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Verizon Wireless' Open Network Option Positions It Well for the Future| November 29, 2007 | Wireless Services - U.S. | Competitive Intelligence Report
On November 27th Verizon Wireless announced that it will open up its network for third-party applications and devices. It will release technical standards in early 2008; devices meeting those minimum technical standards and passing certification testing may be activated on the network. Any application the customer chooses will be allowed on these devices. Verizon Wireless will continue selling subsidized handsets with carrier-approved features and applications through its retail outlets and partners. Analytical Summary • Current Perspective: Very positive on Verizon Wireless’ plans to allow any third-party device and application onto its network with just a network certification test in 2008, because the move gets the carrier out in front of potential changes in the regulatory and competitive environment. This is a brilliant public relations move with minimal actual business risk. Indeed, in most cases, the carrier-direct channel will continue to be the primary handset sales channel, as consumers will choose subsidized devices and vendors will want access to carrier retail shelf space and seemingly unlimited advertising budgets. Technical factors such as network technology and frequencies used will make building a device a nearly custom endeavor well into the future. • Vendor Importance: Very high to Verizon Wireless, because this announcement gets the carrier out in front of regulators, positions it well regardless of who wins the 700 MHz spectrum auction, and provides a clear roadmap for things such as Google's Android/Open Handset Alliance to work with its network. This is not just a defensive move; Verizon Wireless clearly hopes that this will enable it to sell services to users who want open handsets and other connected devices it would not have had access to in its more traditional development and distribution model. • Market Impact: High on the wireless services segment, because competitors will likely need to follow Verizon Wireless’ example or become outliers, which does not bode well for public relations. To some extent, customers have been using unlocked devices on GSM networks for years. Yet this fact has not been widely publicized, as GSM carriers have not exactly embraced it, giving Verizon Wireless a considerable PR coup in positioning itself as an innovative market leader in “openness.” Lower barriers to entry could also lead to a new round of MVNOs. Recommended Competitor Actions • Sprint already plans to open up its XOHM network; if vendors begin building devices in anticipation of Verizon Wireless’ open play, Sprint will have to do the same on its CDMA/EV-DO network. (There is probably no point in opening up its iDEN network, even though the use of SIM cards there would make it an easier program to manage.) • AT&T and T-Mobile should downplay the significance of Verizon Wireless’ announcement and note that unlocked GSM-based devices have been working in its networks ever since their launch. Verizon Wireless is merely playing catch up with the status quo in the GSM world. However, AT&T and T-Mobile can take back the initiative now – not in the second half of next year – by providing and publicizing service plans for GSM devices bought elsewhere. • Competitors should note that most U.S. consumers will still choose free, subsidized mid-tier handsets from a carrier rather than buying a higher-priced device. In dollars and cents, mainstream consumers usually vote with a minimal out-of-pocket decision. • Existing MVNOs may diversify their service portfolios by exploring the possibility of sourcing open devices that work on the Verizon Wireless network. Depending upon the new service pricing structure, they can set up a data-only MVNO that caters to a different segment. • MVNOs running on the Sprint network should consider pushing Sprint towards the same open policy as Verizon Wireless as well as network connectivity certification. The possibility of greater device diversity may be a competitive tool that MVNOs can offer to those fence sitters who are unhappy with their device portfolio. After all, while hardware sales are good, recurring service revenue is the integral component on which carriers and MVNOs live.
• This announcement will not result in open devices on Verizon Wireless’ network until H2 2008. At that time, consumers will be able to choose between subsidized devices purchased directly from the carrier (with technical support provided by the carrier) or, possibly, a wide variety of unsubsidized devices offered, sold, and supported by others. • With literally hundreds of new phones hitting the U.S. each year in the existing carrier-controlled market, it is hard to predict whether an open network will bring more exciting devices than today’s smartphones, such as Apple’s iPhone, LG’s Voyager, or RIM’s BlackBerry Pearl, just to name a few. Consumers who need a phone today should not wait, though they can hedge their bets by taking a shorter contract.
CLIENTS ONLY Current Perspective Competitive Positives and Concerns Recommended Vendor Actions | Client access - New Wireless Research Portal | More information |
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