Apple

Slowly but surely, we're reaching the point where future mobile computers will be able to hook up to the wireless Internet just like a PC.

Verizon Wireless' announcement that it will open its network to outside devices and applications by the end of next year is the latest step in the dismantling of the traditional wireless industry. For years in the U.S., we've been locked to networks, saddled with expensive two-year contracts, and restricted from doing things we'd like to do with the products we buy.

It seems like that is finally starting to change. Verizon's strategy is very simple, assuming it follows through on the promises made Tuesday. Any phone or device maker will build a CDMA-compatible (code division multiple access) device, have it tested to meet minimum technical requirements, and sell that device as capable of running on Verizon's network. And it will let any application on that phone access its network. The company said it will release the technical requirements early next year and host a conference around the same time to discuss those standards, with the goal of having devices ready by the end of next year.

The idea is that you'd be able to use any CDMA-compatible phone like you do with a Wi-Fi equipped computer or wireless PC card: When you need to connect, just log onto the nearest Verizon access point without having to sign up for a long-term contract. The cellular industry is starting to realize that it has a chance to capture the huge projected increase in wireless Internet traffic as mobile computers become capable of so much more.

Carriers such as Verizon are drooling over the potential revenue from data usage fees, and while Verizon executives seemed to still be kicking around how much to charge for this open-access service, CEO Lowell McAdam said on a conference call Tuesday that it would be akin to reading a utility meter and charging a price per bit.

CEO Lowell McAdam

(Credit: Verizon Wireless)

They're also feeling the pressure from outside forces. Google's Open Handset Alliance is trying to bring handset makers, software developers, and wireless carriers together to build devices that can run any kind of application across multiple phones and networks. The Federal Communications Commission also plans to impose "open requirements" for a small portion of the 700MHz spectrum slated to be auctioned off next year, and Verizon and the rest of the carriers want very much to be part of that auction.

This is about more than just phones, though. There's an emerging category of devices that fit in your hand and do something really well, yet offer the capability to do so much more: like, say, compute. These include portable game players like the PSP, digital cameras, in-car navigation systems, Intel's evolving Mobile Internet Device concept, and, of course, the traditional smart phone.

Verizon wants those devices to run on its network. But in order to cash in the proliferation of these devices--all of which use very different software--the company had to abandon its "walled garden" approach.

"Over time, expect to see those walled gardens come down some as we think we can continue to provide the most reliable wireless experience to our customers," McAdam said. Om Malik at first compared this morning's announcement to former President Ronald Reagan's exhortation for Mikhail Gorbechev to "tear down that wall," but his enthusiasm was tempered after giving it a bit more thought.

"The about-face taken by Verizon Wireless today when it said it will open up its network and platform is, at first blush, a good thing for consumers and developers. But I just got off the company's conference call, and there are certain details that have left me with eyebrows raised," wrote Malik, a veteran reporter who has extensively covered telecommunications companies.

Until recently, Verizon was notorious for exercising near-total control over its phones, forbidding customers to use even simple Bluetooth applications unless they were meant for use with one of those ridiculous-looking headsets. By next year, that will no longer be the case.

"The provider of the device will determine the OS, distribution system, and whether to include Java applications. It is not ours to make that determination, that is up to the provider," said John Stratton, Verizon's chief marketing officer.

The Federal Communications Commission and consumer groups have been calling on the wireless industry to make moves like this for some time, and McAdam acknowledged that customer demand was forcing Verizon's hand. "A competitive market responds to market forces and customer needs," he said, appearing to make the point that forced regulation of these matters is unnecessary.

Malik points out that Verizon's move could have several benefits for both phone users and phone makers. For one, cheap data-capable CDMA phones designed for the Asian market could arrive in the U.S., and many of those phones are beyond what we're used to in this country. You could get a VoIP capable phone for voice calls and just pay a metered fee, which might work out better for some people who don't place a ton of calls but like to do e-mail or browse the Web.

It could also hasten the end of the subsidy model, and make buying a phone more like buying a computer. As Apple showed us this summer, people are ready to buy phones from a retailer or direct from phone makers like Nokia, Motorola, or Samsung. You'd get your support from them, and all Verizon would do is hook you up to the world. This might make for more expensive phones up front, but it could also give phone makers the opportunity to come up with more innovative devices without having to get approval from Verizon for every last piece of software.

This change isn't going to happen overnight, however. The so-called "full-service" customer option will not go away, and McAdam said that he thinks most customers will want to stay with the traditional plans.

Verizon thinks that restricting the number and type of applications that access its network makes for a more reliable network, which is the centerpiece of its marketing campaign. Apple CEO Steve Jobs made a similar argument in the early days of the iPhone, that opening up the device to applications could cause all kinds of unforeseen security and reliability problems.

Before Tuesday's announcement, Verizon was known for its tight control over what ran on its phones, such as the LG Venus.

(Credit: Verizon Wireless)

However, that's clearly not always going to be the case, and Apple plans to open the iPhone to outside application development next year. Mobile software development grows more sophisticated by the day, and as we all start to realize what we can do with a fast Internet connection available at all times, we're going to want to do more than whatever a certain company's executives decide is appropriate for us to do.

"Customers' needs are increasing and diverging, Verizon won't be able to meet every customers needs with our specific devices and applications," McAdam said. Verizon's current business model forces it to only choose devices that it thinks will sell in large volumes. That's difficult to consistently pick what fickle phone users will want to buy 8 to 12 months ahead of time: just ask Motorola.

CMDA world
One problem for Verizon is its use of CDMA technology. According to the GSM Association, more than 80 percent of the cell phones in the world use the GSM standard to get connectivity. If you're a developer that has come up with an incredible new idea for a phone, do you want to address 20 percent of the worldwide market or 80 percent?

In some ways, Verizon's move actually catches it up to the rest of the world. In the GSM cell phone market (AT&T, T-Mobile, and practically the entire rest of the world), unlocking a phone to run on another company's GSM network is simple. Perhaps a little too simple for some, but swapping in a T-Mobile SIM card once you've grown tired of AT&T (and are free of your contractual obligations) is like changing CDs.

But in the CDMA world (Verizon, Sprint, and countries like South Korea and Japan), it isn't quite that simple. If I wanted to leave Sprint and take my Treo 700p to Verizon, they could make it happen, but they wouldn't honor the manufacturer's warranty for that device if something went wrong. And Sprint only accepts outside phones under the table: I once bought a cheap old Nokia CDMA phone on eBay to use with Sprint, and the representative activated it even though they said they weren't really supposed to do that.

Now it will be simple. Sprint has announced that it plans to allow customers to unlock their phones after settling a class-action lawsuit. The dozens of companies gearing up to build phones based on Google's Android software will have a huge network to design for in the U.S. And application developers will have 63 million potential new customers.

Verizon CTO Dick Lynch even responded enthusiastically to a question from Gizmodo about the potential for home-built CDMA devices. "If somebody has the technical capability of building a device in their basement on a breadboard, the philosophy and structure of this program would say, 'have at it.'"

There are lots of details to be ironed out, perhaps most importantly how much this is going to cost and how the billing will work. But for now, the move is a very interesting look at how cellular networks could evolve into something that resembles physical or Wi-Fi networks, where you just plug and play.

And if you're Sprint, you'd better be thinking about some way to keep customers from defecting en masse to Verizon next year.