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AT&T Lost Skype Fight When Admitted Blocking To Protect Voice Revenues: Analysts

With regulatory winds against it, AT&T's announcement to allow Internet voice services on the iPhone to ride on its 3G network was expected.

Indeed, before their announcement, I reported yesterday morning on this blog that the telecom industry was abuzz with anticipation the firm would make the announcement this week.

When that became clear, analysts say, was when the firm revealed in a letter to the Federal Communications Commission that it believed, along with Apple, that by allowing services like Skype on the iPhone to run on AT&T's 3G network, its profitable voice business would get slammed as users turned to cheap or free calls through the service. That in turn, would make it too expensive to subsidize the iPhone for consumers.

In other words, said Rebecca Arbogast, head of tech policy research at Stifel Nicolaus, they were trying to edge out competitors.

"Their decision to not allow VOIP on the 3G network had migrated to one that basically was about a business model, a pricing model, not a network management issues," Arbogast said. "And that became a very difficult position for AT&T to hold."

The expanded net neutrality rules proposed by FCC Chairman Julius Genachowski, would take into consider legitimate network management concerns. Wireless networks face greater capacity strains than landline networks that require traffic management so one user's obsession with wireless video feeds don't slow down the experience for others.

Here is the excerpt from AT&T's letter to the FCC in response to the agency's query on why Google Voice was blocked from the iPhone. In it, AT&T says the decision was entirely Apple's. But, the two companies agreed that Apple would ask permission from AT&T to enable the iPhone to run VoIP services on the cellular network.



"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."

By Cecilia Kang  |  October 7, 2009; 9:00 AM ET
 | Tags: at&t blocking skype,iphone skype,net neutrality  
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Next: The Full Story on AT&T Opening to Skype, Verizon Android Deal

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