Update: Verizon’s move called an opening for industry

Verizon Wireless gave a boost to the whole U.S. mobile data industry with its plan to open up its network to third-party devices and applications, according to industry observers.

The nation’s second-largest carrier, a joint venture of Verizon Communications and Vodafone Group, said Tuesday it will allow devices and software that it doesn’t sell to work on its network nationwide by the end of next year. Verizon will also continue its traditional business of selling phones and offering a controlled “deck” of applications and services.

The move seems to preface a Verizon bid for valuable, long-range 700MHz radio spectrum in an auction set for early next year, IDC analyst Shiv Bakhshi said. The rules for that auction require part of the spectrum to be used for an open network. In that sense, Verizon was probably pushed into it by Google’s drive for open-network rules and its Android open mobile software platform. “It’s obviously a reaction to Google’s threat,” Bakhshi said.

But he believes Verizon’s initiative could have wide-ranging effects and, in turn, lead other carriers to open up.

“This suddenly allows a lot of manufacturers of non-cellular devices to seriously consider Verizon as a network option,” Bakhshi said. Those could range from Internet tablets like the Nokia N810 to in-car systems that send data about a vehicle’s condition to the manufacturer, he said. Subscribers will also get a lot more applications to choose from on those devices, easing one problem that has impeded the growth of mobile data, Bakhshi added.

The move is good for Verizon’s image as well as its business, he said.

“It takes away the sting of the criticism that the networks are closed,” Bakhshi said. At the same time, it makes Verizon’s network more valuable to subscribers because they can connect more devices to it, he said.

“It would not be very smart on the part of other operators to give up that opportunity,” Bakhshi said.

One executive of a mobile content delivery company also welcomed the plan.

“The good thing about this is that the content provider will be able to work a lot more closely with the handset manufacturer than they have in the past,” said Brian Casazza, CEO of mobile content delivery company 9Squared. That’s easier than tailoring their content offerings to the user interface and handset configuration that each carrier specifies, he said.

Verizon’s approach is more attractive than Android, which will present yet another software platform to develop for, Casazza said. He would rather work with handset makers using existing operating systems, such as Windows Mobile and Symbian.

“Handset manufacturers aren’t going to reinvent the wheel on their OSs,” Casazza said.

The change might be a boon to Nokia, which wants more control over its own software environment than U.S. carriers have been willing to give it, Casazza said.

He also expects other mobile operators to follow Verizon’s cautious example, stepping into an open model without abandoning their traditional businesses.

Third-party content and application providers are likely to face some challenges in billing for their products, which typically are handled through the subscriber’s phone bill today, Casazza said. But with more freedom to write new software, they will probably be able to create systems for credit-card or other billing systems that are attractive to consumers, he said. There is a financial incentive to do so because mobile operators take a big cut of each transaction that appears on their bills, he said.

Verizon plans to hold a developer conference in the first quarter after it releases the technical specifications for the initiative, and it will explore the billing issue then if developers are interested in it, said Verizon spokeswoman Nancy Stark.

The carrier got a valuable seal of approval on Tuesday when Microsoft said it supported Verizon’s initiative.

“We are proud to support any open access that puts more power in people’s hands to connect them to the information they want when and where they want it,” said Pieter Knook, senior vice president of Microsoft’s mobile communications business, in a prepared statement.

Though important, the plan Verizon outlined Tuesday is just one step for the carrier and the industry, said analyst Jason Kowal of Analysys. Cell phones have a market penetration of about 80 percent in the U.S., and the subscriber base is only growing at about 10 percent per year, so carriers need to drive more use for their data networks, he said.

“It’s crucial for the future growth of the mobile sector to have a more open platform, to stimulate the take-up of media services,” Kowal said. “This is one more piece of the puzzle coming in.”

This story was updated on November 27