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Verizon opens up – slightly

Posted by Jason on Nov 27, 2007 in Mobile Market, Public Policy  |  Comments (2)  |  Share 

Verizon Wireless has announced that by the end of next year consumers will be able to bring any CDMA device to its network, provided it meets some minimal technical requirements, and to run any application on that device. Since Verizon has maintained tighter control over their network and devices than any other US cell phone company – perhaps any cell phone company in the world – my initial reaction was a mixture of shock and delight.

But there is less to this than meets the eye. Verizon has taken an unprecedented step – for Verizon. With respect to open access, Verizon is still several steps behind every other carrier in the US.

Who benefits from today’s announcement?

Affluent consumers who want high-end phones will have more choices. Discussions about open access usually focus on these people, but there aren’t very many of them.

The big winners today are the 60 million customers of Sprint, Alltel, US Cellular, Metro PCS, Leap, Virgin Mobile, Helio, and other smaller CDMA carriers and MVNOs who can now switch to Verizon without having to buy a new phone – if their current handset has the right frequency bands. Of course, Verizon would have offered them a free phone to switch before now, but bringing your own Blackberry, Centro, or Upstage to Verizon is much better than a refurbished Razr. Verizon wins, because they get to take more customers while spending less on handset subsidies. But consumers have been able to bring a phone from Verizon to most of these carriers for years, and to Sprint since last month, so Verizon is just catching up.

It’s good news for device manufacturers. At a minimum, we will see some interesting CDMA handsets imported from Korea and Japan for the first time. More importantly, if Verizon means what it says, it should now be possible for a startup to build an xPhone – a device that works across every wireless network in the US. That’s great news.

However, Verizon isn’t planning to sell ‘open’ phones in its own channels, where most customers buy their phones. Since the cost of developing a new handset from scratch is at least $2 million, few manufacturers will have the confidence to design a new phone for Verizon’s network and sell it through alternative channels unless they are convinced that they can prove demand that way and then win distribution in Verizon stores – with a locked-down version of the same handset.

Few manufacturers apart from Nokia that is. Unlike Motorola, LG, and Samsung Nokia prefers to sell handsets directly to consumers, and for that reason the company has been all but shut out of Verizon. That changed today; I expect to see Nokia step up their investment in CDMA.

For application developers, the news is much less exciting.

“Any apps, any device” sounds great. But Verizon is not planning to let customers run any app they want on Verizon-branded handsets, only on devices that they buy elsewhere and bring to the network. Once again, AT&T, T-Mobile, and Sprint are still more open than Verizon after today’s announcement.

In other countries, cell phone companies encourage you to bring your own phone. If I sign an 18 month contract with Vodafone in the UK for at least £35 per month, they will give me any phone in their range for free, including the top-of-the-line Nokia N95. But if I bring my own phone to the network, they will give me £150 in credit: more than four months worth of service for free. No US carrier has a similar offer.

Verizon will have some value-conscious customers with slightly open phones that they brought from other networks, and high-end customers with very open phones that they bought through non-traditional channels. But without a financial incentive to bring your own phone, such as Vodafone offers, most Verizon customers will continue to buy Verizon-branded, Verizon-controlled phones from Verizon channels, because they will be much cheaper. Today’s announcement doesn’t give application developers any new way to address these customers, since they will still have locked-down phones. So if you want one of these customers to use your app and you don’t want to negotiate a distribution agreement with Verizon, you will have to persuade her to buy a new phone.

Verizon’s announcement is very important. It should mean more innovation in phones and other wireless devices. It will increase choice for consumers at the margin. But it falls short of open access, and from the perspective of application developers it falls short of AT&T, T-Mobile, and Sprint.