The business model for the cell phone business in the United States always has been that devices were subsidized by the wireless carrier, who in return got a long-term commitment -- and monthly fan mail, in the form of a check -- from the customer.
That model seems to be fading quickly. Verizon and other providers are opening (or at least talking about opening) their networks to whatever devices folks bring to them, assuming they meet baseline compatibility standards. Openness requirements are part of the 700 MHz auction. And now, Congress is showing interest in allowing customers to buy "subsidy-free wireless customer equipment." This CNET blog posting says the Wireless Consumer Protection Act, currently in the U.S. House of Representatives, is a bit more ambitious in this regard than a similar bill in the Senate.
The post says carriers now charge early termination fees to their wireless contracts because they subsidize equipment. The bill would require the sale of unsubsidized equipment along with contracts of any length. The post points out that unlocking phones is common, so it may at least in part be a recognition of what is happening anyway. The piece points specifically to the iPhone, but the trend is general.
This week, Verizon Wireless said that next month it will hold an Open Development Device Conference and release version 1.0 of the specs that will enable devices to link to its network. The March 19 conference in New York City will lay out the road map for vendors to build devices that can connect to its network under the system it bills as "Any Device, Any Network." The company says input gathered during the conference -- followed the next day by one-on-one meetings -- may lead to tweaks of the spec, but devices built using the initial plan will work on the network.
If the view of one Federal Communications Commissioner holds, wireless networks will be pried open by either Congress or competition. Commissioner Michael Copps said late last month that it is not the FCC's place to mandate such changes. He did, however, validate the thinking that is in the House bill. A user who supplies his or her own hardware should get a better rate, Copps said, since part of the monthly fee is for the subsidized handset. He added that there should be no termination fee in such a case.
How open networks will be is deeply linked to how the emergence of 4G proceeds. WiMax, Evolution (LTE) and Ultra Mobile Broadband (UMB) will run parallel with, and eventually replace, current cellular systems. The openness of at least one of these networks, WiMax, is discussed in this TechRepublic piece about Sprint Nextel's Xohm network. Later this year, the telephone company will release Application Programming Interfaces and a software development kit for hardware and software producers. This should open the floodgates to innovation in both applications and hardware designs.
These events may mean that the open nature of the Internet is triumphing over the closed telecommunications approach. Though this IT Business Edge interview with Robert Syputa, a senior analyst for Maravedis, was done before some of the events alluded to above, it seems that the events bear out his thinking. Said Syputa:
The cellular industry wants to hold onto their revenue. The new participants -- the Internet telephony companies and the entertainment participants such as gaming -- want a seat at the table and don't want terms dictated to them. Or at least they do not want to be bent over the barrel during negotiations. They want to see a much more open environment.Syputa concludes that the business models of incumbents will change. But, he says, "a huge ship doesn't turn around in a very short time span."