Why Verizon Went Open & What It Means

68 Comments

The about-face taken by Verizon Wireless today when it said it will open up its network and platform is, at first blush, a good thing for consumers and developers. But I just got off the company’s conference call, and there are certain details that have left me with eyebrows raised. Here is my quick take on the news, and what it means (or doesn’t mean.)

Why is Verizon is doing this?

1. I think it’s because they don’t want to make open network concessions on the upcoming 700 MHz auctions, but be able to say, “Look, we’re already open.” Verizon needs to make some public concessions — there is a lot of competitive pressure coming from Google (GOOG), meanwhile the FCC and those on Capitol Hill are in a belligerent mood.
2. Bye-bye subsidies: now you buy your own phone and deal with the headaches. Company executives were pretty clear that they expect the distributor/direct purchase model to become popular. This is good for Nokia, at the very least. They can now make CDMA devices and not have to beg and kneel in front of the Verizon masters.

What it means for wireless customers:

1. A phone with Wi-Fi doesn’t need approval from Verizon, apart from making sure it works with Verizon’s network.
2. As the company executives explained on the call, you can make any device — as long as it’s CDMA network-based, Verizon has no problem with you selling it.
3. Chinese handset makers can now bring $25 phones to the U.S.
4. Theoretically, Apple can do a CDMA-based iPhone and sell it in its own stores.

Why I am still skeptical (but will change my mind if change does happen)?

1. Press call didn’t clarify how much network access will cost. They currently charge $60 for plain vanilla wireless broadband access. From a network perspective, this could be expensive.
2. They didn’t clarify the business models here. I think this needs to be explained better.
3. No clarity on what the real bandwidth limitations are and what kind of quality of service Verizon will impose on the network. Will they raise similar arguments to the ones they have been making with regards to network neutrality?
4. More devices means more network usage, which means degradation of quality. Will Verizon keep investing ginormous amount of money to keep the moniker, “America’s most reliable network”?

Why my inner cynic says: Don’t believe the hype (but disregard if you think I am, by nature, a pessimist).

1. It doesn’t seem very open to me, because it’s all about devices based on CDMA technologies, which really props up Qualcomm’s CDMA monopoly. More devices put more dollars (and I mean serious dollars) into Qualcomm’s (QCOM) pocket. The rest of the world is going down the post-GSM path and opting for other open standards, so betting on a CDMA- and post-CDMA-based platform is fraught with risk.
2. How many platforms can developers really develop for? Come on, people! Announcing a platform is easy, getting real developers to come on board — not so much. Verizon is thinking in API terms!
3. Verizon can go back on its word, citing security concerns. And then you’re basically left there to whistle, “Sittin’ on the dock of the bay…”
4. Do we really believe that Verizon is going to be happy being Pipes-R-Us?

68 Comments

kameran

Since posting my own “VZ opens” commentary, I have noticed a fair amount of discussion at the technology and standards level…like CDMA vs. GSM vs. WiX and how closed centralized networks can or maybe not go open overnight. All valid arguments. But, the more I think about it, the real question is whether you can change the closed culture and DNA of an organization overnight. The real winner is the open movement. Tactical defensive move. Getting ready to position for eventual outcome of 700 MHz. bid.

Kameran Ahari
http://gotastrategy.typepad.com

TeleTips Network

Count me in with the cynics. Verizon might be gambling that this announcement might motivate Google to drop out of the 700 MHz auctions, which are planned for January. After the auctions, Verizon could easily backpedal by retracting their network opening announcement.

Goggle withdrawing from the auctions benefits Verizon by removing a deep-pocketed bidder thus possibly lowering the ultimate prices paid for spectrum.

In other words, this announcement by Verizon is just a ploy, negotiation by other means. For the price of a press release Verizon might succeed in lowering their costs to acquire new spectrum and also eliminate a competitor.

Until this announcement is followed by tangible, irreversible action by Verizon, no other motivation should be assumed.

Anthony Kuhn

Om:

Can you give a few reasons that Verizon might be doing this as opposed to a different company? If there’s profit to be made, why haven’t others beaten them to the punch? Obviously, their move to open their networks is not something to be taken lightly, and much analysis and boardroom scuffling must have preceeded such a risky venture. I’d be interested to hear what a fly on the wall would tell of the battles waged during the discussions of why, or why not.

Anthony

spinlock1977

Seems to me that Verizon is prepping a nice cushy landing spot for all the new Google-Android phones under development.

Glenn Fleishman

“Press call didn’t clarify how much network access will cost. They currently charge $60 for plain vanilla wireless broadband access. From a network perspective, this could be expensive.”: I keep seeing this $60 figure. That’s incorrect. $60 is the two-year contracted plan which often requires a voice plan of $40 or more along with it.

Verizon, AT&T, and Sprint Nextel all charge $80 per month (as does Clearwire) for a non-contract “unlimited” service plan on EVDO or HSPA.

bronxrebel

Anyone paying attention to technology would realize that Verizon is already slowly being turned into a dumb pipe. With its internet access business model and its usb mobile modem, I can already sidestep their phone business model using my laptop and an internet based phone company. If GOOGLE buys that bandwidth at auction and does as it promised, then an open network would go even further into taking a bite out of Verizon phone business model. Perhaps Verizon is trying to position itself for this happenstance by “going with the flow?” Its attempt to charge content owners more money is charging the public against them, so they either play ball or find themselves another line of work.

Yuvamani

I dont know how open it will be, But as long as I am not subjected to that bland hideous red UI that Verizon insists all (okay not all but most of) its phones have, I am happy …

Mark R.

Are you all aware of how much the average consumer contacts their cell service provider? From what I’ve seen, they will contact them for almost any reason, for the most trivial of issues. It doesn’t even have to be something related to the carrier’s service (e.g. my PC’s bluetooth radio doesn’t have a Com port profile for file transfer). These types of high-touch customer eat away at the carriers profits. A support-free plan doesn’t have to mean crap service. Not that I believe Verizon is acting in earnest here, just saying…

Vishal

Its good to see something happening on those lines in US as a starting point.
I wonder if companies like telstra start to think on these lines here in Australia.

ronald

Is open network equal to open systems? Sadly I remember the 80’s, or define open.

omfut

My gut feeling says it’s all part of the PR stunt. Looks to me this has something to do with the upcoming 700mz auction. Why in the hell would Verizon want to be a dumb pipe? In addition, open API’s access for third party developer coming from an operator is something way too much to digest. I guess off late I’m hearing only open,open,open..
All that said, if they can deliver what has been promised, then it’s a great initiative and a leap forward towards open operator network. Wow, its going to be a huge opportunity for independent developers and small startups. I would definitely tread the path cautiously.
Iam still wondering how are startups approaching this whole new arena of open platforms. Maybe, somebody should build a OpenCarrier platform that shall play the role of OpenSocial of carrier network. Boy, this is way to much to dream.

yaromir

I think Verizon is slowly trying to drift from Qualcomm’s CDMA and BREW monopolies. First of all, they announced some time ago that they would go with LTE instead of Qualcomm’s UMB for a future network upgrade (both LTE and UMB are OFDMA-based, so Qualcomm should get some royalties from both), which should start around 2010 (AT&T also will go with LTE). And now they announce the open access initiative that is going to hurt Qualcomm’s tightly controlled BREW application platform. BTW, it will be a smart move for AT&T to join OHA/ Android folks to single out Verizon.

Jason Wood

Om,

Thanks for the analysis. I agree that the rationale behind the move is pretty transparent: the 700 mhz auction. But for VZ, the ends would certainly justify the means if this gets them MFN status and they acquire the bandwidth.

techmine

Its hard to visualize a truly open telecom/wireless service provider. OM, can you site an example of this happening anywhere else in the world. Who has opened the “network” to 3rd parties. One application i.e. SMS can be seen as an open(or not so open)access to the cell networks. Apart from that I don’t think much exists today. If Verizon thinks, they can become Google of network provider world, then I have my doubts. Simply opening the network does not mean “Open”. They still have to provision $25 chinese devices and monitor/bill usage. Are they changing that? Are they going to have open software APIs to do all that? If yes then they have lot to prove. To me, its a struggle with innovation that Verizon can’t keep. That is why they are asking 3rd party developers and CDMA phone manufacturers to come forward.

Pavan

Looks like Verizon wants to be Facebook of telcos :)
If Verizon delivers what it has promised, then every one is to gain.

Open network mean more interesting/useful applications and hence more (happy?) users!

StanCellGuru

Re: your point regarding qualcomm. I think you are missing the forest for the trees here.

They make the same kind of money for 3G phones, whether it is in Cingular or Verizon. Both 3G systems are CDMA based. Both 3G standards are not “open”
… they are tightly controlled by industry bodies 3GPP and 3GPP2. The same will be the case for 4G systems. Qualcomm is just a small part of the equation. You can also make the argument that Qualcomm has helped smaller device providers vis-a-vis the biggies such as Nokia. So, it is really a stretch to say the GSM is “open” in any way.

Verizon has already decided to move to LTE, the post-GSM, post-WCDMA path of 3GPP from the Qualcomm dominated 3GPP2 (Verizon currently has EV-DO from 3GPP2). If you analyze the change within this context, you can make the argument that this change was coming. I am certainly surprised that it happened right now. But, just like you, it is hard not to listen to my inner cynic.

DEC

If you’re complaining about the CDMA limitation, you don’t understand wireless networks. Besides, multi-mode handsets are now becoming available and this decision could provide incentive for more options. I have a BB8830 “world phone” which has CDMA and GSM radios built-in. I could theoretically use it on an open CDMA network or an open GSM network.

OK, now I’m going to return to my fantasy world involving world peace and Swedish Bikini Models… ;-)

crunchazoom

Another interesting twist is the recent acquisition of Firethorn (mobile banking) by Qualcomm for $210 million. Qualcomm is branching out into new services with presumably tight integration into their chipset. That may (will?) make it harder to provide new stand alone apps that are competitive on CDMA networks. That being said, I think this announcement is the tipping point and whether Android crushes Verizon as a platform doesn’t really matter. New apps and devices are coming and this just increases the stakes.

Rick

I’ll give the benefit of doubt. They are being proactive and becoming a wireless ISP. Phone plans will go away in the future of 4G. It will all be data (or ISP) plans.

v10partners

Even after it’s “open”… it’s still CLOSED!

In other words, CDMA is such the minority, that what they’re really saying is:

  1. Sprint customers, C’mon over! you can keep your handset.

  2. Nokia, et all – please don’t abandon CDMA and make some cool phones for us.

  3. Oh, OK – want to leave our “open” network? Your only choice is Sprint. We’ll take our chances that this will be a minority decision vs. the other way around.

Now… if AT&T follows suit, then it would be more interesting.

Mansoor Basha

Perception is reality. People perceived Verizon to be more closed than ever and Verizon got a beating for that all the time. Looks like they want to start atleast by changing their image. That is a plus for all. I am glad to know Verizon is realizing it has to change.

Tim B

Om, Perhaps I’m missing something, but isn’t Verizon (and Sprint) entire network “All CDMA”? How could they possibly support GSM phones, open or otherwise, without equipment upgrades?

rohit

Om,
What about applications/deck? If the so called ‘open’ approach results in uncontrolled, open decks for apps, users benefit. As for #4 above (pipes-r-us), I am highly skeptical that VZ (or ATT) seriously think they will be content with selling pipes and not trying to control the high $ bits flowing through the pipes.

Ben O.

They are way off of they think they are “open” but at least the dinosaurs are thinking the right way.

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