Two weeks ago, various news outlets reported that Verizon Wireless’s new Galaxy Nexus phone, an Android device that went on sale last Thursday, will not support Google Wallet, Google’s mobile payment application. Based on what we know from press reports, it seems that Verizon Wireless is violating the open-devices and open-applications conditions in its legal licenses for part of the 700 MHz spectrum (the so-called “C-Block”) over which the company’s LTE network operates. There is, however, great uncertainty about what exactly is going on.
Today [December 19, 2011], I wrote a letter (pdf, Scribd version) to the Federal Communications Commission asking the Commission to investigate the situation as quickly as possible and send a signal to the market – innovators, consumers, and licensees – that the openness conditions will be enforced. The letter explains what we know about the facts, why Verizon’s behavior violates the openness conditions, why this violation matters, and what the FCC should do.
This is an important case that will have implications not only for the mobile payments market, but also for any application or service potentially available on a mobile network:
First, Verizon’s behavior hurts Verizon customers, a full 35% of the mobile market, who are unable to use the very first mobile payment technology based on near-field communications that has come to market. These consumers are unable to use this application to pay for goods and services instead of using cash or a plastic card, and are unable to take advantage of the other features Google Wallet offers.
Second, Verizon’s behavior hurts competition in the emerging, potentially huge market for mobile payments technologies and associated services. While the market is nascent today, analysts expect that by 2015, $56.7 billion will be exchanged in mobile payment transactions. Verizon has an incentive to undermine competition in mobile payments, and to eliminate any competitor’s first-mover advantage, as it has partnered with AT&T and T-Mobile to launch a competing payment service called ISIS sometime next year.
Third, Verizon’s actions hurt innovation, in mobile payments or even in any other mobile technology. They do so by shaking innovators’ and investors’ confidence that there will remain one significant part of the wireless Internet in which they can offer their applications or devices without fear of blocking and discrimination by carriers hoping eventually to offer competing products. Innovators and investors are already concerned about the lack of strong network neutrality rules for the mobile Internet. If even Google, one of the nation’s largest corporations, can be blocked by the one wireless carrier that is subject to strong openness conditions, every mobile innovator and investor in the country will know that they are at the mercy of the carriers.
Finally, Verizon’s conduct undermines the Commission’s general approach towards mobile Internet openness by dismantling the protections for one part of the spectrum on which the FCC’s “incremental” approach to regulation in this space is built. Without enforcement, the openness conditions are effectively moot. Verizon violated these conditions earlier this year when it blocked tethering applications. Now it is blocking Google Wallet. This emerging pattern of disregard for its license conditions challenges the FCC to follow through on its pledges in the Open Internet Order to enforce the openness conditions in the 700 MHz band and to monitor the mobile Internet space for abuses by licensees.
Thus, to protect users and innovators in the mobile payments market and in mobile broadband markets more generally and preserve the Commission’s approach towards mobile Internet openness, swift action is needed.
The more detailed analysis is available in the letter (if you have read this post, you can begin on p. 2, Section “What is going on”). You can read the letter as a pdf here, on Scribd, or read it (without footnotes) in the [original post (see “Text of the Letter” section).]
The preceding is re-published on TAP with permission by its author, Barbara van Schewick, Director, Stanford Center for Internet and Society and Associate Professor of Law at Stanford Law School. “Is Verizon Wireless illegally blocking Google Wallet? It’s time for the FCC to investigate” was originally published on Internet Architecture and Innovation on December 19, 2011.