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By using Microsoft's Tellme cloud instead of the Windows Phone 7 handset for the speech recognition functionality, Microsoft has essentially removed the computational limitations and potential battery usage of the handset from the equation. Obviously, such a service will only work when the user is connected to the internet.
The upcoming Windows Phone 7 Mango update will include voice-to-text functionality, Microsoft announced this week. This week's announcement was welcomed by developers hoping to include voice commands and transcription in their applications.