Verizon switch is a win for Google

November 28, 2007, 5:43 AM UTC

By Yi-Wyn Yen

Verizon Wireless’ move Tuesday to open its mobile network to any and all cell phones marks a victory in Google’s campaign to knock down the carriers’ wireless walls.

Along with AT&T (T), Verizon (VZ) had declined to join Google’s Open Handset Alliance to develop a mobile platform called Android that would work on all phones and networks. Verizon still hasn’t signed up, but in practical terms it’s taken a big step toward accepting Google’s vision.

“We think this is a great step forward,” said Google CEO Eric Schmidt in a statement. “As the Internet has demonstrated, open models create better services for consumers and stronger businesses for providers. We are excited to work with Verizon and other industry leaders to achieve this vision.”

Verizon executives insist that customer needs, not Google’s recent mobile moves or an upcoming broadband spectrum auction, drove the No. 2 carrier to open its network. “We’ve been looking at this for a very long time,” said Verizon CEO Lowell McAdam during a press conference Tuesday. “We constantly monitor market forces and have seen that the accelerating pace of innovation and expanding need of customers demands multiple business models.”

The wireless carrier had previously opposed Google’s push for more network openness and consumer choice. But last summer the Internet search giant successfully petitioned the Federal Communications Commission to change the rules of the Jan. 24 wireless spectrum auction to require the winner to create a more open network. Verizon saw the move as a way to weaken the control carriers maintain over the phones and services consumers can use and complained to the FCC about Google’s (GOOG) open-access rules.

Now Verizon’s trying to turn its sour grapes into wine. “The takeaway is that Verizon is at least acknowledging the approach that Google is advocating,” says Forrester Research analyst Charles Golvin.

It’s no coincidence that Verizon’s announcement, which will also allow consumers to run third-party applications on their phones as long as they meets certain standards, coincides with the FCC’s ruling on the upcoming 700 MHz auction. Verizon’s new move to give consumers more phone options makes bidding for the chunk of the valuable so-called C-block spectrum more competitive.

“One thing Verizon’s expressed is that the C-block was worth a lot less to them because they didn’t want to have all their networks open. Now they’re reversing that position,” says Blair Levin, a telecom analyst at Stifel Nicolaus who is a former FCC chief of staff. “If they’re going to open up everything anyway, suddenly the business strategy makes sense and the value of the C-block isn’t diminished.”

Both Verizon and Google are expected to submit applications to participate in the auction by a Dec. 3 deadline. The timing of Verizon’s announcement and its policy reversal suggests a warning to Google that it’s serious about winning the auction. Google, which has yet to decide if it will partner with another bidder, ultimately wants to see an open network no matter who wins.

Google generated a great deal of fanfare earlier this month when it announced Android and the Open Handset Alliance. A loose federation of 33 mobile companies has signed on to use Google’s Linux-based operating system.

Though Verizon appears to have no current plans to hop on the Google bandwagon, it’s shown that it’s at least embracing a similar model to allow third-party developers to write software for its platform. A Verizon executive said that mobile operating systems from Google, Microsoft (MSFT) and Palm’s (PALM) could work on the Verizon network.

“I think Google had a view that the market would force the players to be more open, but that it might take several years to get there,” says Levin. “Now that Verizon is opening up, AT&T will have to do it, too.”