With its winning $4.7 billion bid last week, Verizon Wireless didn't just stake claim to beachfront wireless property, it also grabbed control of the guest list to the open-access party.
The government, in opening up the coveted swath of the spectrum, essentially said the winner must allow consumers to use any compatible device or software on it as long as it doesn't harm the network.
But analysts said the open-access playground comes with restrictions and Verizon, as the winner, will be the one making the rules and setting the schedule.
"It's unreasonable to expect these guys to go radically changing their business models if they successfully defended the gaggle from encroachment, from the Googles and Comcasts of the world," said John Jackson, wireless analyst with the Yankee Group.
Wireless carriers, such as Verizon and AT&T Inc., have a tight grip on devices and applications that operate on their networks, selling and supporting a limited line of products through their retail stores and partners. Carriers claimed this ensures better service for customers.
The open-access rules are designed to loosen that grip, giving way to more products, innovation and competition. But with Verizon in a gatekeeper's role, analysts and others say they expect an incremental improvement.
"This won't immediately change much for the average consumer buying an average phone," said Avi Greengart, research director for mobile devices at consulting firm Current Analysis.
Hopes for a truly open network were dashed even before Verizon Wireless won nearly every license for the open-access block of airwaves, one-third of spectrum sold in the record-setting $19.6 billion auction that ended last week. The spectrum is being freed as part of the switch to digital television in February 2009.
Consumer advocates and tech entrepreneurs said the Federal Communications Commission wasted an opportunity by not requiring the winner to lease airwaves to competitors.
The agency, including its Republican chairman, Kevin Martin, last year imposed the open-access conditions for devices and software on the desirable block. To that end, it may free up handset makers, such as Nokia Corp. and Motorola Inc., to offer devices directly to the consumer rather than through a carrier.
"The macro point here is it just opens things up to hopefully more innovation, more creativity from more diverse sources," said Rebecca Arbogast, an analyst at Stifel Nicolaus.
But new devices could prove pricier than those already sold by Verizon Wireless.
And that, said Greengart, gives consumers no reason to buy a higher-priced device directly from another company when it can get the same or similar device that Verizon Wireless offers for less or free in its service plans.
The country's second largest carrier behind AT&T with 66 million customers, Verizon Wireless initially lobbied against all open-access provisions, even challenging the FCC's agreed-upon conditions in court before dropping the lawsuit in October.
Analysts said the company did an about face when open access started gaining regulatory traction and winning public opinion. By the end of 2008, Verizon will allow new devices and applications on its current network as long as it meets minimal technical standards. The company said this will spur innovation and position the company for new growth, which earned $44 billion in revenue last year.
The Basking Ridge, N.J.-based company, a joint venture between Verizon Communications Inc. and British telecom company Vodafone Group PLC, declined an interview because it is still under FCC anti-collusion rules that prevent discussing the auction. Those rules will be lifted April 3.
The company's open-access network will likely emerge in two years in some cities under government buildout rules, but a nationwide rollout may take a decade.
Critics said the more ambitious condition — also pushed by Google Inc. — to require the winner to lease airwaves on a wholesale basis to other competitors would have given Americans a third option for broadband service besides cable and telephone lines.
"That's the biggie," said Ben Scott, policy director for Free Press, a nonpartisan public interest research group. But he said Verizon Communications, which owns a majority of Verizon Wireless and is the dominant DSL provider in the country, isn't going to create a product to compete with itself.
Public interest advocates said they'll urge the FCC to impose this provision on a chunk of spectrum to be re-auctioned later this year.
Technology entrepreneurs also aren't expecting much from the open network.
Amol Sarva, a co-founder of wireless company Virgin Mobile USA Inc., said the auction just concentrated more power among the top two carriers, giving Verizon Wireless an opportunity to shut out innovative applications that may compete against its products. The entrepreneur plans to launch a mobile e-mail startup, Peek, this summer, but not in partnership with either Verizon Wireless or AT&T.
Sarva, who's testified for open-access conditions before Congress, said he fears that meeting the network's minimal specifications may be laced with "asterisks and fine print" designed to prevent competition.
"Until it can really be demonstrated to be different, there's too much history of these guys making these bogus moves to believe it," he said.
Source: AP Newswire