Verizon grabs ‘high ground’ with promise of greater device choice: Final impact still unclear

Verizon Wireless’ declaration this morning that “any application, any device” will run on its network next year is clearly an overstatement-Verizon’s CDMA network allows only CDMA-based devices, in use by 60% of subscribers in the United States market, but only 20% of the global market.
Therefore, analysts said, there are not a massive number of CDMA-based handsets available globally that are not available in the U.S. and, thus, little pent-up demand. On the GSM side of the wireless industry, in contrast, a comparatively large array of GSM devices are not generally available in the U.S. and there may be pent-up demand for them.
Global CDMA devices may not even run on Verizon’s network, one analyst said. It’s also not clear, according to another analyst, whether CDMA devices that run on Sprint Nextel Corp.’s CDMA network will run on Verizon’s network without tweaking. Thus the source of demand for open access in the CDMA world is far from clear.
But the announcement does open a door to CDMA handset vendors that see an opportunity to exploit retail channels outside the carriers’ own, or to consumer electronics makers that might embed CDMA cellular modems in their products, akin to the promise of Sprint’s WiMAX initiative, analysts said.
Analysts said, however, that with an announcement that carries certain public-relations advantages, Verizon has bought itself time to see who wins spectrum in the upcoming 700 MHz auction and what the resulting competitive landscape may look like. Verizon then can speed up or slow down its move toward offering open access depending on whether it seeks primarily profit or greater market share in a changing industry.
Thus today’s announcement was long on positioning and short on details.
“Verizon has to balance its desire for market share with its desire for control, which has produced favorable profit margins,” said Albert Lin, director of capital markets at American Technology Research. “More details on how this plays out won’t come until after the spectrum auction and Verizon can see the new competitive landscape.”
In the short term, the announcement “doesn’t change the way people buy their phones,” said Avi Greengart, analyst with Current Analysis. “Verizon will continue to sell devices that are locked down, subsidized and feature its own user interface.”
Carriers select a finite number of phones for their portfolios, which are offered at subsidized prices with technical support, while sharing marketing costs with the handset vendors, Greengart pointed out. Handset vendors that decide to go outside that predominant channel must charge comparatively high prices to cover manufacturing and marketing costs-the proverbial, alternative channel now being developed in the U.S. by Nokia Corp. and Sony Ericsson Mobile Communications, with limited success so far.
“This is a very canny move on Verizon’s part,” Greengart said, because it allows the carrier to claim “openness” and position itself as developer-friendly, at a time when other players-Google’s Open Handset Alliance, Symbian, Microsoft Windows Mobile and others-are making a play for the same developer talent pool. Verizon said today it would hold a developers’ conference early next year, Greengart noted.
The missing element in today’s announcement, Greengart said, is obviously the yet-to-be-determined service options available to new subscribers who choose a handset outside Verizon’s portfolio. The carrier will determine those options when it can better determine possible demand, he said.
The greatest impact on the handset market may be to encourage the purchase of high-priced fashion phones that carriers’ have avoided subsidizing, Greengart speculated. And if Nokia can come to terms with Qualcomm, and reignite its CDMA efforts, the world’s largest handset vendor could increase U.S. sales without meeting Verizon’s stringent and costly device requirements. Ultimately, all CDMA vendors-including Samsung Electronics Co. Ltd., Motorola Inc. and LG Electronics Co. Ltd.-may benefit from creating devices that are not constricted by carrier customization demands, Greengart said. That is, if consumers are so adamant about device choice that they’re willing to pay more for unsubsidized handsets.
“The message,” said analyst Carl Howe at Blackfriars Communications Inc., “is that (Verizon) is a market leader and a good guy. But it’s too soon to tell the impact on handset vendors.”
“It’s not clear how much demand there is for unsubsidized phones,” said analyst Tero Kuittinen at Avian Securities LLC. “The big questions are what will devices (outside Verizon’s portfolio) cost and what is the demand for them? Worldwide CDMA devices won’t run on Verizon’s network for technical reasons. If you look at AT&T Mobility’s and Verizon’s stock prices today, it’s not like anyone’s mind got blown by this.”
“With one in five iPhones getting hacked, it’s clear that the locking/unlocking issue is resonating with the public,” said Rob Enderle, principal at Enderle Group. “‘Open access’ is being debated in Congress. That makes all this an issue. The announcement today plays to Verizon’s generally good reputation.”
Enderle said, however, that moves toward open access in the CDMA market might well spur similar moves in the GSM market, which might carry greater impact for American consumers due to the greater array of device choice in that market.