November 28, 2007
In a major shift for the mobile phone industry, Verizon Wireless said yesterday that it planned to give customers far more choice in what phones they could use on its network and how they use them.
While there are technical limitations involved, the company’s move could lead to an American wireless market that is more like those in Europe and Asia, where a carrier’s customers can use any compatible phone to easily reach a wide array of online services — and take their phones with them when they switch companies. The move, which surprised industry watchers because Verizon Wireless is known to be highly protective of its traditional business, is part of a larger shift in the communications world.
With the introduction of the iPhone from Apple, one of the first mainstream multimedia devices, and Google’s plan to make the software that runs cellphones, the industry is being pushed toward a more open approach.
Carriers like AT&T and Verizon Wireless, which is a joint venture between Verizon and Vodafone, have spent billions on cell towers and other infrastructure, and traditionally they have tightly controlled what happens on their networks.
They decide what phones subscribers can use and then steer them toward ring tones, television shows and other products they can buy.
The details of Verizon Wireless’s alternative approach have yet to be worked out. The company did not disclose how much the service would cost or what rules would apply.
Lowell McAdam, chief executive of Verizon Wireless, said the company would hold a meeting with mobile phone makers and programmers in the first quarter of next year to talk about the service, with the goal of introducing it next summer.
“The trend we see here is an explosion of innovation,” Mr. McAdam said. “People want to take so much of what’s on the Internet and put it on the phone.”
Other companies are likely to feel pressed to follow Verizon’s lead, analysts and executives said. “If they don’t change their own business model, someone else will do it for them," said Roger Entner, a senior vice president at IAG Research. “This way they have control.”
Consumers are already able to add software and make purchases online with many cellphones, but often the carriers do not make this easy, preferring instead to highlight their own offerings on phone screens.
The carriers have also been at odds with Silicon Valley companies like Google that want people to be able to use phones in much the same way that they can use any PC for access to the Internet.
Verizon Wireless, too, is not abandoning its traditional service. Instead it will offer a separate service plan allowing consumers to buy a phone — one compatible with its network — and call a toll-free number to have it activated. A Verizon lab will test whether the phones can connect to the network, allowing the company to maintain control over what devices are permitted.
Still, programmers will be able to develop software to run on the phones without authorization from the company. “We will not be the gateway to go through,” Mr. McAdam said.
The company’s move won praise from Google, Microsoft and the Federal Communications Commission, among others, but consumer groups offered a cautionary note.
“There are a lot of unanswered questions,” said Gene Kimmelman, vice president for federal affairs at Consumers Union, an advocacy group in Washington. “We have significant concerns about prices being sky high.”
Another potential hurdle is the Verizon network’s use of CDMA technology, which is less common than the GSM technology of AT&T, T-Mobile and many overseas carriers. As a result, users of Apple’s iPhone and many GSM-compatible phones will not be able to use Verizon’s service.
Still, added Mr. Kimmelman, “it’s a step in the right direction.”
That step has not come without a bit of prodding. Federal regulators are moving to encourage the creation of a more open national wireless network when they auction off spectrum licenses in January. The auction rules require bidders to partly build a network that is largely free from carrier constraints.
Among those expected to bid are Google, which many in the industry say will be a formidable competitor to the likes of AT&T and Verizon. Google has put together a consortium of companies to use its software and help it turn mobile phones into hand-held computers. Mr. Kimmelman said the Verizon Wireless announcement was fueling speculation that it would be a bidder in that auction, too.
But analysts have noted that Verizon Wireless has been sending mixed signals. It filed a petition in September with the federal courts requesting a review of the auction rules on openness, calling them “arbitrary” and “capricious.” Mr. McAdam said his company filed the petition not to halt competition, but because it believed “it was not necessary for the F.C.C. to get involved.”
He added that Google was not the enemy of the traditional telecommunications companies that the news media made it out to be.
“It’s very common and popular in the press to view Google and Verizon at each other’s throats," Mr. McAdam said. “We have far more in common with Google in meeting demands of consumers than in conflict.”
No matter the motivation, many expect the result to be good for consumers. “This is only going to drive innovation for consumers, which is a good thing," said Cyriac Roeding, who is in charge of mobile content efforts at CBS.
If Verizon’s effort is successful, then content creators, software developers and device makers, who have chafed under the control of the wireless companies, will need to show what they can do. At a telecommunications conference in San Francisco, those groups were outwardly hostile toward the carriers, complaining that they were too controlling.
Now, Mr. Entner said, “the ball is in the court of the device manufacturers and software developers.”
“They have to put up or shut up.”
