Questions about Verizon's new "open" attitude

More than half of the traffic to this weblog comes from outside the US, so there are times when I feel obligated (and a little embarrassed) to explain how the mobile market works here. This is one of those moments.

Verizon, the largest US mobile carrier, made headlines in the US today by announcing that by the end of 2008 it's going to make its network available to any device and any application that the user chooses to install (link).

This will seem remarkable to people living in GSM countries where it's normal to choose any device you want. But in the US, it's an unusual idea. Here mobile usage is split between GSM and CDMA. GSM phones have SIM cards, which technically allow you to switch your account to any phone you want. But in practice, almost no users are willing to give up the several hundred dollar subsidy for buying a phone and service plan together, so they only choose phones that come through the operator.

Things are even more restrictive in the CDMA space, where there are no SIM cards. If you buy a Verizon phone, it can only be used with a Verizon account. Same thing for Sprint.

So Verizon's announcement is a nice change, on the face of it. It's also something of a pleasant shock, since Verizon has the reputation of being the most conservative and controlling US operator. But the announcement's actual impact on the market is going to depend on several questions that Verizon hasn't answered yet:

--How will open access be implemented? Verizon says it's going to define a process by which phones can be certified to work on its network. That could be routine or it could turn into a huge barrier to entry. We also don't know how a user's account will be switched between phones. Is Verizon planning to start installing SIM cards in its phones (something that has been done with CDMA in China)? If not, will you have to take the phone to a Verizon store to get it activated? How much will that cost?

Verizon apparently said something about doing activation through a toll-free number, which could be cool.

--How will the service be priced? Verizon's service plans include recovery of the several hundred dollar subsidy for hardware. You pay for the subsidy as part of your monthly bill. Since Verizon doesn't have to recover a subsidy cost on its open access phones, there's about $10 or more a month that it could pass along to consumers in the form of lower bills.

If Verizon doesn't price the open service lower, what happens to the extra money? Does Verizon pocket it? Or will they offer some sort of rebate on purchase of open access phones?

The answer to this one is critical. The US GSM carriers are technically open, but the subsidy prevents significant sales of alternate phones. If Verizon pockets the subsidy money, very few people will take advantage of the open service. The whole thing could turn out to be a PR gesture rather than a genuine change.

But in the hope that Verizon wants it to be more, here's what they ought to do:

--Make the monthly cost of the open plan lower than a traditional service plan, reflecting the absence of a subsidy.
--Make the handset certification process simple and low cost.
--Make it easy for users to switch their account to a new phone (preferably via a SIM card or website or that 800 number, so they don't have to come to a store).

That's an announcement I'd stand up and cheer for.


Impact on the industry

Until we hear the answers to the questions above, it's impossible to guess how impactful this announcement will be. The most important factor may be how the other US operators react. The best result would be if they start competing with each other to see who can make their network more open. If that dynamic takes hold, competitive forces might drive them to really open up even if they don't intend to.

10 comments:

Anonymous said...

i guess I interpreted 'open' in a dufferent way. i was not thinking about unlocked phones, etc. or the current cell phone bussiness. but that verizon would allow 'open usage' in that you could utilise devices in any way. such as allowing you to use your network card in your laptop for streaming video and VOIP. and also that all kinds of inovative devices such as GPS units could have imbedded EVDO data capability that works via the verizon network. i see a future were the cell phone carriers derie most of there bussiness in the form of wholesale sales to vendors that include the data connection as part of a package(such as a GPS unit that includes lifetime wireless updates as part of the purchase price; or an add based GPhone that verizon get paid for minutes by google and not the user)

Anonymous said...

the most logical thing to offer customers in place of a subsidy is cancell at any time without fee; 2 year contract would be in exchange for free/subsidised phone. this would spur inovation since user would switch operators more often.

in europe until very recently(now operators have 'no subsidy' plans) it was only the small independant shops that you got a benfit for not taking a subsidised phone. the benefit was ussually in the form of a cash kickback and was a somewhat under-the-table deal between the customer and the shop owner(who would keep for resale a phone provided by the operator along with the service agreement) in the large 'coporate run' shops things work almost exactly like they do in the USA.

the proliferation in europe of phones sold seperate from operator aggrements is largely confined to prepaid users and serious gadget lovers whoo spend sometimes thousands of dollars a year upgrading from one phone to the next.

Anonymous said...

a different perspective:

http://www.saschameinrath.com/2007/nov/27/verizon_wireless_introduce_any_apps_any_device_any_price_we_set_option_customers_2008

Kirk said...

Well, they've got a ways to go.

Contrast current VZW behavior, such as blocking 3rd party apps from accessing the GPS receiver on the BlackBerry 8830. While their account reps say this is for 'security' purposes, it's far more likely to protect the $10/month VZNav subscription. Somehow if you pay, GPS is okay, but only with their application. Not for 3rd party apps.

But with MyLocation on Google maps - using cell tower triangulation - I now have a crude location capability on my 8830 (no thanks to VZW). Any (silly) urge I had to pay another $10/month to VZW to use the GPS receiver in my own phone just evaporated.

To demonstrate openness along this PR-oriented announcement, one would think Verizon could start by dropping restrictions such as these. It will be all too easy to block access due to 'technical reasons.'

Michael Mace said...

Anonymous wrote:

>>i guess I interpreted 'open' in a dufferent way...that verizon would allow 'open usage' in that you could utilise devices in any way. such as allowing you to use your network card in your laptop for streaming video and VOIP.

Interesting point. For all I know, that may be what they mean -- we just don't have enough specifics.

I do think they will be very cautious about allowing unlimited usage on a flat-rate data plan, though. That could overload the network pretty easily.


Anonymous wrote:

>>the most logical thing to offer customers in place of a subsidy is cancell at any time without fee

You can actually get that from most of the US operators today. But most people figure that they're going to keep their phones for at least two years, so they sign up for the plan because they get a free phone.

Unless the "open" plan is cheaper, I think most people will continue to choose the plan that pays for their phone.


Kirk wrote:

>>Well, they've got a ways to go.

Agreed.


>>Contrast current VZW behavior, such as blocking 3rd party apps from accessing the GPS receiver on the BlackBerry 8830. While their account reps say this is for 'security' purposes, it's far more likely to protect the $10/month VZNav subscription.

I'm never sure how much of the operator resistance is sincere security concerns and how much of it is a hidden agenda about protecting revenue. Many of the folks who run the operators aren't exactly sophisticated about computing technology, and they're genuinely terrified of getting blitzed by support calls or other PR disasters.

The Internet just feels far too untidy and uncontrolled to somebody who grew up in the nice old controlled Bell telephone system. You can make a pretty convincing argument that we wouldn't even have third party modems today if the phone company hadn't been forced to allow them.

But the operators do respond to loud customer complaints. So keep on complaining about issues like this and I think that eventually they'll decide the risk of allowing it is smaller than the risk of pissing off a lot of customers.

Dean Bubley said...

Michael

I think one of the most interesting options will be if Verizon certifies any USB-connected modems under this scheme.

They're pretty cheap, so if you can get a certified EVDO modem from Sierra Wireless or Option or whoever, then you can hook it up to any laptop & away you go....

I'm also curious to see if this move induces Nokia to start considering Symbian CDMA phones.

Dean

Michael Mace said...

Good ideas, Dean. Verizon currently requires at least a one-year commitment to get their PC data plan, so this would be an improvement.

On the other hand, at $60 a month I bet most of those plans are being paid for by employers, in which case the one year commitment is not as big a deal.

I'd love to see Nokia do CDMA phones, but I'm not sure if the change by Verizon would be enough to entice them in. Do you think that dealing with Verizon has been the thing keeping them out of CDMA? I'm not sure what the biggest barrier has been.

Anonymous said...

Michael said:

"On the other hand, at $60 a month I bet most of those plans are being paid for by employers, in which case the one year commitment is not as big a deal."

You have had a few posts on european versus US consumers. I find the above comment so interesting because in a few european countries that I am aware of bussiness/corporate accounts have commonly been without commitment(or phone subsidy) where as consumer accounts have had two year contracts. It is intesting if in the US bussiness is less interested in cost(contract terms) than consumers.

Michael Mace said...

>>in a few european countries that I am aware of bussiness/corporate accounts have commonly been without commitment(or phone subsidy)

Actually, I was thinking in terms of people getting a personal plan and then filing for reimbursement from their employer. That's hard to do in the case of a mobile phone, but for a data card it's a pretty straightforward thing to do because there's less overlap between personal and business use.

Victo said...

Hi Michael, you mentioned that one of your key points for this to work is for Verizon to offer easy switching of phones. In fact, they do that now. If you use their "my account" online, you can point and click your way to upgrading your phone -- even unlocked phones bought off Ebay. Just log into your account, plug in the new ESN, and your number is transferred and you're using a new phone. No trip to the store necessary.