Verizon Wireless' Grand Opening

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Beyond the auction, Verizon's shift may score important points with regulators, politicians, and vocal members of the Internet community clamoring for increased wireless competition. Indeed, Verizon's announcement drew immediate applause from a diverse array of corners, ranging from Federal Communications Commission Chairman Kevin Martin to Microsoft (MSFT) to Dave Burstein, an often scathing critic of phone companies on his DSL Prime blog. And Todd Rosenbluth, an analyst with Standard & Poor's, notes that with a Presidential election coming up, Verizon's strategy puts the company "in a better light for whoever controls the agenda."

Don't Celebrate Yet, iPhone Fans

On one key front, Verizon clearly isn't throwing the barn doors open: Only phones that run on the wireless standard known as CDMA will be compatible with Verizon's network. That means devices already developed for some carriers, such as Sprint (S), can be submitted for approval for Verizon's network. But the vast majority of the world's mobile networks run on a rival wireless technology called GSM, so existing devices based on that standard—including Apple's iPhone—would need to be redeveloped.

What's more, Verizon Wireless disclosed no details about what customers might have to pay to use such devices. Some critics fear the company may try to force such customers into the industry's usual long, pricey contracts. McAdam stresses that Verizon will be flexible. "We will work with the community to bring out different pricing plans," he says. "If it's a game console, that will have a different model than a mobile video server. We need to let this evolve, and the market will drive pricing. But it will clearly be usage-based. If I check in once a month, I dont want to be saddled with a monthly charge."

But Verizon Wireless can't let prices be driven too low. Under the current system, the company captures a significant portion of its revenue from the sale of premium services, such as ringtones and video games, used on its network. In an open system, outside application developers and manufacturers would get a bigger share of those sales.

It's a risk Verizon Wireless had to take in light of new rivals in the long-closed wireless market. The most notable entrant: Apple. Millions of consumers have purchased the iPhone (BusinessWeek.com, 10/22/07) since its debut in June, drawn by its user-friendly design and computer-like Web-browsing capability. In October, Google announced an initiative called the Open Mobile Alliance, signing up more than 30 partners, including top handset makers and chipmakers. The plan is to create a new operating system for phones that will let hardware and software makers create specialized devices and applications. While Verizon hasn't joined the alliance (BusinessWeek.com, 10/31/07), its new Any Apps program does open the door for Google-based handsets on its network. "This allows Apple or Google or Nokia to build a device that will run on the most reliable network in the country," McAdam says.

Some Immediate Winners…

Some handset makers and software developers welcomed the turn of events. "We've been striving to bring choice to consumers ourselves, and we applaud all initiatives bringing more choice to consumers," says Nokia (NOK) spokesman Keith Nowak. And if open access brings snazzy new devices and applications to Verizon's network, rivals may have little choice but to follow suit. "Verizon's announcement puts a lot of pressure on the other carriers to think long and hard and fast," says Rebecca Arbogast, an analyst at the research firm Stifel Nicolaus.

Although AT&T (T) and T-Mobile (DT) subscribers would need new devices to switch to an open Verizon network, subscribers to Sprint, Alltel, and U.S. Cellular (USM) could have an easy time switching their existing CDMA handsets.

AT&T says it has no plans to ape Verizon Wireless' move. "For us, what really defines true openness in wireless is giving people unfettered access to the things they care about," says AT&T spokesman Mark Siegel. "Real openness is something we've already arrived at and set the standard for."

So now, Verizon Wireless will take a stab at its own brand of openness.

Meyerson is Deputy Technology Editor for BusinessWeek. Ante is Computer Editor for BusinessWeek.

With Olga Kharif in Portland, Ore.