Verizon Wireless' Grand Opening

The cellular provider's Any Apps announcement is both surprising and perhaps inevitable as the industry moves closer to open access

By Bruce Meyerson and Spencer E. Ante

A move by Verizon Wireless to let customers use a broader range of cell phones and wireless features on its network was greeted by many observers as a stunning about-face. The No. 2 U.S. wireless service provider, which from the start has kept its network shut tight to what it considers unauthorized devices and services, suddenly was opening up.

When the new policy kicks in during the second half of 2008, subscribers are likely to have greater freedom to choose the devices and services they can use, and handset and application makers will probably get greater leeway in the breadth of phones and software they can build for the Verizon Wireless network. "This gives us the ability to tap into every innovative mind out there in the country," says Lowell McAdam, CEO of Verizon Wireless, a joint venture of Verizon Communications (VZ) and Vodafone Group (VOD).

But if the shift is an affirmation of consumer- and innovation-friendly openness, even more it's a reaction to the competitive pressures threatening Verizon Wireless and other mobile providers. The "Any Apps, Any Device" announcement helps Verizon Wireless steal thunder from other wireless upstarts—including Apple (AAPL) and Google (GOOG)—that are pushing for freer rein to offer their wares directly to mobile subscribers, leaving some analysts skeptical over just how open the Verizon Wireless network will be. "Several factors seem likely to keep the number of subscribers who actually opt for the open model down, which may limit its effectiveness as a force for change in the industry," say Ovum analysts in a Nov. 27 note.

The Fine Print

For starters, Verizon Wireless will need to test any new device model before letting it connect to its network. The degree of openness will hinge on how difficult Verizon Wireless makes it for products to get a green light. Columbia University law professor Tim Wu, a leading proponent of wireless open access, points out that the old Ma Bell-era phone companies often used testing requirements as a way to control their networks. "There's testing requirements and there's testing requirements," says Wu. "One is routine—and there's another thing of deciding what products they don't want on their network. It can become a black hole from which products never emerge."

Although Verizon stresses the business opportunities posed by open access, the company's move is also a shrewd defensive maneuver. Verizon had lobbied ferociously to prevent the federal government from applying open-access requirements to an upcoming auction of valuable radio spectrum. But now that Verizon Wireless has joined the open-access camp, it's free to invest billions in those radio waves—while blocking out potential rivals. "They have removed any economic incentive for an upstart wireless provider to build a new network," says David Barden, an analyst at Banc of America Securities (BAC). An added benefit: With fewer bidders, the move "could lower the price of the spectrum," says Barden. Google, of course, is unlikely to be deterred (BusinessWeek.com, 11/16/07). "It doesn't change our thinking on the auction one bit," says Google spokesman Adam Kovacevich.

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