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Not on Our Network, You Don't


The big wireless guys talk about opening up—while rejecting some competing mobile text services

Even as the wireless industry spreads a new gospel about opening mobile-phone networks to outside devices and applications, some of the biggest U.S. carriers are blocking new services that would compete with their own.

At issue is a type of mobile text message known as a short code, a shortcut that lets cell-phone users access an array of services—say, getting sports scores or voting for a contestant on American Idol—by punching in five or six digits instead of the usual seven plus area code. While it's illegal for phone companies to dictate which numbers customers can or can't dial, carriers don't appear to be breaking regulations by blocking short codes.

The Federal Communications Commission, which declined to comment, has never regulated the codes. However, on Dec. 11, Public Knowledge and other consumer groups complained that interference in text messaging is a threat to free speech. They asked the FCC to ban the practice, citing Verizon Wireless' refusal in September to allow a short code for NARAL Pro-Choice America. Verizon quickly reversed that decision and apologized.

LUCRATIVE LITTLE MESSAGES

Verizon and other carriers say short-code applicants can still use regular text messaging to offer their services. Therefore, some experts say, carriers may be acting within their rights. But consumers are coming to expect short codes much as they expect companies to have toll-free numbers. And the messages can be lucrative. In the popular TV show Deal or No Deal, for instance, viewers pay $1 a pop for a chance to win $10,000. Further, the restrictions seem to fly in the face of proclamations by Verizon and AT&T (T) about allowing competing devices and services on their tightly controlled networks.

One company rebuffed by some carriers is Rebtel Networks, a Swedish provider of cheap international calls over the Web. Rebtel wants to use short codes to bring its service to mobile phones. Users would send a text message containing the desired overseas phone number to Rebtel's short code. They would receive a text message with a local phone number to dial, and pay pennies per minute rather than the quarters and dollars cellular carriers charge for overseas connections. In May, Rebtel applied for a short code with five big U.S. wireless providers. Sprint Nextel (S) and AT&T approved the request. But Verizon, T-Mobile USA, and Alltel (at) denied it. Co-founder Greg Spector says the company handling its application was told by Alltel that Rebtel's service "cannibalizes their international rates."

T-Mobile and Alltel declined to comment. Verizon says it did nothing wrong. "They can still text-message our customers," says spokesman Jeffrey Nelson. Just as a newspaper can reject ads from a rival, he says, "we don't need to provide special access to our customers and network to a company that's in direct competition with us."

It's not just small fry that are having trouble. AT&T recently refused to approve short-code applications by four banks wanting to offer customers a mobile application to check account balances, transfer funds, and perform other transactions, say people familiar with the matter. One of the institutions was Bank of Stockton, a 140-year-old California bank, while two others were among the 20 largest U.S. banks.

The applications, submitted in the third quarter, were initially rejected in October, the sources say. Under pressure from the banks and financial industry groups, AT&T relented in mid-November. But around the same time, the phone giant launched its own mobile-banking service in partnership with Wachovia (WB) and SunTrust Banks (STI). AT&T declined to discuss specific applications, but stressed that it had approved other banking short codes in the past.

Meyerson is Deputy Technology Editor for BusinessWeek.com.

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