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January 12th, 2009, 04:19 PM

Open, Schmopen: Wireless Networks Are Still Closed

Despite the hype from top carriers, U.S. networks are nowhere near open—and they won't be until industry wakes up to the possibilities

By Jack Gold

Over the past year, there's been a lot of lip service in the mobile-phone industry about making our wireless networks "open." The idea, consumer and open network access advocates have argued, is that open networks would let consumers buy any mobile device from any source and run it on any network. This is especially important in the U.S., where handsets work on a particular network—CDMA from Verizon Wireless and Sprint Nextel (S) or GSM from AT&T (T). Under most circumstances, your device remains closely controlled by your carrier of choice.

But in recent months, carriers including Verizon Wireless and AT&T have announced their intention to make "openness" a part of their strategy going forward. It's a great idea in theory.

Yet the question remains whether we are achieving, or even moving toward, open wireless access. Are the carriers just creating a PR campaign, spinning their brand of openness for the benefit of consumers and regulators? Well, for right now at least, the claim of achieving openness is dubious at best.

The industry has a long way to go before it's anywhere near open. Carriers still heavily control their networks and don't appear to be willing to give up that control anytime soon. A device manufacturer can't just launch a new wireless product without carrier approval and extensive testing.

A Drag on Innovation

While carriers say this limits any risk of network problems from badly designed products, it also significantly limits the ability of wireless vendors to innovate and offer compelling new products and services. The test and approval cycle is long, and it has to be performed for each individual carrier—not just for each of the two major network types. Imagine if vendors of PC hardware and software had to test and get approval for each brand and model of PC! That would drastically curtail innovation in the computing market. But this is exactly the current situation in wireless. The end result for the mobile market is that the launch cycle for devices is long—possibly a year or more. And each device needs to remain in the market for a relatively long period as well to enable its makers to recover the added expenses. That in turn extends product life spans and upgrade/refresh cycles. This is not the way efficient competitive markets should work.

Another roadblock to openness is handsets and their operating systems. The major "open" phone OS is Android, backed by Google (GOOG). Nokia's (NOK) Symbian is due to become open in the next year or two. Both of these offer open-source platforms that allow lots of potential for customization and creativity. But in reality, such devices represent a very small share of the current market. The first Android-powered phone, HTC's G1, did not exactly set the world on fire.

Indeed, the recent trend in handset popularity has been away from openness. Case in point: the very popular iPhone from Apple (AAPL). The iPhone is a very proprietary environment, as are Research In Motion's (RIMM) BlackBerry Storm and the myriad Microsoft (MSFT) Windows Mobile-powered devices. In fact, many of the carriers require "modifications" to devices that will only work on their networks, making the device vendors produce custom devices for each carrier. So much for "openness."

Consumer Access to Apps Is Limited

The final obstacle to achieving openness is the applications running on these devices. Because of the success of the iPhone, the BlackBerry, and other proprietary platforms, application vendors still have the burden of designing apps for at least three primary platforms and possibly five or six if they want to cover the entire marketplace. This is an impossible burden for the many relatively small vendors of innovative applications. Because of this, the handset world is far from commodity-oriented like the PC market is. As much as many profess to dislike the Microsoft hegemony, the fact that 90% to 95% of the world's PCs run its operating systems makes Windows very attractive for software vendors.

Will such a monopoly ever exist in the phone market? I don't see any major consolidation happening for the next few years. So inequality for apps will persist across the various handset platforms. Many of the app vendors will have to choose which platform to support as they probably can't cope with supporting all the popular platforms at once. So they'll concentrate on the most popular platforms, including the iPhone and Storm, and leave the rest behind.

The result of this "unopen openness" is confusion for many consumers, and even for some business users. The fact is, most consumers do not pick a phone for its OS; they pick it for its features and "coolness" factor. Business users, on the other hand, pick a platform, rather than a specific phone. They make a long-term commitment just as they do in many other technology choices. But the lack of openness certainly means the market will remain dispersed over many device and platform choices. And consumers will end up with access to only those apps they can get for their chosen device, and may not get something "hot" that is available on another device (e.g., Apple iPhone apps don't work on the BlackBerry Storm or HTC G1).

Openness and Revenues Will Go Together

So can we ever get to openness? Yes. But it will take a while. Market forces are pushing the carriers toward more openness. (Who would have thought even three or four years ago that we would ever have carriers endorse the concept of open networks?) It's likely that the best chance we have for truly open networks will come in the next three to five years as the next generation of 4G networks (LTE, WiMAX) are widely deployed. The advent of new device types (not just smartphones, but also Mobile Internet Devices and netbooks) will require a reevaluation of carrier testing and certification processes as well. Carriers will eventually be forced to abandon their current "open but highly controlled" philosophy.

More pressure will come as more data-capable devices are deployed and more data-based revenues are generated on carrier networks. Let's face it: Carriers and equipment vendors are capitalists, and more openness will equate to more revenues. That will drive openness far more effectively than corporate pronouncements and even regulatory intervention. Openness will come—but not without some hesitancy and barriers along the way.