New attitudes among handset makers and carriers are leading to an era of choice
In the past few months, the big buzz in the wireless world has been all about openness. Apple (AAPL) is opening up the iPhone to people who want to write their own programs for it. Verizon Wireless (VZN) is relaxing its rules on what handsets and software can run on its network. Google (GOOG) is promoting something called the Open Handset Alliance. And the government has sold off a big chunk of spectrum with a requirement that the winners—mainly AT&T (T) and Verizon—must run open networks. What does the new openness mean to ordinary phone users?
Many good things, in the long run. If you are willing to wait a couple of years, you'll be able to choose any phone that works with your carrier, not just the ones AT&T or Verizon Wireless offer. And you'll be able to run whatever applications you want on those handsets. The change will lead to a new generation of devices that can send and receive data in small batches without requiring a $50-plus monthly contract.
There is already one forerunner of such devices: Amazon.com (AMZN)'s Kindle e-book reader. Thanks to a deal with Sprint Nextel (S), Kindle owners can use Sprint's high-speed network to buy and download books without having to sign any sort of phone contract.
The next big change will come in June, when iPhone users will get to play with the first programs from "third-party" (non-Apple) developers. However, the iPhone will still be a lot more closed than smartphones running Windows Mobile (MSFT), Palm (PALM), BlackBerry (RIM), or Symbian software are today. With those phones, you can download and install programs such as games or custom corporate applications from third-party developers. Even after Apple throws open the gate in June, iPhone programs will only be distributed through the iTunes Store, where Apple will keep 30% of the price. The programs will require Apple's approval. And there will be strict limits on what the programs can do. For example, Apple won't allow third-party applications to run quietly in the background. That will rule out AIM (TWX) or Yahoo! (YHOO) Messenger software, which need to be active to receive messages.
Verizon, long regarded as the most restrictive U.S. carrier, seems to have gotten religion about openness, inviting anyone to build phones and offer them with Verizon service. But I don't think this will revolutionize the business, because U.S. consumers seem hooked on the cheap or free handsets they get for signing service contracts.
Where Verizon really might change the game is in the area of specialized products that use data services in various cost-saving ways. Again, the model is Amazon's e-book. But while that product relies on a complicated one-off deal between Amazon and Sprint, Verizon promises to make things easy for all comers.
Google, for its part, is promoting openness on a broader scale. The companies in Google's Open Handset Alliance are committed to developing and distributing phones based on Google Android software. One benefit will be the freedom to load the software of your choice, now available only in high-end smartphones, onto cheaper, simpler handsets. The first Android-based phones should appear by December and are likely to show up in the U.S. on T-Mobile and Sprint.
Washington's recent sale of a big swath of wireless spectrum will also advance the cause of openness. At the urging of Google and its allies, the auction was paired with open-network rules to protect consumers' freedom to choose their own mobile devices. But the spectrum won't even become available until Feb. 17, 2009, when the analog TV stations now using it go off the air.
Over time, the march to openness will turn walled gardens of wireless networks into something more like the Internet we know on desktops and laptops. There's a risk that this will make things more complicated for consumers, but the advantages of choice will far outweigh the drawbacks.