November 27th, 2007

Apple Wins: Verizon Is First Wireless Carrier To Open Network

by

When Apple launched the iPhone exclusively on AT&T’s crumby edge network — and I refused to buy one for that reason — I predicted that Apple’s real endgame was to break the wireless carriers’ stranglehold on handsets, so that Apple could sell iPhones on any network. Sure enough, Verizon just announced that next year it would allow any phone — and any application on any phone — to be used on its network.

I held my ground with Verizon, but many people eagerly switched over to AT&T to get an iPhone — many of those probably abandoned their Verizon accounts and gladly paid the termination fee. You can be sure Verizon was keeping count. And you can be sure this is what Apple told Verizon would happen when Apple refused to accept Verizon’s terms for the iPhone launch. AT&T was just a pawn.

This also puts into perspective Apple’s cracking down on open iPhones — it’s not that Apple doesn’t want iPhones used on every cell network — it’s just that they needed to break the back of the industry first, using consumer demand as a blunt instrument.

Steve Jobs always has a plan.

At Silicon Alley Insider, Dan Frommer observed:

But if you’re a Verizon subscriber drooling for one of Apple’s iPhones, don’t get your hopes up: the iPhone — and its exclusive U.S. carrier, AT&T (T) — use a different kind of cellphone network, called “GSM.” Apple (AAPL) would have to design a new phone to work on Verizon’s (VZ, VOD) “CDMA” network.

What makes you think they aren’t already working on one?

Of course Verizon’s move isn’t just about the iPhone — Om details the other factors (and is rightly skeptical — there’s probably a lot more drama to unfold). But this unprecedented move by Verizon a mere five months after the launch of the iPhone is unlikely to be a coincidence.

To quote Om once more, open carrier networks means “Bye-bye subsidies” for handsets — you can see Steve Jobs smiling.

Comments (16 Responses so far)

  1. Wow – this is huge news. Well reported Scott.

  2. AT&T has a five year exclusive on the iPhone (and subsequent versions), so it’s irrelevant to the US market whether or not Apple has a CDMA version in the wings. Verizon’s announcement may have been influenced by Apple, but what they’re planning is so limited in scope — they can still use all sorts of certification requirements to restrict what devices connect to its network — that it’s not clear to me that this will do much to usher in the sort of wireless nirvana we all hope for.

    I think the more immediate impact of Verizon’s announcement will be on non-phone devices — not many people have noticed that the Kindle is the one of the first devices that isn’t a phone or a laptop to sport a built-in broadband modem.

  3. Hi Peter,

    Five-year AT&T exclusive is indeed a major caveat — and no doubt that wireless nirvana is a very long way off.

    But it would have been hard to imagine Verizon contemplating this even a year ago. That Apple had ANY influence on Verizon’s announcement is pretty staggering. A year ago, Apple didn’t matter in the world of wireless.

    Is there an imaginable scenario where the five-year AT&T exclusive doesn’t play out? We’re talking about Apple here, who beat the iPhone moniker out of poor Cisco.

    Speaking of non-phone devices, what if you put a broadband modem into an iPod Touch? (Yeah, wacky on the surface, but there’s always the myth of convergence.)

  4. I’m sure the iPhone played a role, as did the Open Handset Alliance, the upcoming 700MHz auction, and a variety of other factors, including the Kindle. I’d love to know what role the Kindle played in all this. Amazon went with Sprint rather than Verizon, for the Kindle, even though Verizon has the bigger network (which would ensure more Amazon users could actually take advantage of the Kindle’s wireless capabilities). Broadband service hasn’t grown as quickly as the carriers had anticipated, and it’s not hard to imagine that Verizon sees the potential revenue opportunity in non-phone devices connecting over Verizon’s data network. They want to get more people pushing data over their network, and this announcement is meant to encourage manufacturers of stuff like ebook readers and GPS navigators and yes, MP3 players, to start thinking about how they can wedge EV-DO modems into their devices.

  5. Please. This is exactly the opposite of what Apple wanted. More simply, if it was what they wanted…they would have done it. Instead they pursued the a model that is profitable only off the subsidies that this announcement makes slightly more obsolete. Apple has to power to disrupt the industry if they wanted and the explicitly chose not to. That it changed in spite of them, I feel, is much more due to Google and OpenSocial than the relatively insignificant sales of the iPhone.

    http://www.bubblegeneration.com/2007/11/research-note-competition-at-edge.cfm

    Umair is right.

  6. I hear from mobile phone people that the iPhone is nowhere near being sold at a profit. Which, of course, means that Apple is making all its profits from its revenue sharing deals.

    And that is why it needs to keep the phone as locked to its chosen providers. An iPhone on any network but AT&T is, effectively, a loss for Apple.

  7. [...] resultado de una combinación de factores: la presión de Google con su Open Handset Alliance, la presión de Apple con su iPhone y la presión por conseguir la banda de los 700 MHz que se va a subastar en Enero en Estados [...]

  8. Ian,

    Isn’t the iPod Touch built on the same platform as the iPhone? That isn’t being subsidized — do you think Apple is selling the Touch at a loss? And if not, how could the delta in the economics of the Touch and the iPhone be so great that the iPhone be sold at a loss and the Touch not? Doesn’t make sense.

  9. News? Yes. Huge news? I’m skeptical. Verizon needs to “approve” all devices first and don’t you think they are just a head of doing this before government (Big Brother) forces them to?

    The U.S. is still tremendously behind the rest of the world in wireless. Perhaps this is a small step in the right direction.

  10. [...] to speculate on the legal feasibility of Apple selling Verizon capable devices. But I will point to this post by Scott Karp that gives me a glimmer of hope that my dream situation may in fact come to [...]

  11. Some great commentary:

    http://gigaom.com/2007/11/27/what-it-means-why-verizon-went-open/

  12. The iPhone is an amazing little toy, and Apple will reap the benefits of introducing the first-of-its-kind device for quite some time.

  13. For a variety of odd reasons … I wound up in western new york with three phone plans … an expiring Verizon plan, a new Sprint plan for my wife’s phone, and a Sprint plan through work.

    My cost to switch my own phone was zero. I just needed to wait another month for that old Verizon plan to expire, but when I canceled as I planed to do anyway, I said, “yeah, I got an iPhone.” (dig).

    Because I’ve experienced both Verizon and Sprint in this market, I have some idea of what their service is like here.

    I’m so, so, so happy with both my iPhone and AT&T’s service here (as compared to Verizon and Sprint) that for Christmas (shh, this is a surprise), I’m getting my wife and iPhone and happily paying Sprint’s termination fee on her current phone.

  14. While the iPod touch and iPhone share the same platform there are many significant differences which make the iphone much more expensive to build. Of course, there’s the radio, but you can add a much more powerful battery, Bluetooth, speaker, and so on. Hold an iPhone in one hand and the iPod in the other, and you can feel the difference (I own both)

  15. [...] to speculate on the legal feasibility of Apple selling Verizon capable devices. But I will point to this post by Scott Karp that gives me a glimmer of hope that my dream situation may in fact come to [...]

  16. its true…no doubt about it

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