I've written in the past about the usefulness of the Skype app when you are traveling internationally. If you find WiFi in another country, the Skype app lets you use VoIP (voice over internet protocol) to dial home for just pennies and avoid the exorbitant roaming fees associated with using the cell phone service of a provider in another country to call home. But when here in the U.S., the usefulness of an app like Skype was limited by the WiFi requirement. You could place calls from the U.S. to other countries using Skype's relatively cheap plans, but only when you had WiFi access. You couldn't use a VoIP app such as Skype with AT&T's wireless service because AT&T viewed those services as competitors. Even with the WiFi-only restriction, Skype has been very popular; the company revealed yesterday that Skype has been downloaded to 10% of all iPhone and iPod touch devices. (Apple recently announced that 50 million devices have been sold, so that's 5 million Skype downloads.)
A few months ago, when the FCC asked Apple, AT&T and Google to respond to questions relating to the Google Voice app for the iPhone, AT&T wrote extensively about why it was fair for AT&T to prohibit iPhone VoIP apps (see the bottom of this post), although AT&T did end its defense by saying that it "regularly reviews its policies" and that it planned to "take a fresh look at possibly authorizing VoIP capabilities on the iPhone for use on AT&T's 3G network."
Apparently, AT&T wasn't just blowing smoke. About six weeks after AT&T wrote to the FCC, AT&T announced yesterday that it reversed its policy and will now let VoIP apps such as Skype use the AT&T wireless network. Thus, if you want to use your iPhone to make a call from the U.S. to another country, you can use services other than AT&T to try to save money on the call. I presume you can also use VoIP to make unlimited domestic calls without using up the minutes on your AT&T plan.
Skype is not the only iPhone VoIP app that will now be able to work without WiFi. Earlier this week, Vonage released an iPhone app that lets you make cheaper international calls. Some are unhappy with the app because it requires the user to establish a new account, so existing Vonage customers cannot use it with their current service.
It's nice to have choices, and now if you want to use your iPhone to make international phone calls, AT&T's policy's change gives you more flexibility.
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The following is of just historical importance now, but it is interesting to read AT&T's justification for not allowing iPhone VoIP apps now that the company has reversed that position. If you want more context, you can view the entire August 21, 2009 letter from AT&T to the FCC in PDF format on the FCC website by clicking here, but here is the part that discusses VoIP:
It is widely recognized by economists and jurists that parties to strategic alliances in competitive markets may enter into contracts to promote and protect their respective business interests and to refrain from taking actions adverse to those interests.12 Consistent with such lawful, economically efficient practices common among parties to strategic alliances, including participants in the mobile wireless marketplace,13 AT&T and Apple agreed that Apple would not take affirmative steps to enable an iPhone to use AT&T’s wireless service (including 2G, 3G and Wi-Fi) to make VoIP calls without first obtaining AT&T’s consent. AT&T and Apple also agreed, however, that if a third party enables an iPhone to make VoIP calls using AT&T’s wireless service, Apple would have no obligation to take action against that third party.
The parties’ concurrence on this provision was particularly important in light of the risks the parties assumed in bringing the iPhone to market. From the beginning, both AT&T and Apple recognized that each party would need to invest substantial capital and other resources to successfully develop, market and support the iPhone – a product with unprecedented features and capabilities from a manufacturer that had never before built a wireless phone.14 AT&T and Apple also recognized their mutual interest in stimulating sales in the highly competitive wireless marketplace by offering consumers the iPhone at an attractive retail price.
The parties’ willingness and ability to assume the risk of their investments in the iPhone and of their pricing strategy were predicated, in significant part, on certain assumptions about the monthly service revenues that would be generated by iPhone users. In particular, both parties required assurances that the revenues from the AT&T voice plans available to iPhone customers would not be reduced by enabling VoIP calling functionality on the iPhone. Thus, AT&T and Apple agreed that Apple would not take affirmative steps to enable an iPhone to use AT&T’s wireless service to make VoIP calls.
Without this arrangement, the prices consumers pay for the iPhone – particularly the broadband-enabled iPhone 3G – would likely have been higher than they are today. Indeed, AT&T offers the iPhone 3G to consumers at a price significantly below its cost as a result of the largest subsidy AT&T has ever provided on a wireless handset, on both a per-unit and aggregate basis.15 That subsidy has made the iPhone accessible to millions of consumers, at prices as low as $99 per iPhone 3G. Those consumers are taking advantage of its revolutionary features and capabilities for a wireless broadband Internet access experience that was not previously possible on any other handset. As a result, iPhone customers use their handset for broadband Internet access to a far greater degree than do customers of any other AT&T phone. As competitors roll out their own “iPhone killers,” customers of other phones undoubtedly will follow suit. In this sense, the iPhone and the subsidies that were instrumental in popularizing it, helped to spawn a sea-change in the way Americans access the broadband Internet.
During the course of the agreement, AT&T indicated to Apple that it does not object to Apple enabling VoIP applications for the iPhone that use Wi-Fi connectivity (including connectivity at more than 20,000 Wi-Fi hotspots operated by AT&T that may be used by iPhone customers for no additional charge) rather than AT&T’s 2G or 3G wireless data services. Although AT&T has no involvement in producing Apple’s iPhone Software Development Kit (SDK), which establishes the iPhone functionalities accessible to application developers, AT&T understands that the SDK enables application providers to develop VoIP applications that use the iPhone’s Wi-Fi capabilities and that such applications are currently available in the Apple App Store.
As noted above, AT&T regularly reviews its policies regarding features and capabilities available through the devices we offer in order to provide an attractive range of options for our customers. Consistent with this approach, we plan to take a fresh look at possibly authorizing VoIP capabilities on the iPhone for use on AT&T’s 3G network. AT&T will promptly update the Commission regarding any such change in its policies.
Footnotes:
12 See Continental T.V. v. GTE Sylvania, 433 U.S. 36, 54-55, 57-58 (1977) (“Vertical restrictions promote interbrand competition by allowing the manufacturer to achieve certain efficiencies in the distribution of his products. These ‘redeeming virtues’ are implicit in every decision sustaining vertical restrictions under the rule of reason. Economists have identified a number of ways in which manufacturers can use such restrictions to compete more effectively against other manufacturers” – such as inducing retailers to make “investment of capital and labor” or “engage in promotional activities,” as well as ensuring product quality and preventing free riding. “Such restrictions, in varying forms, are widely used in our free market economy. . . . [T]here is substantial scholarly and judicial authority supporting their economic utility. There is relatively little authority to the contrary.”). See also Richard J. Wegener, et al, Restricted Distribution 2009: Thirtysomething Sylvania and the State of Non-Price Vertical Restraints, American Law Institute – American Bar Association, SP050 ALI-ABA 43 (March 2009); William J. Kolasky, Jr., Antitrust Enforcement Guidelines for Strategic Alliances, Practicing Law Institute (July- August 1998).
13 See, e.g., Google Android Market Developer Distribution Agreement at http://www.android.com/us/developer-distribution-agreement.html (“Non-Compete. You may not use the Market to distribute or make available any Product whose primary purpose is to facilitate the distribution of Products outside of the Market.”).
14 In AT&T’s only prior experience with Apple in the wireless market – a three-party alliance with Motorola to develop and market the iTunes-enabled ROKR – the end product received significant criticism. See Michael Mace, Motorola Rokr: Instant Failure, Mobile Opportunity (Nov. 2005) at http://mobileopportunity.blogspot.com/2005/11/motorola-rokr-instant- failure.html; Frank Rose, Battle for the Soul of the MP3 Phone, Wired (Nov. 2005) at http://www.wired.com/wired/archive/13.11/phone.html?pg=1&topic=phone&topic_set=.
15 In other countries where the iPhone is offered at similarly attractive price points, some wireless providers expressly prohibit customers from using VoIP while others impose surcharges on customers that use VoIP. See Orange Mobile Terms of Service § 6.4 at http://sites.orange.fr/ge/content/pdf/v2_pdf/documentation/Conditions_generales_abonnement.pdf; DT Replaces VoIP ban with surcharge, Telegeography (June 4, 2009) at http://www.telegeography.com/cu/article.php?article_id=28749.
