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11/27/2007
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Verizon's Open Move Hastens Wireless Market Transformation

For some, Verizon's attempt to portray itself as a fully open carrier is a ploy to discourage the FCC from imposing more restrictions on the upcoming 700MHz spectrum auction.

Executing a neat reverse-field, Verizon Wireless has declared that it will throw open its cellular network to third-party devices, applications, and software. What does this really mean for the heretofore locked-down wireless service market in North America?

Early reactions tend to fall into two camps: No. 1, Verizon has seen the light and is leading the way to a new, open, and customer-friendly era for the U.S. cellular market.

No. 2 is that Verizon will never allow itself to become just a dumb-pipe provider for other companies' devices and services, and anyone who says otherwise is either a fool or a liar or both.

Support for the rosier interpretation of this move, announced Tuesday morning in a conference call with Verizon executives, comes from the company itself, naturally, and from industry observers who have long thought that a shift from the "walled garden" model of cell service to a more open, Internet-like experience is inevitable.

"This is a transformation point in the 20-year history of mass market wireless devices -- one which we believe will set the table for the next level of innovation and growth," said Lowell McAdam, Verizon Wireless' president and chief executive officer, in a statement.

"We think this is a great step forward," said Eric Schmidt, chairman and CEO of Google, one of the strongest proponents of more open mobile networks. "As the Internet has demonstrated, open models create better services for consumers and stronger businesses for providers. We are excited to work with Verizon and other industry leaders to achieve this vision."

Google recently announced a new mobile-phone platform called Android, which is based on the Linux 2.6 kernel and includes an operating system, a set of libraries, a multimedia user interface, and phone applications.

In this view, the market imperatives simply became too obvious and too powerful for Verizon, the No. 2 U.S. wireless carrier, to continue to ignore. Like a line of dominoes, Verizon's move will inevitably lead to other major wireless carriers seeing the light, according to wireless analyst Jack Gold, principal with J. Gold Associates: "Ultimately, the other carriers will have to open up as well. Too many market forces are aligned and the days of the totally walled garden are coming to an end."

"No one can afford to be perceived as the last purveyor of closed network topology and practice in a market that's increasingly moving the other way," agrees Carmi Levy, senior vice president for strategic consulting at AR Communications.

Verizon, however, will still require its own testing to insure that outside devices meet the "minimum technical standard" to be activated on the network -- and details of those standards have not been published. The Basking Ridge, N.J.-based carrier said it will set up a $20-million testing lab where mobile devices will be tested and approved.

For the more Machiavellian-minded, this means that Tuesday's announcement is mostly public relations. Specifically, Verizon's attempt to portray itself as a fully open carrier is a ploy to discourage the Federal Communications Commission from imposing more restrictions on the upcoming auction of valuable 700MHz spectrum for wireless broadband networks, currently scheduled for January 2008.

Previously, Verizon had argued that restrictions on the winning bidders were unfair and illegal. Now, the company seems to be saying "Look, we're already open, no further regulations are required." The move toward an appearance of openness could also be designed to discourage rival entrants to the 700MHz auction.

"I am sure this is driven by the impending filing on Dec. 3 of the so-called 'short-form'" application for the auction, said former FCC chairman Reed Hundt, a co-founder and principal of Frontline Wireless, which plans to bid in the auction. "I imagine this is an attempt to discourage bidding on the 'C' block," the most highly prized slice of 700MHz spectrum.

The "C block" includes two swathes of 11 MHz each of spectrum; the A and B blocks each comprise two 6-MHz slices. The C block is also the portion of the spectrum that is subject to the "open access" requirements set by the FCC in its rules for the auctions. The winner of this band must open the network built on it to applications and devices from third-party providers.

Seen in this light, Verizon's saber-rattling in the run-up to the auction -- at one point it actually sued the FCC, but has since withdrawn that lawsuit -- "was really focused on one thing... holding down license costs." said wireless analyst Carlo Longino, co-author of the MobHappy blog.

Machiavellian or not, Verizon's surprising move to lower its network drawbridge will almost certainly hasten the broader process of opening up carrier-controlled networks in the U.S.

"This is a shrewd PR and marketing move, and is a smart strategic one as well," adds Longino, "since its walled-garden policies were lagging the market and are unsustainable over the long run."

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