Microsoft’s(s msft) planned $7.2 billion acquisition of Nokia’s(s nok) device business overshadowed a far bigger deal over weekend: Verizon Communications’(s vz) $130 billion buyout of Vodafone’s(s vod) 45 percent stake in Verizon Wireless, and perhaps rightly so. Microsoft taking over Nokia’s storied handset unit could shift the fault lines in the mobile device industry. After the Verizon and Vodafone deal closes, it will be business as usual at Verizon Wireless.
We’re talking about a shift in ownership that might move the markets but won’t have an immediate impact on its customers. I would argue, though, that Verizon taking complete control of its mobile business will have much more significant long-term repercussions for the company and the mobile industry. Verizon would no longer to have run its wireline and wireless businesses as separate companies, allowing it to break down the increasingly artificial distinction between a mobile service and a home or business broadband service.
Verizon realizes it can no longer achieve big growth only by signing people up to smartphone plans and selling FiOS and DSL connections (in fact, it’s been backing away from DSL for years). The wireless industry’s future growth is going to come from the internet of things: tablets, cars, wearables, appliances and ordinary household of objects. Some of them will link to home networks, some of them will connect to the mobile network, but many of them will need to link to both.
“In an increasingly saturated world, the value of bundling can’t be understated,” mobile telecom analyst Chetan Sharma told me. “The ability to combine a series of solutions and services can lower churn significantly. Finally, given that 70 percent to 80 percent of the data traffic is indoors and on Wi-Fi connected to the wireline network, understanding the user behavior on non-cellular channel becomes important. If one has good wireline coverage, one can start to rethink wireless networks as well.”
Why owning it all is key
As majority owner, Verizon Communications has always called the shots at Verizon Wireless, and that’s resulted in plenty of direct cooperation between the two companies. Verizon and Verizon Wireless are already bundling services to a limited extent. If you’re a home broadband customer you can tack your Verizon Wireless plan into your monthly statement, and even get a discount. There’s even crossover between products. Verizon will sell you an LTE-powered home connection in places where it doesn’t offer a wireline broadband connection.
But these strike me as partnerships between companies rather than any kind of full-fledged integration OF their networks and services. Verizon Wireless essentially offers the same bundling options to its cable company partners as it does to its namesake parent. If that artificial barrier between wireline and wireless disappears Verizon could just sell connectivity — a single plan that links you to multiple networks.
For example, a connected car when parked in the garage could remain in constant communication with a home Wi-Fi network attached to FiOS modem, automatically loading into your dashboard the most current maps and navigation destinations, new songs from your music library and the latest movies and TV shows from your video subscriptions.
When that car leaves the garage LTE connectivity – either from an embedded chip or from you smartphone — takes over, but that link is only needed to connect calls, and provide real-time traffic updates or verify your content permissions. The bulk of the actual data traverses cheap Wi-Fi connections rather than expensive cellular airwaves.
Smartphones and apps can then link to the car either directly through in-vehicle networks or remotely using telematics systems connected to the LTE network. Verizon’s cloud infrastructure (now owned by the wireline side of the house) could then manage all of the connections and intertwined devices, ensuring everything from the last minute shopping to Dad’s expected arrival time home from work are synched across all of those apps, devices and networks.
The same principles could be applied to the enterprise. A unified Verizon could deeply combine fiber connectivity, cloud computing and mobile networking into the same package it sells a Fortune 500 company.
Will we welcome our new Verizon overlords?
Of course, to build this kind of universal connectivity service, consumers and businesses will have to place a lot more trust (and money) into Verizon’s hands than they’re accustomed to today. They’ll also have to gain the cooperation of numerous device makers and internet of things players.
Being able to fully integrate wireline and wireless connectivity is a key first step, though. As Sharma pointed out the bundle has enormous allure among consumers. If Verizon can supply the connections and the platform that glue all of those gadgets together on a single monthly bill, it could offer something compelling. The alternative is to subscribe multiple carriers and contend with multiple apps and devices that can’t talk to one other.
AT&T(s t) – which took full control over its wireless business in 2006 — is already pursuing this strategy with its Digital Life connected home platform. It’s starting out with home security, but it plans to layer on numerous interlinked home automation services. And while AT&T wants to sell consumers the home and mobile links that tie Digital Life together, it’s going carrier agnostic, acknowledging that the bigger opportunity is in managing connections and services, rather than providing rote bandwidth. AT&T President of Enterprises and Partnerships Glenn Lurie will be discussing those increasingly complex internet of things business models at GigaOM’s Mobilize conference on October 17.
Verizon is also experimenting with its own smart energy and home security services, but it’s also pursuing the connected car. It bought Hughes Telematics in 2012 and it’s launched a development program called the 4G Venture for Forum for the Connected Car, which several influential automakers have already attached themselves to. Verizon is already wooing some players in the internet of things – many of which will want to connect their devices in multiple ways.
Wi-Fi suddenly sounds like a good idea
So when will see a unified Verizon offering universal connectivity? I suspect it will take some time. After all, many of the devices Verizon hopes to connect are still in their nascent stages. But my guess is that when this deal closes we’ll see some subtle changes in Verizon’s strategy.
First off, I bet Verizon’s mobile execs will get a lot more enthusiastic about Wi-Fi. Verizon Wireless has always dismissed the technology, saying its ultimate goal is to put more LTE capacity in more places, rather than depend on Wi-Fi to offload its networks. But that’s what you’d expect a company to say if its primary business model is selling consumers 4G data plans. If providing universal connectivity is a goal though, then Wi-Fi will be the glue that links mobile devices back to the wireline network.
Verizon may chose to build its own hotspot network like AT&T or it could follow Comcast’s lead and open up its residential Wi-Fi network to all mobile customers. We’ll likely see Verizon’s residential and enterprise group selling a lot more devices designed to be carried outside of the home to the wider world, and we may even start seeing its integrated broadband plans. For instance, every FiOS internet could come with 1 gigabyte of included mobile data. That would be a pretty big incentive to connect your tablet to Verizon’s LTE network rather than someone else’s.
The bigger internet of everything picture will take more time, but closing this deal with Vodafone will make it happen that much faster. I wouldn’t say Verizon and Verizon Wireless are working at cross-purposes today, but ultimately it’s a lot easier to build a grand connectivity strategy when you don’t have two separate companies maintaining two distinct networks and pursuing two different strategies.
Connection image courtesy of Shutterstock user Milos Dizajn