-- JulianDunn - 12 Jan 2009

Before coughing $5 billion for C-Block last January, Verizon promised the FCC that services provided over its newly won new spectrum would meet 'open access' requirements limiting its ability to exclude devices and applications from the network. Much like the Carterphone 40 years prior, opening this spectrum to any device or application would increase the consumer welfare through higher incentive to innovate and compete. If any device were allowed, bandwidth would have to be provided over cellular networks at non-discriminatory rates and service levels, no matter what applications were employed. Some advocates of the C-Block open access requirements believed they had truly secured the 'third channel' to compete with traditional cellular service offerings directly and eventually unhinge the oligopoly. But the precise contours of the openness requirements are still not available, and with the benefit of regulatory uncertainty Verizon has been hard at work to shirk its public duties.

After losing its battle to strip out the open requirements. Verizon bet that it could successfully disarm the language governing the access requirements by pushing for a narrow reading in Washington. If successful, it could satisfy the open access requirements while maintaining oligopoly power over price. In public they could arrange the window dressing in such a way to convince consumers that progress was being made towards openness, all while ostensibly ignoring the goals of open access.

A year after the auctions, Verizon's website recently recapped the “tremendous progress” they've made in opening their network during 2008. But it is no less difficult for the ability of a consumer to bring a device onto the network than it was before the 700Mhz auction. Unlocked phones have been available to more technologically savvy consumers for some time, but Verizon and the other network operators have long sought to make it not worth most customers' while. Furthermore, no foundational changes have even been made to enable openness in the future. Incremental changes will be made to diversify service offerings, and this will be touted as 'open' measures. But it is clear Verizon is intent on preventing competition at the device and application level for as long as possible. Their publicly stated strategy is to continue to focus on providing 'full service' to its customers, instead of viewing themselves more as common carriers and allowing competition among applications, devices, and content offerings. This shows that despite being the 'open' network, Verizon does not intend to shake the boat. As a result, Verizon's attitude towards its open handset obligations will be lukewarm at best.

Verizon will continue to wield a great deal of power in telling consumers which devices and applications they can use, well beyond the bounds of the certification process. Carterphone established that all devices should be allowed that can be shown to be “privately beneficial, without being publicly harmful,” but the harm Verizon is worried about is its own bottom line, not the public good. Providers have run interference on outside devices by refusing to strip out the device subsidy for those who don't need it, disabling features on customers' devices and the network itself, and steep early termination fees on service contracts. There has been little if any indication by Verzion or the other carriers that this will change. The traditional model of handsets subsidized by higher monthly fees has not been altered. Until service offerings allow outside devices in on fair terms, and plain vanilla mobile data plans(that allow VoIP? and other competing applications), we cannot take cellular providers' claims of openness seriously.

Faced with such an unfriendly service environment, consumer device manufacturers will be slow to develop the next generation of devices. The services and devices that have been allowed onto Verizon's network since the auctions have been very narrow business applications, such as prisoner ankle bracelets and wireless inventory systems. But these parties are quite sophisticated, and presumably would have entered into these deals without the FCC mandate. Wireless providers have always been free to allow their networks to be used for business purposes or for rebranded MVNOs. Until Verizon is forced to open its network by the FCC, it will continue to stall in opening their consumer services to competition from outside. The oft-promised unlocking of the cellular network, where non-harmful devices and applications cannot be turned down is still far for realization.

In the consumer market, the fluff of Verizon's “any device, any application” rhetoric is even clearer. Devices and services in this area have not been altered in any meaningful way to reflect the open access requirements. Incumbents are hoping to extract oligopoly prices from a network that is required to be open and competitive, so they will slow them momentum of devices that could disrupt their profitability, while giving consumers the illusion of openness by incrementally greater service offerings and devices that do not compete directly with handsets. In discussing how device manufacturers will be able to take advantage of open networks, Verizon's CEO pointed to media delivery deals to compete with Amazon's Whispernet MVDO with Sprint. While new uses of cellular bandwidth for specific devices like the Kindle or the Peek email device are welcome and beneficial, but they do not bring us closer to openness and empowering consumer choice. This is quite similar to the iTunes Application Store, where under a banner of openness a discriminating gatekeeper is allowed to treat similar applications differently. The ability to suppress has wide ranging consequences, from censorship to policing content for the RIAA, and the open access requirements must, at a minimum, require non-discrimination.

In an open network, attempts at constraining consumer choice to extract higher profits from inferior products cannot gain traction. The FCC must not bend to Verizon and render open access meaningless. Only if the requirements are robustly defined can we attempt to capture the potential of this spectrum to benefit the public. While the policy buzzwords and ad campaigns will highlight open networks, we must focus on the effect on consumers, and their ability to choose devices, applications and networks on their individual merits.

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