Wednesday, November 28, 2007

Verizon Wireless Punches Hole in Walled Garden

image Verizon Wireless (VZW) was all over the news yesterday with its announcement to open its network to third-party devices and applications.  While the media was focused on the ability to unlock handsets and use other CDMA compatible phones from Sprint and global carriers, the real news was that they were punching a hole in the walled garden of the Verizon Wireless network by allowing third-party applications to run on their network.  Previously only Verizon approved applications designed with Qualcomm's BREW ran on their phones.  This situation allowed Verizon to charge and control the content that ran through their network.  You could not listen to streaming audio from Pandora because it was not a Verizon approved BREW application.  Coincidentally, Verizon and Qualcomm received a piece of the action for every approved BREW application.  It worked out well for everyone except the consumer.

According to the VZW announcement, early in 2008 third party application developers will be able to submit their applications for approval to Verizon to ensure compatibility and security.   Verizon is not being altruistic with this "Any Apps, Any Device" initiative.  They read the writing on the wall from Apple, Google, and the FCC towards open access networks and phones.  As Sprint, T-Mobile, and AT&T become part of the Open Handset Alliance, Verizon Wireless stood to be the only major U.S. wireless carrier with a completely closed network; not a good P.R. move.  They are trying to give the impression that they are being forward thinking while in reality it is just another "me too" move.  Remember that in September they filed a law suit against the FCC's decision to open up a third of the 700 MHz spectrum to be auctioned in January.  Last month they chose to drop the law suit only to let the CTIA continue the pursuit.

In general, opening up their network increases the value of the network because more devices can be connected through more applications.  On the other hand, third-party applications could eat into some of Verizon's revenue for voice, music, and video.  Content and service providers can offer VZW customers competing services.  Voice over mobile allows subscribers to make voice calls over the flat-rate data network without using plan minutes.  International calls can be made at a fraction of the cost VZW charges for them.  Skype users now have their buddy lists to communicate with other Skype users or use SkypeOut.  Wi-Fi enabled phones can jump between Wi-Fi hot-spots and the Verizon network minimizing the cost to the subscriber and improving coverage while inside buildings and the home.  In the short-term there are significant opportunities for Skype and other similar companies to take advantage of mobile bypass to reduce international toll charges.

Video services are fairly costly through Verizon.  Open source video streamers will quickly come on the scene that can play video podcasts and other programming.  How long would it take before iTunes videos are available on Treos, Blackberrys, and J2ME capable devices?  Video will be the test of how open the network is because of its extreme bandwidth requirements.  Expect tiered pricing for different bandwidth levels.

In the short-term, the loss of revenue will drive down ARPU for VZW subscribers.  Competition will cause subscribers to seek content from alternate providers, and VZW will have to respond by lowering prices of their content.  New companies will sprout up around this new opportunity. The Net Neutrality argument will also arise just as it has on broadband access because the new content entrants will feel that they are being slighted.  In the long-term as applications and devices proliferate, VZW will see greater usage of their network; therefore, driving up revenue overall.  Also, it will drive them to develop unique and compelling content to woo customers back.

The complexion of the wireless market in the U.S. is beginning to change.  The inertia to open mobile networks has begun which will have profound implications on we communicate and digest our content.   When fully implemented, our mobile devices will be just another form factor for how we communicate.  Applications will allow seamless movement of data and content between devices.  Imagine watching a football game while on the train from work, pausing it to drive home.  Picking it up on the HDTV in the living room and finishing it on the computer in the bedroom while finishing up some late e-mails.  This is just one example of the new services we have in store via open-access networks.  In the end, wireless service providers and consumers will be better off.

Note:  There are several excellent articles that detail the VZW announcement.