The Wireless Showdown of 2008

Until last year, the wireless space in the United States was fairly dull. The wireless carriers such as Verizon and AT&T owned your house, guarded the doors, sold you the locks, and kept the keys. This year, things started to change.

The megahertz are aligning in the wireless spectrum and fireworks are on the cards. In this corner of our triangular ring, we have Apple Corporation with a phone that rivaled Harry Potter as the news story of the year. In the other corner, we have the old guard—Verizon, AT&T, and others who will fight to protect a business model whose time has passed. Or is it yet to come? In the third corner we have the brash young upstart wannabe, Google as a wireless pretender. Google as a savior of the consumer. Google as the master of eyeballs, of clicks, of searches, of the database of our intentions dressed in rainbow shorts.

The referee for tonight is Mr. Kevin Martin of the Federal Communications Commission, the indirect representative of the people, that unpredictable arbiter of all that is digital, all that is analog, all that travels over wires, over the air, through the series of tubes.

In the audience, we have many friends, many enemies, and we have us. In the back of the arena, dressed in suits from the last century, we have other cellular device manufacturers. We can see that they are not quite sure who to put their money on, but that fear is what has prevented them from getting a shot at the title themselves. The fear of disturbing the status quo is what keeps them in the shadows. There we see Motorola whisper to Nokia, “What if Apple wins?” To which Nokia suggests an even more sinister possibility, “What if Apple loses?”

In the audience we also have software developers, web developers, and entrepreneurs of all stripes, but few of them are paying attention to the fight. They’re a cynical bunch. They’ve seen this fight before.

That leaves us. We sit in silence, in the dark. Nobody seems to ask our opinion, though we’ve paid good money for our seats. And we’ve paid good money to make each of these players worth more than many nations. We’re not sure who to root for. We fear change and we suffer from chronic apathy—maybe the old guard should win? We love to root for the underdog—maybe Rocky “Google” Balboa should knock the others out in the last round? But we’re a sucker for a pretty face—that gorgeous Apple and her svelte design—could we say no to her? Of course, we’re not even sure we can trust the referee.

Round 0—Why Now?

This year, Apple introduced the iPhone—the phone that challenged the fundamentals of the industry. If it is not yet, it has the potential of being the phone that opens the consumers’ eyes to the fact that the value is not in the carrier’s network, but in the devices and applications in their hand.

The FCC began the process for auctioning the 700MHz spectrum next year. In the wireless world, this is prime real estate. An incomplete analogy would be if the government was to auction off Central Park in Manhattan. The owner of this real estate could change the face of the wireless industry. Or an incumbent could buy it and sit on it to avoid rocking the boat to avoid allowing new competitors into the market.

And so 2008 is shaping up to be quite a year in the wireless industry. Two extreme outcomes are possible. We could end up with an Internet-like mobile industry where startups with crazy devices, crazy ideas, and crazier applications make use of the network in ways we have not thought of yet, from location-aware applications to mobile payment services. The other alternative is the walled-garden approach of the current wireless industry and of the cable industry where only approved content, from approved applications on approved devices, can pass.

Round 1—A Tangled Web
It’s a three-way fight, and three-way fights are the most fun. There can be alliances and betrayals and compromises are difficult, if not impossible.

Google has a strong relationship with Apple. They got YouTube and Google Maps on the iPhone and Google CEO Eric Schmidt is on the Apple board. On the other hand, Google is also working to take down the iPhone. With the new Android, they are trying to create an open, standards-based development environment for modern mobile devices. Developers could develop for one standard, without worrying about manufacturer quirks or carrier approvals. This is the diametrically opposite approach to the iPhone, though no one is claiming that only one can survive.

The old phone companies are working hard to preserve their walled-garden business model. AT&T has a strong relationship with Apple, with the exclusive iPhone deal that has brought many new customers (and a lot of attention) to AT&T. Of course, Apple also threatens these companies. The iPhone is the first device that shifts the balance of power from the hands of the carriers, such as AT&T, to the hands of the device manufacturer, Apple. People are starting to realize that the value of the wireless network (like the Internet) is not provided by the carrier, but by the devices and applications.

Finally, Google has a strong relationship with some of the communications establishment. They recently established the Open Handset Alliance to standardize the development platform for mobile devices around their Android technology. Sprint and T-Mobile are members of this alliance, working with Google on the platform. On the other hand, Google has challenged these companies to open up their wireless networks. In the upcoming FCC auction of the 700MHz spectrum, Google has pledged to bid at least $4.6 billion in the auction if their conditions for openness are mandated by the FCC as part of the auction. The conditions require whoever owns the spectrum to allow any device and any application to work on the network in addition to allowing wholesale resale to third parties, and should allow a reasonable interconnect with other networks.

Round 2—Did You Say Open?
If there is one thing every oligarchy fears, it is regulation. With the increasingly vocal critics of current communication industry practices—made more popular because of the iPhone—the spectre of regulation was on the horizon. Rep. Ed Markey (D-MA) had already questioned their practices in the infamous “iPhone Hearings.” Google’s populist claims (backed by many smart, independent thinkers, analysts, and policy folk) of peace, brotherhood, open handsets, and open networks for all, showed people and the government a world without controls. And the iPhone made us want a world without controls.

So last week Verizon gave us a world without controls. Or at least they claim that such a world will be unveiled in 2008. The fear of Google, Apple+AT&T, the FCC, and (we would like to hope) the consumer, lead Verizon to release the following statement:

Verizon Wireless today announced that it will provide customers the option to use, on its nationwide wireless network, wireless devices, software, and applications not offered by the company. Verizon Wireless plans to have this new choice available to customers throughout the country by the end of 2008.

In early 2008, the company will publish the technical standards the development community will need to design products to interface with the Verizon Wireless network. [...] Following publication of technical standards, Verizon Wireless will host a conference to explain the standards and get input from the development community on how to achieve the company’s goals for network performance while making it easy for them to deliver devices.

Of course, the devil is in the details, but this has the potential of changing the industry. Can’t grasp the potential? Here is what Verizon CEO Lowell McAdam said:

This isn’t just phones—it could be a very small module in a gaming station, a home appliance, something that goes into your car. It doesn’t have to have the traditional distribution or volumes. [Traditionally] if a device is not going to sell hundreds of thousands, it’s hard to decide because of our scale. But now, if something only sells five, now it can be on our network.

That is fairly mind-blowing, if true. Round 3 begins with the 700MHz auction next year. Stay tuned.

Extra Credit Reading

• Wireless Carterfone paper by Professor Tim Wu
• innovating mobile social technologies (damn you helio) by danah boyd
• The Self-Regulatory Two-Step by Susan Crawford
• A brilliant initial analysis of the Verizon announcement and why now by David Isenberg
• More on Why the Verizon announcement came now by Harold Feld
• On Freeing Consumers, Innovators and the iPhone by Devanshu Mehta (my July article on the iPhone and the 700MHz auction)