ODI Field of Dreams

“The lesson from the iPhone is that there's still a tremendous amount of leverage to be had from subsidizing the device,” said Craig Moffett, senior analyst for Bernstein Research. “The economics of the iPhone make it very clear that it's much too early to write off the retail channel.”

Although Verizon Wireless has been the most vocal about the open device model, other carriers also have embraced or are expected to embrace the concept. In doing so, they tout the open device model as a victory for consumer choice, but their ultimate goal may relate as much — or more — to their own economics. As Bill Ho, wireless services research director for Current Analysis, noted, carriers' cost per gross addition goes down when they do not have to subsidize devices. The downside is that churn could increase.

Today, churn is minimized by the fact that different carriers use different and incompatible wireless technologies, Ho said. But with AT&T and Verizon Wireless both pursuing long-term evolution (LTE) as their 4G wireless technology, that dynamic eventually will change. “With LTE and roaming, people will be able to pick any device and roam,” Ho said.

At that point, network operators may move away from subsidizing devices, said Peter Jarich, research director for Current Analysis. “A lot of handset providers expect LTE to be an unsubsidized model,” he said, adding, however, that “it's tough to move in that direction too quickly.”

In the meantime, Verizon Wireless and other network operators have other issues to resolve involving the open device model — such as how to avoid finger-pointing between the manufacturer and operator when customer service issues arise.

“We will all lose if we don't make a good choice about what we should do for the customer,” Lewis said. “Some people may buy into a plan so they can call one channel [to resolve any problems]. They could go back to the distribution channel, or they could call us, and we will take those calls. We have a lot of great ideas. We want to see what the consumer is going to want. It's top-of-mind as we think about opportunities.”

With its streamlined device approval process, Verizon Wireless also has the opportunity to more aggressively pursue the M2M market. Before the carrier can make any major impact on that market, however, the company — and the wireless industry in general — will need to rethink long-held beliefs about what constitutes good performance.

“The one-subscriber/one-device model is breaking down,” Moffett said. “More and more we're seeing the emergence of subscriber-light models.”

As M2M takes hold, the number of devices in use could exceed the number of subscribers. But as that happens, carriers will need to move away from their emphasis on ARPU.

“If a wireless carrier writes a deal with a local electric utility to provide remote meter reading services, it's not going to be at an ARPU that's anything like $40 to $60 a month — it might be pennies per month,” Moffett said. “But it may turn out to be a highly profitable business. As M2M communications and telemetry become more common, the old notion of what is a subscriber becomes very fuzzy. At some point, the idea of counting the number of devices becomes irrelevant, and what really matters is revenue generation. Revenue per tower may be more important than any metrics we have today.”