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Week in review: Chasing iPhone

Apple turns in monster quarter, thanks to iPhone and iPod; Microsoft posts strong earnings, scores Facebook victory. Also: Saving muni Wi-Fi.

For Apple, the iPhone is turning out to be the goose that laid the golden eggs, and the treasure isn't going unnoticed by Google and Microsoft.

Apple reported its most successful quarter this week, exceeding estimates in just about every facet of its business. For the company's fourth fiscal quarter, the company reported revenue of $6.22 billion and profit of $904 million; analysts had expected Apple to report revenue of $6.1 billion.

Apple has sold 1.39 million iPhones, and 1.1 million during the quarter, the company reported. Mac shipments were up 34 percent, compared to last year, and iPod shipments were up 17 percent.

Apple is gaining share on the rest of the PC industry. Last week, IDC and Gartner had the worldwide PC market growing at about 15 percent, while Mac shipments are growing more than twice as fast.

The announcement lit up CNET's message boards, with many readers debating the value of the Apple's market share versus other companies. But more than one reader expects the holiday shopping season to bring good tidings to Apple.

"With the reduced price, sexiness and shear functionality (not even including the coming 3rd party apps!) of the iPhone and the new iPods, Apple should have a blowout holiday season," forum.

Meanwhile, the hunt for the Google phone is a lot like hunting for Bigfoot. Rumors of a Google phone, or "Gphone," have circulated since late 2004 and hit a fever pitch over the last few months.

There was speculation that Google might drop some hints at its analyst day this week, but until now, Google executives and representatives have refused to comment, or even confirm, if Gphone is the name of a product many believe the search giant to be working on.

Often, where there's smoke, there's fire. And what do the smoke signals--and Google patents--say? Unlike Apple's iPhone, the Gphone probably won't be an actual hardware device. Instead, it's more likely to be a bundle of software and supporting infrastructure that allows a phone manufactured by someone else to access Google services, experts say.

But Google executives weren't budging on the Gphone topic.

"I'm on the board of Apple. I'm using the iPhone," said CEO Eric Schmidt, holding up his phone to show reporters. "We have a policy of not talking about future products."

And it doesn't appear that Microsoft will be taking direct aim at the iPhone anytime soon. Rather, the software maker is playing to its strengths, announcing a new piece of server software to help businesses manage a company's worth of smartphones.

Right now, Microsoft is focusing on its enterprise strengths. The company is announcing a new product, known as System Center Mobile Device Manager 2008, and noting that it is providing start-up funds for Enterprise Mobile, a new Boston-based service provider that will help companies manage the process of doling out smartphones to large workforces.

The new software allows businesses to push out software updates to phones over the air and also provides a VPN system for Windows Mobile devices to get secure access to corporate data, something that in the past has typically required third-party software. But even that product is some months away.

Face time for Microsoft
Microsoft may be playing catch-up in the mobile market, but it certainly got the jump on the competition in the social-networking space. Microsoft is taking a $240 million equity stake in Facebook during its next round of financing, valuing the company at a whopping $15 billion. The final deal resulted in a 1.6 percent stake in the social-networking company, notably smaller than the 5 percent to 10 percent stake that had been talked about in recent weeks.

Under the terms of the new agreement, Microsoft will be the exclusive third-party advertising partner for the Palo Alto, Calif.-based social-networking site, and the Microsoft ads will expand beyond the United States to Facebook's international presence. So far, the advertising deal does not appear to have expanded beyond its current 2011 expiration date.

Microsoft is apparently doing well right now without being a dominant player in the mobile market. Like Apple, the software giant had a blowout quarter, reporting a strong jump in first-quarter revenue and earnings as the company benefited from Windows Vista and the launch of the Halo 3 video game. The software maker said it took in $4.29 billion in profits on revenue of $13.76 billion.

As for Vista, the company said it saw double-digit growth in multiyear agreements by businesses and saw "the vast majority" of consumers opting for a premium version of the operating system. Microsoft also saw particularly strong results in the Windows client business, where revenue grew 25 percent in the quarter. And it sold 1.8 million Xbox 360 consoles in the quarter.

But Microsoft CEO Steve Ballmer clearly sees big opportunities in the mobile-software market. As millions of consumers acquire cell phones, and as cell phones become more capable, it's a natural extension of Microsoft's core business of selling PC operating systems and applications.

Ballmer sees Microsoft's unique role as bridging the consumer and business markets to provide a more compelling "experience" for phone buyers. Ballmer sat down with CNET to talk about some of Microsoft's plans, what he likes about the iPhone, and why he thinks Vista is already a success, no matter what you might have heard.

Hooked up with Wi-Fi
The iPhone and other Wi-Fi-enabled handsets coming into the market could boost demand for citywide Wi-Fi networks. As cell phone operators push their 3G data services, new cell phones outfitted with Wi-Fi capability are also being introduced.

Apple's iPhone was one of the first to reach the American market. And so far, the phone has gotten rave reviews for Web surfing when it's on a Wi-Fi network. Conversely, critics have complained about the painfully slow surfing on AT&T's 2.5G cellular network. (The iPhone does not operate on a 3G wireless network, which is considerably faster than a 2.5G network.)

Up until recently, most people using a citywide Wi-Fi network have done so using a Wi-Fi-enabled laptop or PC. But with Wi-Fi-enabled cell phones, users could benefit from true broadband mobile Web surfing, which would likely drive demand for the service.

Meanwhile, cities that commit to using new Wi-Fi networks for their own use could help rescue the ailing citywide Wi-Fi movement. Even though some projects have stalled or failed outright, there have also been several success stories. Cities such as Minneapolis; Houston; Burbank, Calif.; and Tucson, Ariz., are moving forward and seeing early signs of success.

One of the common threads weaved through each of these deployments is that all of these cities have committed to using the Wi-Fi networks for their own purposes, whether it be to provide remote access for mobile city workers, automate meter reading, control traffic congestion or enhance public safety.

Funny how things change. Only a few years ago, AT&T was lobbying in city councils and statehouses around the country, trying to prevent cities from building their own broadband networks. AT&T and other service providers argued that these new networks would compete unfairly with their own broadband services.

But a little over a year ago, the company had a change of heart. And instead of battling local governments in court and in the legislature, AT&T joined forces with them to give them what they all seem to want--low-cost, high-speed Internet access using Wi-Fi.

James Cicconi, senior executive vice president of legislative and external affairs for AT&T, speaking at the MuniWireless conference in Santa Clara, Calif., said AT&T is taking a fresh view of the citywide-Wi-Fi movement.

Cicconi said AT&T's change of heart shouldn't come as a surprise. The company already provides thousands of Wi-Fi hot spots in cafes and other public places around the country. And the company sees Wi-Fi as simply another access technology for connecting users to broadband service.

On the Hill
A new Senate bill would protect more than telephone companies from lawsuits claiming illegal cooperation with the National Security Agency. It would retroactively immunize e-mail providers, search engines, Internet service providers, and instant-messaging services too. The broad language appears in new legislation that a Senate committee approved by a 13-to-2 vote during a meeting closed to the press and public.

After news reports said AT&T and other major telecommunications carriers opened their networks to the NSA after September 11, 2001, dozens of civil lawsuits were filed. A decision on whether the lawsuits will be permitted to proceed is expected from the 9th Circuit Court of Appeals in San Francisco at any time.

President Bush has insisted on retroactive legal immunity, and the Justice Department on Friday gave the Senate bill a preliminary thumbs-up, though it said further changes will likely be necessary before it's satisfied.

The possibility of previously forbidden taxes on paid e-mail and other Web services emerged last week, when the U.S. House of Representatives overwhelmingly passed a bill extending a ban on Internet access taxes.

That's what a Congressional Research Service attorney concluded in a two-page memorandum. The specter of an e-mail tax all comes down to how the bills define what the ban covers. Current law, which is set to expire on November 1, unless Congress acts, defines the term as "a service that enables users to access content, information, electronic mail, or other services offered over the Internet, and may also include access to proprietary content, information, and other services as part of a package of services offered to users."

Meanwhile, America's online-poker enthusiasts descended on Capitol Hill with two messages for Congress: poker's good for the brain, and stop jeopardizing our games. The multiday lobbying visit by members of the Poker Players Alliance, which counts more than 800,000 professional and amateur players on its rolls, arrived about a year after politicians enacted a restrictive anti-Internet gambling law.

The players' goal for the fly-in: to boost support for a couple of bills, which so far enjoy backing from only a handful of politicians, that would roll back a sweeping ban in favor of more tailored regulations. One proposal would expressly carve out poker from any ban on online gambling, placing it in a category with "games of skill" like backgammon, mahjong and bridge.

Also of note
BEA Systems said it's willing to sit at the negotiating table with any potential buyers--if they're open to a price of $21 a share to start acquisition talks...Vonage said it had resolved an ongoing patent dispute with Verizon Communications at a price tag of up to $120 million, ending what has been a mostly gloomy saga for the struggling Internet phone company...Radio scientists at IBM Research and MediaTek are teaming up to develop a wireless transmission protocol that will deliver files more than 100 times faster than Wi-Fi.