VZW's Open Network - You Buying The Hype?

I've been reading as many articles and comments as I can about the intent of Verizon Wireless to "open" its network to outside devices that meet the appropriate standards and have been approved for use by VZW.  Having operated a closed network for so long, as many others in the wireless industry in the USA do, are you buying this?  There must be a catch somewhere and, since all of the details of the plan have yet to be divulged, the proverbial other shoe has to drop sometime, doesn't it? I hate to be skeptical, but experience requires further investigation.  Just look at the timing of the announcement.  VZW has been promoting its position on the upcoming spectrum sale that has been anti-open, which is the exact opposite of the position taken by Google and others who believe the spectrum, or a portion thereof, should be made available to companies offering applications for the benefit of ANY device that can connect with the network.  Google has made statements about participating in the spectrum auction.  It has even been rumored that Google has developed a wireless network in Silicon Valley to test the applications it is developing for mobile devices.  Has VZW capitulated to a perceived threat by Google in an attempt to eliminate Google and its vast financial resources from the bidding process?  Does anyone really think Google, whose business model is driven by advertising revenues, wants to operate a fixed asset based nationwide wireless network?  If you do I have some land to sell you in Florida.

Frankly, I've seen this move before from the Telecom industry when an apparent threat to its "turf" was presented.  Let me take you back to the early 1990s, when the Cable industry was making pronouncements about its desire to offer consumer telephony services to its subscribers.  In response the phone companies, all six of them at the time, began their own series of press releases claiming they would offer video over their telephony platforms using a new technology called ADSL. The phone companies did not know the extent to which the cable companies could offer telephony services and, frankly, the cable companies did not know if the phone companies could offer video services.  It was a novel idea, a way to create buzz in the marketplace and nothing more than a smoke screen while each industry evaluated whether it was technically feasible to deliver the other industry's service.  Hundreds of millions of dollars were spent investigating the technology and business models to make the "double play" a reality.  Joint Ventures like Tele-TV and Americast were formed to pool resources by separate RBOC groups to further evaluate the potential of video delivery over twisted pair copper, FTTC and Wireless MMDS technologies.  Cable companies realized they would have to invest hundreds of millions of dollars in network and physical plant upgrades to enable voice services.  This dance went on for several years before reality set in and each companies backed off their initial proclamations.  Oh, the industries slowly moved toward identical service capabilities, but more than 10 years later!

What we are witnessing between VZW and Google is yet another dance between industry giants, perhaps round 1 of a boxing match, where each company is feeling the other out.  Google, like the cable companies of yore, has the financial wherewithall and political connections to be a formidable opponent to the wireless industry "norm".  By communicating its position on the spectrum auction early on, including their intent to bid, they have been able to engage the wireless industry, VZW initially, and the FCC, in an open discussion about the use of this wireless spectrum.  The result of these actions will partially modify the business model of another industry for its own benefit, delivering advertising based services to users of Google's applications on any connected mobile device.  Without an "open" network each wireless network operator can determine which, if any, application could be used by its consumers.  Doesn't VZW already turn off certain applications on several mobile phone models because it wants the consumer to use the applications where it generates more revenue?  This does not benefit Google or any other application developer who wishes to drive revenues from mobile services.

Who knows how long this will take, and what other pronouncements will be made, but Google is smart enough to know the next big area of opportunity for their continued exponential growth is in the mobile device marketplace.   And VZW knows its core competency is operating a nationwide wireless network.  The more traffic on the network, from any source, the more revenue for VZW. 

So don't be fooled by the hype and positioning.   Offering to "open" their network is a defensive strategy by VZW.  It keeps Google from actually exploring the development of a nationwide wireless network, for now, and it gives the perception that VZW is taking this action for the benefit of all mobile consumers.  Who knows where the hype and positioning will lead.  Perhaps we will know in another 10 years.

Un-Interactive TV

The latest issue of Business Week included an article updating the status of Interactive TV (iTV) or, as the article states, the lack thereof.  Its not surprising this conclusion is the same as it was several years ago.  Technically the ability to create a pure iTV experience exists.  Economically it does not.  True iTV is predicated on the ability to develop a business model that provides economic incentive for all participants and a technological solution that protects content from piracy or illegal distribution.  A broad, integrated, service has yet to be developed that meets the requirements of all constituents of the business model.  Movielink has stumbled.  Moviebeam has failed (one of the backers of this idea, a former Disney exec, will now lead Bus Dev at NBCU).  A littany of devices has been developed that connect to the TV that lack the video library to gain traction.  Even the vaunted Apple's iTV product has failed due to a lack of content.  The Slingbox is a great idea but has not gained critical mass, and hence their tie-up with Echostar.

I wonder why the CE manufacturers have yet to build a TV set that includes the technology, and a User Interface, that would permit downloads from sites like Joost, Netflix, or other media aggregators.  It seems feasible to include a broadband connection and the internal hardware in a flat panel TV to permit such a service.  If Apple can build a computer with all of the components in the screen (iMac) shouldn't a TV manufacturer have the same capability?  One would think a business model for such an Alliance could be accomplished.  Doesn't Sony own both content AND a TV factory?  The problem is CE manufacturers are just that, manufacturers.  My experience with them is they are not the ones to proactively pursue relationships to develop end-to-end consumer "solutions".  They have historically let others build the solution and have waited for someone to present them with the opportunity or technology to participate, with little ability to drive the business model.

Apple's success with the iPod and the iPod store have scared the bejesus out of the video industry, and their attempts to create an online video distribution business have failed as well.  Until the content owners are comfortable with a business model and service that protects their revenue streams and distribution cycles, and CE manufacturers wake up, iTV will remain a pipe-dream.

Cable Cards

Its been a busy few weeks since my last post.  Paris Hilton was sprung from the big house, twice, the iPhone was finally launched, albeit to the displeasure of purchasers who had difficulty connecting to the AT&T service (is anyone surprised?) and the Cable and CE industries continue to face off over the issue of cable cards.  Ok, so the first two received more press than the last, but the latter could be more important.  Why? Cable Cards are the solution reached between the CE and Cable industries, at the behest of the FCC, to separate the security and program guide functions of the traditional set top box (STB).  The CE industry has clamored for the right to provide a set top box and the program guide, often referred to as the EPG, to consumers through their traditional CE distribution channels.  All the while the cable MSOs have countered that the impact of separating the program and channel control functions from the security, or conditional access, functions would increase the cost of STBs to consumers.  Many pundits believe this to be another attempt by the Cable companies to thwart the efforts of the FCC and the CE Industry and to blame the FCC for the increased cost of STBS, in what they are calling a "tax" on consumers.  So what's the real deal?   The first screen a consumer sees when they turn on the TV, and the billions of dollars of advertising and transaction fees that this real estate can produce via a service tied to this "home page", like VOD, PPV and other impulse purchases by consumers.

The cable industry has claimed this as their own even though the physical asset used to view programming is manufactured by the CE industry.  There has never been a debate as to who owns the customer as the Cable industry has provided the digital cable service into the home AND the STB.  The Digital STB is the key to incremental revenue generating services like VOD and SVOD programming.  It also controls access to pay cable services like HBO.  Separating the security function from the program guide function opens the door for CE and other STB, or Home Media Center, manufacturers to offer a CE Device for the home to compete with the Cable STB.  I have only read of one company planning to enter this market, Digeo, but I imagine the CE Manufacturers and companies like TiVo have plans to offer a retail device.  The Digeo service claims it will provide movie downloads via internet services as well as other revenue generating features.  You can be sure the first screen to appear when a consumer turns on their TV will not have a cable company's logo affixed.  And thus, the battle for the "little screen" will commence.

The dance with the FCC also continues.  Cable companies continue to ask for waivers to delay the implementation of the cable card in their markets and the phone companies, especially Verizon, are petitioning the FCC to be excluded as they claim their STB and service is "different" and a competing service to the encumbent cable operator.  All the while the CE industry sits on the sidelines waiting patiently for their opportunity to participate and offer product through the traditional CE retailers.  While the FCC has the best interest of the consumer in mind, or is supposed to, in the end its usually the little guy who gets hurt by the turf wars of the major corporations and government regulatory bodies.  Can't wait to see what my cable bill looks like when the dust settles.  I'm sure the Cable industry will use the FCC mandate as the rationale for their next round of price increases instead of the exhorbitant cost of cable programming for channels many consumers don't even know exist.  What happened to the a la carte pricing initiative anyway?