Verizon Open Platform: Looks Like A Big Bid For C Block and A Shout Out To Tim Wu

Tearing myself away for a moment from the drama and bitter disappointment of today’s cable vote, we have an announcement from Verizon that it will offer an “open platform” option for its wireless services. According to the news reports, starting in 2008, VZ will publish a standard for connecting to their network, host a conference for developers, work with developers, set up a testing lab to ensure that devices meet the standard and won’t harm the network, and allow devices to connect to the network. They also promise not to interfere with any application running on the device.

They pledge to make this available on the whole network. Not “just on a portion of the network, or a piece of spectrum that may become available after 2009.” For tech support, if you are a “bring your own device,” you can call VZ to make sure your device is connected but you are otherwise on your own.

Verizon says they are doing this in response to market demand. Rumors that this is an effort to head off regulation or declares an interest in C Block are baseless speculations of undisciplined internet bloggers like yr hmbl obdn’t. But they do stress several times on this press call that this is all about the market working, just as terminating early termination fees had nothing to do with regulatory pressure, so there is obviously no need to regulate.

Maybe. But while I’m certainly glad to see Verizon come around to my way of thinking that openness is the ultimate “killer app,” I think credit is due to three other events that helped Verizon see the light on openness: Tim Wu’s incredibly important paper on wireless Carterfone last February; Kevin Martin’s decision to put an “open devices” condition on the 22-MHz “C Block” licenses in the upcoming 700 MHz auction; and the iPhone hearing last July, where Congress made it clear they didn’t like the idea of locking desirable devices to a single provider.

Why? See below . . . .

I take a couple of things from this. First, I think VZ is right that this is a good market decision. As always, there is certainly some truth to the story of market pressure. When Google announced it was going to make an open platform available for development, and a bunch of serious providers like T-Mobile and Sprint jumped on the bandwagon, it was a sign the industry was changing. Further, as I always say in the network neutrality context, openness really is the “killer app.” Once Google made it clear they would play seriously and developed a platform usable by others, Verizon had to sit up and take notice. So, in fine free market style, they are taking a serious threat to their business model and turning it into a selling point. Rah rah Ayn Rand, Milton Friedman, and a chance for my opposite numbers at Technology Liberation Front to plug the “markets are better than regulation” meme.

I also give Credit to VZ for — as usual — being swifter on the uptake than AT&T. Just like VZ proved right betting on fiber to the home, they are also proving right on betting on open wireless rather than trying to stay lords and masters of their wireless domain.

Which leads me to point 2, impact on the upcoming 700 MHz auction. Verizon’s proposal pretty much mirrors what the FCC’s July 31 700 MHz Order requires for the C Block. Publish an open standard, work with developers, no blocking, etc., etc. (Still need to see if Verizon will charge an extra “hook up” fee or some such if you bring your own device, which is prohibited for C Block. But by the time VZ has to announce that, they will know if they won the C Block or not.)

Until now, it wasn’t clear if VZ was going to go aggressively for D Block (the national 10 MHz license partnered with the public safety community) and the other licenses and avoid C Block (the big 22MHZ block with the open device condition for you folks reading this for the first time), or if they would make a major play for C Block. This clearly positions them to make a play for C Block. Mind you, they could still go for D Block as well. But this clearly gives them a way to integrate C Block licenses without major disruption.

Again, I think it’s important to see how the landscape in the last month has pushed Verizon to make some wireless lemonade out of some business model lemons. As I’ve suggested in the past, building an absolutely kick ass, high-capacity, mobile wireless network is an integral part of VZ’s strategy to fend off the threat from the cable industry. To do that, VZ absolutely needs a nice chunk of the upcoming 700 MHz spectrum. When Martin forced the C Block condition, it made it much harder for VZ to get that without opening its network. With Google looking like a serious bidder, VZ could not count on the C Block going for below reserve price and thus triggering a reauction without the open device condition. Now add the fact that the FCC gave Frontline a boost on bidding for the D Block, and that build out of D Block will be negotiated with the public safety community and may be even more disruptive to VZ’s business model than opening up its network to integrate C Block.

Which brings me to point 3. Despite what I said above market pressure, this also would not have happened without regulatory pressure. I give Verizon credit for needing only a modest shove rather than the clue-by-four AT&T will need. But lets not pretend this would have happened without the regulatory carrot of C Block and the bully pulpit stick coming from Congress. Last year, no one was expecting cell phone companies to open their networks. But three things happened to put this issue on the regulatory radar and give the market a healthy shove from the non-invisible hand of Washington. First, Tim Wu’s incredible paper on how wireless providers cripple devices and block services made it impossible to pretend there wasn’t a problem. In a flash, the debate shifted from “is there really device crippling going on” to “should device crippling be an acceptable business model.” Second, the very public debate on the 700 MHz auction put this on the policy radar and showed people that we could change the wireless world by changing the licensing rules and licensing process. Finally, the iPhone dramatically demonstrated for people how allowing networks to dictate what devices will connect to the network and what applications they can run drove up prices, limited competition, and generally pissed off consumers.

So no, it wouldn’t have happened without Google and Android, but it wouldn’t have happened without Tim Wu, C Block, or the iPhone Hearing. In fact, Google and Android and the rest of the “market shift” probably wouldn’t have happened without Tim Wu, C Block, and the iPhone Hearing. While my opposite numbers on the Free Market side will no doubt disagree, and Verizon & CTIA will tell me I’m just plain wrong, I don’t believe it was the “invisible hand” of the market alone that pushed Verizon to open its platforms. It was the very visible carrot of licenses with conditions, and the potential stick of regulation, that helped steady that “invisible hand” to push in the right direction.

Up next, why we still need regulation to open up the wireless platform, rather than just leaving it to the market.

Stay tuned . . . .

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8 Comments

  1. To me, the tone of the FCC Second Order and Report on 700 MHz made it pretty clear that the commission wasn’t going to tolerate closed devices and crippling systems. I was surprised by the tone about this throughout the report. Even anti-regulatory Republican congresspeople have suffered the heartbreak of phone locking and crippling, and have spoken out against the practice.

    Perhaps Verizon wants to set its own terms rather than have those imposed.

  2. Harold says:

    Glenn:

    I believe that’s exactly right. Verizon has recognized the writing on the wall that is both market based and regulatory. Rather than keep hunkering down and try to maintain the same business model, they are moving proactively to head off regulatory mandates as well as to keep Android from capturing the open device market.

    Its consistent with what they did with FIOS. Yes, they bet heavy on fiber because they predicted it was a winner against cable. But they also knew that if they failed to deploy FTTH, that regulators would eventually lose patience. So they sank a boatload of capital into it and can now say to regulators “see, deregulation is working, we did FTTH just like we promised.”

  3. Even the Democrats at the FCC understand that hyper-socialistic regulatory zeal doesn’t cut it in America, so the “regulators made them do it” theory is silly. Verizon has figured out (from FiOS and CDMA) that superior technology wins in the marketplace, so the more the better.

  4. Aaron says:

    “hyper-socialistic regulatory zeal doesn’t cut it in America”

    Yes, everyone knows hyper-anti-humanist corporatist zeal is the way to go…

  5. Yep, profits before people, dude.

  6. Jim Harper says:

    Sorry for the delay, Harold – I’ve been traveling.

    I disagree.

    (It’s an experiment without a control, so what are you gonna do?)

  7. Harold says:

    Jim:

    Assume you disagree on “regulation is working.” What about “VZ will bid on C Block?”

  8. Jim Harper says:

    Correct. Disagreeing as requested.

    No prediction on whether Verizon will bid on C Block.

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