In yet another sudden shift, Verizon Wireless plans to support Google's (GOOG) new software platform for cell phones and other mobile devices. Verizon Wireless had been one of several large cellular carriers withholding support from the Android initiative Google launched in early November.
But given the stunning U-turn Verizon Wireless made Nov. 27, announcing plans to allow a broader range of devices and services on its network, Chief Executive Officer Lowell McAdam says it now makes sense to get behind Android. "We're planning on using Android," McAdam tells BusinessWeek. "Android is an enabler of what we do."
McAdam's Open-Access Campaign
Though skeptics see ulterior motives and question just how easy Verizon will make it for rival products to get on its network, the surprise embrace of an open-access model and of the Android software culminates a dramatic yearlong evolution in the company's thinking. The effort, championed by McAdam, involved meetings with the chairman of the Federal Communications Commission and late-night bull sessions with the top two executives at Verizon Communications (VZ), which owns Verizon Wireless in partnership with Vodafone (VOD).
All the while, McAdam kept focus by carrying a crumpled piece of paper in his pocket with seven bullet points defining what an open-access policy would mean to Verizon Wireless. "The paper is all wrinkled and it's got coffee stains," he says.
McAdam was more amenable to shifting gears thanks to time spent during the 1990s in Europe and Asia, where the wireless industry is more of a free-for-all. As vice-president for international operations at AirTouch Communications, now a part of Verizon Wireless, McAdam says he was impressed that European and Asian mobile carriers backed technologies that allow subscribers to switch to rivals with ease.
By contrast, Verizon Wireless has created the most profitable U.S. cellular business by tightly restricting the devices and applications allowed to run on its network. But over the past year, the company's leadership came to conclude that it was time for a radical shift. Such a move, they reckoned, might help Verizon Wireless keep growing while holding down costs.
Combating Market Saturation
When Verizon Wireless was founded in 2000, it ran 27 call centers to provide customer service. The company cut back to as few as 17 centers at one point, but the count is now back to 25, each with about a thousand employees. The company's 2,300 stores, staffed by 20,000 employees, are also costly. While workers in those stores used to spend nearly the entire day signing up new customers, now only a tenth of their time is consumed by new subscribers. Instead, the bulk of their energy goes to helping current subscribers with questions and problems. McAdam & Co. decided the business model was not sustainable. "If we get to 150 million customers, boy, that's a lot of overhead," says McAdam.
In an open-access model, though, Verizon Wireless won't offer the same level of customer service as it does for the roughly 50 phone models featured in its handset lineup. Though the company will insist on testing all phones developed to run on its network in the open-access program, Verizon plans only to ensure the wireless connection is working for customers who buy those devices. "They have to talk to their handset provider or their application provider if they have particular issues," McAdam says.
What's more, the open-access approach may enable Verizon to tap into niche markets that haven't been worth targeting. Verizon Wireless subsidizes the cost of all the handsets it sells directly to customers. Thanks to the costly process of developing phones with the likes of Samsung and LG, then testing each for hundreds of factors such as how hot the screen gets, only devices with mass appeal get the nod. "I can't go to 100" handsets in the lineup, says McAdam. "If a particular product can't generate 100,000 [purchases], it's not worth doing."
But with "outside" devices developed under Verizon's new policy, handset makers will bear most of the development costs. And because users won't be buying such devices from Verizon, the company won't be subsidizing those purchases. As a result, Verizon's network may come to support hundreds of devices, many customized for non-mass-market needs the company doesn't serve. "This allows them to add customers onto their network without having to spend as much to get them," says Todd Rosenbluth, an industry analyst for Standard & Poor's (which, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP)).
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