Tuesday, 27 November 2007

Questions about Verizon's new "open" attitude

More than half of the traffic to this weblog comes from outside the US, so there are times when I feel obligated (and a little embarrassed) to explain how the mobile market works here. This is one of those moments.

Verizon, the largest US mobile carrier, made headlines in the US today by announcing that by the end of 2008 it's going to make its network available to any device and any application that the user chooses to install (link).

This will seem remarkable to people living in GSM countries where it's normal to choose any device you want. But in the US, it's an unusual idea. Here mobile usage is split between GSM and CDMA. GSM phones have SIM cards, which technically allow you to switch your account to any phone you want. But in practice, almost no users are willing to give up the several hundred dollar subsidy for buying a phone and service plan together, so they only choose phones that come through the operator.

Things are even more restrictive in the CDMA space, where there are no SIM cards. If you buy a Verizon phone, it can only be used with a Verizon account. Same thing for Sprint.

So Verizon's announcement is a nice change, on the face of it. It's also something of a pleasant shock, since Verizon has the reputation of being the most conservative and controlling US operator. But the announcement's actual impact on the market is going to depend on several questions that Verizon hasn't answered yet:

--How will open access be implemented? Verizon says it's going to define a process by which phones can be certified to work on its network. That could be routine or it could turn into a huge barrier to entry. We also don't know how a user's account will be switched between phones. Is Verizon planning to start installing SIM cards in its phones (something that has been done with CDMA in China)? If not, will you have to take the phone to a Verizon store to get it activated? How much will that cost?

Verizon apparently said something about doing activation through a toll-free number, which could be cool.

--How will the service be priced? Verizon's service plans include recovery of the several hundred dollar subsidy for hardware. You pay for the subsidy as part of your monthly bill. Since Verizon doesn't have to recover a subsidy cost on its open access phones, there's about $10 or more a month that it could pass along to consumers in the form of lower bills.

If Verizon doesn't price the open service lower, what happens to the extra money? Does Verizon pocket it? Or will they offer some sort of rebate on purchase of open access phones?

The answer to this one is critical. The US GSM carriers are technically open, but the subsidy prevents significant sales of alternate phones. If Verizon pockets the subsidy money, very few people will take advantage of the open service. The whole thing could turn out to be a PR gesture rather than a genuine change.

But in the hope that Verizon wants it to be more, here's what they ought to do:

--Make the monthly cost of the open plan lower than a traditional service plan, reflecting the absence of a subsidy.
--Make the handset certification process simple and low cost.
--Make it easy for users to switch their account to a new phone (preferably via a SIM card or website or that 800 number, so they don't have to come to a store).

That's an announcement I'd stand up and cheer for.

Impact on the industry

Until we hear the answers to the questions above, it's impossible to guess how impactful this announcement will be. The most important factor may be how the other US operators react. The best result would be if they start competing with each other to see who can make their network more open. If that dynamic takes hold, competitive forces might drive them to really open up even if they don't intend to.

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