Verizon Wireless: Open for Business in Late 2008

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Things are much clearer in retrospect.


A few years down the road, people will look in the rear view mirror and see that the current cellular model -- in which folks are limited to a few devices and constrained feature sets in exchange for equipment subsidies -- is not conducive to the long-term growth of the sector.


That model won't disappear -- after all, there are a lot of folks who just want to make phone calls and will do so as cheaply as possible -- but it has taken three big hits recently.


The first is the 700 MHz auction set for January. The dynamic is that the companies with the real energy are trying to open up the network and crash the old -- we hate to use the word, but here it is appropriate -- paradigm.


The next two blows against the empire took place this month. First, of course, Google released Android, an open source development platform that will encourage innovative designs and a great many devices. That's the plan, anyway. The second move, highlighted in this Associated Press story posted at The New York Times, is the announcement this week that Verizon Wireless will open its network beginning in the second half of next year.


This decision is perhaps even more dramatic than the auction because it directly takes on the traditional model. There are minor caveats. (For instance, Verizon Wireless will test candidate gear to make sure it works properly on its networks. This makes sense, but could be a way to retain control.) Those notwithstanding, it is clear where this is heading. The importance of Verizon's move was not lost on Gabriel Brown, Unstrung's chief analyst. The news, he says,

is huge with a capital H. In the long run it is a far bigger development than all the frenzy about [Apple's] iPhone this year, entertaining as that was. What it does is blow open an entirely new mobile service model and sets the stage for the kind of innovation that has powered the Internet to greatness.

There indeed are a lot of unanswered questions, some of which are highlighted by Om Malik at GigaOm. His analysis is divided into three categories: Why Verizon is doing it, what it means for customers, and why he is skeptical.


Verizon's motivations, he suggests, could be to create a rationale for regulators to not force more concessions in connection with the 700 MHz auction. The company, Malik says, also doesn't mind reducing the number of phones it is subsidizing. Malik says that very inexpensive code division multiple access (CDMA) handsets could become available and Apple could create a version of iPhone for the Verizon Wireless network.


Finally, Malik says that he is skeptical because of a lack of clarity on how much access will cost, what the business model will be, and bandwidth limitations. He raises a good point at the end: If successful, there will be an increase in network usage. Will Verizon make the investment necessary to maintain network quality?


Other reactions were collected by InformationWeek. The most effusive was from Microsoft. Pieter Knook, the Senior Vice President of the mobile communications business, said the company is "very excited" and that the move was "bold." CTIA CEO Steve Largent was more measured, but positive. Google Says Eric Schmidt, Chairman and CEO called it "a great step forward." The writer wonders, however, why there was no immediate reaction from the Open Handset Alliance -- the group behind Android -- outside of Google.


By any measure, this is big news. The question is how it will be executed: If it is a tactical ploy aimed at maintaining as much control as possible by impressing legislators, regulators and politicians, the impact will be limited. If, however, Verizon Wireless has decided that it has seen the future in the form of Android and the 700 MHz auction rules, the ramifications of the move truly are significant.