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Google Nexus One smartphone no threat to wireless business model

The wireless business model of carrier-device monogamy in the U.S. is unlikely to be broken up by the launch of the Google Nexus One smartphone -- now built for only T-Mobile USA's 3G network but expected soon on other carrier networks.

Although Google is selling a carrier-neutral version of its heavily anticipated Nexus One smartphone directly to consumers, the tactic is unlikely to break up the wireless business model of carrier-device monogamy in the United States.

"Operators, whether Google wants to admit it or not … have control in the U.S.,

Operators, whether Google wants to admit it or not … have control in the U.S., and they probably will for some time.
Allen Nogee
Principal AnalystIn-Stat

 and they probably will for some time," said Allen Nogee, principal analyst at In-Stat. "They have control not only because of pricing and subsidization but … because they all use different frequencies and they all use different technologies."

For starters, blame "the fairly limited spectrum" in the U.S. for that, Nogee said. Nexus One, which runs on Google's Android operating system and HTC Corp.'s hardware, was built to function at 3G speeds in the U.S. on the AWS 1700/2100 MHz frequency band -- the spectrum T-Mobile USA uses for its 3G network.

Verizon Wireless, AT&T and Sprint all use the 1900 MHz band for their 3G networks, and the Nexus One is incompatible with this band. But AT&T and the Google Nexus One smartphone share a 2G frequency -- 850 MHz via Global System for Mobile communication (GSM) -- which enables voice calls but nullifies the smartphone's true draw -- data.

Meanwhile, buying the unlocked or carrier-neutral Nexus One comes at a steep price of $529 when purchased directly from Google. A two-year T-Mobile contract cuts that down to $179 -- about one third of the original price -- and guarantees the phone will work on its network.

"Google is highlighting the fact that you can buy the Nexus One unlocked, but it won't do U.S. residents all that much good," wrote Avi Greengart, a research director at Current Analysis, in a research note. "For all intents and purposes, it is a T-Mobile-specific phone."

As part of this week's announcement, Google said Verizon and Vodafone would offer "services" for the Nexus One "in the near future." On his Uncommon Wisdom blog, telecom consultant Tom Nolle notes that the carrier cousins will need a High Speed Packet Access 7.2 upgrade to their networks to make them compatible with

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 Nexus One.

The hurdles with Nexus One give carriers -- other than T-Mobile -- little incentive to play nice and consider dismantling smartphone exclusivity deals paramount to the wireless business model in the U.S., Nogee said.

"It's a lot of politics," he said. "T-Mobile has been working with Android right from the beginning … so it's probably not a coincidence that this new Google phone works on the T-Mobile network, and of course that's who the rate is subsidized through."

But even if Google were truly committed to shattering the wireless business model used by U.S. carriers and phone manufacturers, Nogee said, it would be a costly crusade for the Internet and software company.

"It's all a matter of how much they want to pay to manufacture the phone," he said. "Whenever you add more frequency bands, it makes the phone more complex and more expensive … so the reality is [that] almost no phone will support all the bands."

 Google's direct online sales unlikely to change wireless business model

But Google may have more problems than just spectral bands. Its refusal to pay for any advertising while giving the cold shoulder to the carrier retail distribution channel will backfire, analysts warned.

"Unfortunately, that channel is where consumers shop for phones, and changing consumer behavior is hard," Greengart said. "People like to touch and feel a device they are going to use daily for the next two years. Nokia and Sony Ericsson have tried selling high-end devices direct to U.S. consumers online without any luck."

The traditional wireless business model would have also allowed carriers to do the heavy lifting with ad campaigns -- a puzzling thing to turn down, Greengart added, considering that Google has said it would not advertise the Nexus One.

"The other reason to work directly with carriers is to take advantage of their massive advertising spend," he said. "While technophiles will have no problem finding the Nexus One, many mainstream users may not know it exists."

Ken Dulaney, a vice president at Gartner Inc., said smartphone success relies on "an application store [consumers] can believe in," which Google would be unwise to leave to T-Mobile to promote.

"What makes the iPhone so successful is you get an ad from Apple about the App Store every five minutes," Dulaney said.

Apple offers more than 100,000 third-party applications in its App Store for the iPhone and iPod Touch. The Android Market, available to Google Nexus One smartphone and other Android platform users, offers about 18,000 apps.

Greengart said: "The Nexus One would hardly slow Apple's momentum even if it were sold at every carrier outlet in the country."

Let us know what you think about the story; email: Jessica Scarpati, News Writer

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