Why Wireless Isn't Wide Open

AT&T, Verizon Wireless, and other big cellular carriers are dragging their feet on approving services that could compete with their own

by Bruce Meyerson

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

Would-be mobile-service providers, ranging from startups to major banks to eBay's (EBAY) PayPal have encountered these roadblocks, erected by the likes of AT&T (T) and Verizon Wireless. In some cases, cellular carriers have backed down, but only after inflicting costly delays on the new services.

At issue is a type of mobile text message known as a short code, essentially 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.

Even though it's illegal for phone companies to dictate which phone numbers customers can or can't dial, the carriers do not appear to be breaking any government regulations or industry rules by refusing certain short codes. Wireless-service providers say short-code applicants can still use regular text messaging to offer their services. Still, some experts suggest the actions can be construed as anticompetitive behavior that violates antitrust laws. And if nothing else, the moves undermine the credibility of recent proclamations by Verizon Wireless and AT&T about allowing competing devices and services to run on their rigidly controlled networks.

Global Calls for Less

One company rebuffed by the 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 global phone number to Rebtel's short code. They would then receive a text message with a local phone number to dial, paying pennies per minute for the call rather than the much higher sums cellular carriers charge for overseas connections.

In May, Rebtel applied for a short code with the five biggest U.S. wireless providers. Sprint Nextel (S) and AT&T approved the request. But Verizon Wireless, T-Mobile USA, and Alltel denied the application, Rebtel says. Rebtel co-founder Greg Spector says the company that handled its application was told that Verizon Wireless considered the service "not an allowed international calling plan" and that Alltel refused because Rebtel's service "cannibalizes their international rates." T-Mobile and Alltel didn't immediately respond to requests for comment on the Rebtel matter.

Verizon says it has done nothing wrong. "They can still text-message our customers" to offer their service, says spokesman Jeffrey Nelson. "They just don't get to do it in a special way with a short code. We're not blocking anything." Just as a newspaper or TV network is free to reject advertising from a rival media outlet, Nelson 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 launching short-code services. AT&T recently refused to approve short-code applications by four banks that wanted 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 nation's 20 biggest banks, these sources say, declining to name the larger banks.