Connect the Dots

As is widely known at this point, Verizon is shipping the iPhone 5 unlocked and is getting kudos for it. It certainly was the final push I needed to make my decision as to which carrier to go with for my iPhone 5. But, make no mistake about this. This isn’t Verizon being nice or even being calculating. Left to their own devices, there’s no way they would have ever done it.

However, they weren’t left to their own devices.

In the various links from my previous posts about iPhones, unlocked and otherwise, there’s the outline of an interesting story hidden away. Instead of leaving it buried, let’s pull out the bits and assemble them into a narrative, one that tells what I think is a fascinating story, not only of this specific case, but of how things really get done in the United States.

History and Background

From the beginning, the American telecommunications business has been one of exploiting a captive customer base. For landline service, you either bought your telephone service from the provider in your area, or you didn’t. Your choice. The barriers created by the expense and permission to wire up any particular piece of geography ensured that each telco had their captive customers. The telcos spent a century making good money from their monopolies—so much so that they tangled with regulators on many occasions, including the 1984 breakup of the Bell System. Regardless, old habits remained strong and as they moved into wireless, they naturally set things up so that they could segregate their customer bases as effectively as possible.

At first, this was almost effortlessly accomplished by the providers making different choices of radio frequencies and the modulation schemes used. Early handsets were necessarily limited by the technology of the time to a single band and network technology. Unlike Europe, where governments mandated a single interoperable standard (GSM), the fragmentation of standards in the United States created natural barriers between networks—barriers that the carriers were quick to reinforce and maintain. If you wanted to move between carriers, not only would you have to break your contract with them, often with hefty fees, you had to buy new gear.

Fast forward through all the iterations of network standards designated by typically geeky alphabet soup—AMPS, TDMA, CDMA, GSM, iDEN, EDGE, UMTS and HSPA to name a few and which are encapsulated by the sometimes misleading marketing monikers 1G, 2G, 2.5G, 3G, and 4G—into the current century and things remained much the same for the consumer. Sure, handset technology had made huge strides. Tri- and quad-band handsets had become common and phones that could use more than one kind of network had entered the market. The natural wall that technology choices by the telcos made was eroding, but that didn’t matter much because technology also enabled the telcos to mandate manufacturers put in software locks into the handsets. This kept the barrier of moving between providers as high as it ever was, even though the locks on the hardware became entirely arbitrary and punitive. Break a contract, pay a high fee, and you still have to buy new gear even if your current handset could work on a different provider otherwise.

The Big Auction

This was the environment in 2008 when the United States auctioned off rights to use the freshly vacant blocks of 700MHz spectrum that were made available with the shut down of analog television. This spectrum was divided into five major blocks, labeled A through E. Given that wireless Internet access was a natural use for this spectrum, various network neutrality groups and advocates pushed for open access provisions on the use of this spectrum. As with most such advocacy which is primarily based on trying to make a rational argument, this didn’t make much headway and most of the blocks were auctioned off without any open access provisions in the rules governing their use.

The situation, however, played out differently for the auction for block C. Among the five blocks, block C had two interesting characteristics. First, it was 22MHz wide instead of the the 12MHz width of the other blocks. Second, it was the only block which was geographically contiguous across the lower 48 states. Perfect for building out a new nationwide wireless network with.

Enter Google.

Um, Google? Huh? What would a search engine company want with wireless spectrum? Not much, exactly. However, keep in mind that Google’s entire existence is based off of people using its services whenever they’re online. The idea that a service provider could limit this access which would in turn threaten Google’s revenues had to send chills down the backs of many an executive in Mountain View. As well, Google had launched this little thing called Android and wanted as open a market as possible for it.

So, Google did what the independent advocates couldn’t. They opened up their wallet and bought their way into the process by bidding a minimum of $4.6 billion—imagine Carl Sagan saying that for a moment—guaranteed with an up-front payment of over $287 million dollars. In return, they got open application and open device provisions written into the usage policies for the block C spectrum. This meant that carriers couldn’t block specific applications being used by customers and couldn’t lock handsets to their networks.

Verizon, as the primary bidder for the spectrum, didn’t like this erosion of barriers very much and sued the FCC to remove them on the grounds that they were unconstitutional, among other things. Luckily, they didn’t prevail and even though they won the block C spectrum with their $4.7 billion bid to build out their new LTE network into. They were stuck with the provisions that Google was able to get into place. Provisions that, in part, force them to sell the iPhone 5 and other LTE devices unlocked.

Google, losing the bid, did get most of their upfront payment back—all but about $13 million dollars or so from the accounts I’ve read plus whatever time they put into the process. That’s a still lot of cash. Certainly it’s out of reach for any but the wealthiest individuals and advocates. For Google, however, I think it was a pretty good deal. And it’s a huge win for the rest of us.

Takeaways

To me, there are two important parts to this story. First, it’s yet another damn good illustration that money is the primary mover in American politics. Google has it, used it, and got at least a smidgen of real change through. Of course, it’s in their best interest. In this case, however, Google’s interests line up perfectly with our interests. As compelling a story as people like Larry Lessig could tell about the importance of network neutrality, that story needed money—a lot of it—and the influence it has on the process to make it work.

The technology industry needs to get its act together and do a lot more of this sort of thing to fight for the things that are in all of our interest.

Second, despite fighting the open access and unlocked handset provisions tooth and nail, Verizon is currently benefiting from them. I know of many who are finding the combination of network footprint and unlocked handsets very appealing. The fact that Verizon is likely to benefit from the very thing they fought against amuses me. Of course, none of us should assume for a minute that Verizon has our interests at heart. How could they when they’re still playing in a regulatory environment which has made the United States one of the most expensive countries on the planet for wireless service?

Oh, those other blocks of 700MHz spectrum that Google didn’t bid on that don’t have the same open application and unlocked handset provisions attached? This is why AT&T is selling the iPhone 5 all locked up and able to limit access to FaceTime and tethering to certain users who bought into a specific plan. This is, in part, what the network neutrality folks were trying to prevent.

One final aside: Larry Lessig switched gears in 2008 to focus on the corruption of money in government. Coincidence?

References:

1. Title 47, Part 25, Subpart B, Section 27.16 in the Code of Federal Regulations

2. Network neutrality on Wikipedia

3. United States 2008 wireless spectrum auction on Wikipedia

4. A Visual Guide to 700MHz on Phone Scoop

5. An International Comparison of Cell Phone Plans and Prices from the New America Foundation

Notes and Comments:

1. Julian Missig tweeted a reminder that number portability was something that had to be mandated before it became a reality. Before that, loosing your phone number was also part of the huge lock in for the carriers.

2. Lun Esex notes via Twitter that Europe’s path with GSM was the result of government cooperation to encourage interoperability. While I intentionally avoided comparisons with Europe in this post at first to keep the focus on the American policy story, I did update the history and background section just a bit to point out the differences.

3. Many thanks, as with so many other posts, to David Wheeler for proofing and commenting via regexp.