% of
the 65,000 approved applications were approved within 14 days. Apple says it receives 8,500 new
applications and updates each week, and has reviewed more than 200,000 applications and updates.

The Google Voice iPhone application, as described by Google, works largely like Google Voice on a PC, as
we have described previously. Two significant operational differences are:

    -   Through the Contacts tab, users can display all their iPhone contacts, select, call, and send SMS
        messages through their Google Voice number;
    -   Users can place calls by typing a number, tapping the call button while viewing voicemails or
        SMS messages, or by selecting a contact through the Contacts tab. This is a subtle but significant
        difference from operation on a PC, which requires two steps--select the call button on the PC
        and then answer the handset, while the iPhone application involves only one step--select the
        call button on the handset.


A Dog in This Fight
Google’s phenomenal growth has made it clear that the “Google effect” reaches far beyond what one
might expect of a mere search engine, that Google is using its search engine strength to provide both
cash and, more importantly, synergies between search and services such as Google Voice to develop
such other services. In the eleven years since Google was incorporated, it has exploded to a market
capitalization only slightly less than that of AT&T, providing Google with tremendous resources to
pursue further expansion. The broad advertising market, including directory publishers and newspapers,
were one of the first groups to feel the “Google Effect.” Telecommunications carriers will be directly
affected by the Google Voice offering. Enterprise telecommunication equipment manufacturers, some
of whom have depended on sales of telephone sets for hundreds of dollars, will experience increasing
pressures as wireless devices, made ever more powerful by Google (and others), continue to displace
wired devices.

Finally, just as the late MCI was once described as a law firm with a telecommunications department,
Google can be described as an advertising-supported publishing firm with a search department. While
on the one hand, many consumers have a general dislike for advertising and go to some lengths to avoid
ads—witness the TiVo phenomenon—on the other hand, consumers—being consumers—do want to
receive information about products and services they are interested in, but only at appropriate times.

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                   GOOGLE VOICE ILLUMINATES BATTLE FOR DOMINANCE (Revised)


Google search is powerful in part because advertisers know something about every user who initiates a
search—at a minimum, advertisers know what the searcher asked. Publishers and their advertisers are
constantly looking for new and better ways to reach and to deliver information to consumers that they
want when they want it. When a Google Voice subscriber uses Google Voice to dial a plumber or
receives a voicemail from the doctor’s office, Google has a treasure trove of information. Given proper
privacy considerations, this information will be ever more valuable. •




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                   GOOGLE VOICE ILLUMINATES BATTLE FOR DOMINANCE (Revised)



Note: we don’t have the juice to invite you to participate in Google Voice, but we would be happy to
explore it with you—just give us a call on our Google Voice number.




Copyright Whitaker Associates, 2009.

Whitaker Associates offers services in a variety of areas, including finance, economics, technology,
analysis, and strategy. Contact us at Info@Whitaker.com or +1 (202) 683-7384 for a free consultation.
wa090927




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