Whose Phone Is It Anyway?

What a twist! Verizon Wireless -- the guardian of the cellular status quo in the U.S. for months now -- has come out and said that it will do what Google (Nasdaq: GOOG) and all those other wireless pretenders have talked about all this year: provide open access for devices and applications on its cellular network in 2008.

Yep, this is not just some piddling band of 700 MHz spectrum in an auction it hasn't even won yet either. We're talking open access across the whole of its very large and very real CDMA network in the U.S. of A., basically the Bandwidth Grail for open-access advocates. (See Verizon Tears Down the 'Walled Garden' .)

When it flips that open access switch in the second half of 2008, Verizon will essentially be changing the very nature of the wireless market for itself and all the major players. We'll be moving from a "walled garden" approach -- where users sign up for fixed two-year contracts, subsidized phones, and a limited palette of applications -- to a world of flat rates for connectivity, unlocked phones, and competition on customer service and how cool a set of multimedia services you can provide. A world much more like Western Europe or Southeast Asia, in actual fact. (See Verizon Wireless Opens Up.)

This potential sea change for the U.S. wireless industry, however, could throw up some icebergs for Verizon and its rivals as they cruise on to a new horizon.

For instance, who really owns your cellphone? You or the operator that partially subsidized its initial purchase?

Verizon says the issue is now crystal clear. "We believe anyone that's paid for their cellphone should be able to move," said Verizon CEO Lowell McAdam on a conference call on Tuesday. "In fact, we encourage them."

So, after you've paid off your two-year contract you can move. What if you want to move before that? Can you simply pay off the balance due and move? The answer to this question isn't entirely clear yet, but I fear it won't be that simple.

The main source of customers that might want to jump networks is Verizon's struggling CDMA rival Sprint Nextel Corp. (NYSE: S). [Note: Users of AT&T Inc. (NYSE: T)'s GSM-based service simply can't make the migration, because the two cellular technologies are entirely different. So you can't take that fancy iPhone to Verizon no matter what.]

But here's the rub: Although Verizon says yes, it will take on Sprint customers if they want to move, it may not be that easy. Sprint locks some of its phones to the CDMA network using a master subsidy lock code (MSL) that it often doesn't reveal to subscibers even after they have paid off their phones. Most Verizon and some Alltel Corp. (NYSE: AT) phones use an MSL of "000000," which makes them easier to move.

A Verizon spokeswoman told me on Tuesday that not all Sprint phones are locked up like this any more and Verizon already "can and has tranferred users." Sprint users also know all about the MSL issue. Sprint itself hasn't returned calls about MSL.

Eventually Verizon's move will mean that these locking issues will start to fade away and users will just buy their own cellphones outright. There is going to be a crunchy interim period, however, where operators try and figure out who really owns the phone.

— Dan Jones, Site Editor, Unstrung