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SAN FRANCISCO–Verizon Communications’ recently named No. 2 executive, Lowell McAdam, was at the 2010 CTIA Enterprise & Application trade show here on Wednesday to announce the initial 38 markets for the company’s much-anticipated 4G wireless network.
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The network, which uses a technology called Long Term Evolution, or LTE, promises download speeds of between 5Mbps and 12Mbps and latency of 30 milliseconds. COO McAdam announced the initial markets for the launch expected later this year. And he provided details about how many people are expected to have access to the network. On day one, at least 110 million potential customers can sign up for 4G service. By 2013, the network will be available across Verizon’s current 3G wireless footprint, which means that more than 285 million wireless customers could have access to the network.
CNET sat down with McAdam to talk through more of the nitty-gritty details, such as devices and pricing. While he wouldn’t confirm the ongoing rumor of a Verizon LTE iPhone, he did speak candidly about choosing handset partners and whether the network will have enough capacity for the future. He even answered a few off-topic questions about recent “phantom” billing issues.
Below is an edited transcript of the conversation.
Q: During the keynote and press conference on Wednesday at CTIA, you said there would be new devices introduced for the LTE 4G network at the Consumer Electronics Show in January. But can you give me some idea of when you think those handsets and other devices will hit the market? Consumers are anxious to know if they should buy a phone now or wait another few months.McAdam: I can’t give you an exact date. But to answer your question, you will definitely see smartphones and tablets for the LTE network in the first quarter of 2011.
In previous network rollouts, it’s usually taken at least a year after PC air cards and modems have been introduced before the technology is commercially available for handsets. It sounds like that time line has been compressed, since you expect PC air cards and modems to hit the market by the end of this year and 4G LTE handsets to come out in the first quarter of next year.McAdam: The development cycle on these products has been getting shorter and shorter. But remember we staked our ground in LTE three years ago. We’ve been pushing the ecosystem through our 4G Venture Forum, which we founded, and other investments. We’ve made grants to promote investments in chips and devices for LTE. And all of that is now paying off, so that we can have smartphones and tablets in stores early next year.
The Wall Street Journal reported Wednesday that sources close to Apple say a Verizon iPhone will be ready in early 2011. This seems to fit into your CES LTE device announcement timetable you just described. So, can you give me a hint if the iPhone will be one of the devices you announce at CES for the 4G network?McAdam: I’ve been saying for a couple of years now that I feel that Verizon’s and Apple’s business interests will eventually align. LTE offers a great opportunity to showcase what Apple can deliver on the iPhone or on some other kind of Apple device. But I can’t say whether it will be one of the phones or devices in the LTE launch.
What about Microsoft Windows Mobile 7 phones? Microsoft is launching new Windows Mobile 7 phones next week on AT&T’s network. Will Verizon offer some new Windows Mobile 7 devices on the LTE network?McAdam: I can’t really say which phones we’ll offer yet. We like our relationship with Microsoft. But clearly in the U.S. there are three major mobile operating systems: RIM, Google, and Apple.
So you don’t view Microsoft as a major player in mobile anymore?McAdam: No not at the moment. Microsoft is not at the forefront of our mind.
Does this have anything to do with the short-lived Microsoft Kin? That was kind of a mess. (Editor’s note: The Kin was a “social media” phone that was only on the market for less than two months earlier this year before Microsoft pulled it and halted development in lieu of Windows Mobile 7. It was offered exclusively on Verizon Wireless.)McAdam: This really goes back to what I said earlier about how innovation in wireless devices and applications is moving so quickly. Our device suppliers have to demonstrate to us that they will be developing leading edge products. And if they are not leading edge, then we can’t afford to carry them in our stores. But if they are innovative, we’ll offer them.
Verizon is about to launch its 4G wireless network in 38 markets in the U.S. It’s built this network using spectrum acquired in the 700MHz auction, which had some open network requirements tied to it. I haven’t heard you talk much about what Verizon plans to do to satisfy these requirements. Can you explain the plan?McAdam: We haven’t said much about this because, quite frankly, the market has passed the regulations. This tends to happen with regulation. Regulators are only able to address the market in a quick snapshot of time. But innovation in wireless is happening so rapidly that what seemed necessary in 2007 isn’t an issue anymore in 2010.
LTE offers a great opportunity to showcase what Apple can deliver on the iPhone or on some other kind of Apple device. But I can’t say whether it will be one of the phones or devices in the LTE launch.
Back then everyone thought that openness was such a huge thing. But we saw where the market was going, and we knew we were going there anyway. So we bid on the C-Block of 700MHz spectrum without hesitation.
Now, we have over 200,000 apps on the Google Android market. So what is happening with Google Android phones is already satisfying the C-Block openness requirements. Then there are the machine-to-machine devices and applications that we expect to see on the 4G network, and you can see we have well-exceeded the openness requirements. So we don’t talk about the openness requirement much, because it’s old news.
Qualcomm announced earlier this week that it has halted direct sales of its Flo TV products. And the company has indicated that it is looking for an exit strategy from the mobile TV business. Some people speculate the company may sell its 700MHz analog TV spectrum that it used to build this mobile broadcast TV network. Would Verizon be interested in buying this spectrum and using it to bulk up its LTE network?McAdam: We might be interested. We’ve had a long relationship with Qualcomm. And I talked to Paul (Jacobs, Qualcomm’s CEO) about this before they made the announcement. But we have to see how their spectrum would fit into our existing spectrum. Even though the spectrum we are using for LTE is 700MHz, and the spectrum they have is also 700MHz, they are different flavors of 700MHz. So their flavors may not work with what we have.
What I like about our spectrum is that it’s 20MHz deep, and it spans the whole country in one frequency license. When you move between frequencies even within the same spectrum band there is a lot of processing power that needs to be managed. That affects battery life, and it’s generally more complicated. These differences are why we didn’t bid on the Aloha spectrum that went up for sale a couple of years ago. It just didn’t fit in with our other pieces of spectrum.
Is the spectrum that Verizon already bought and is using to build the 4G LTE network enough to satisfy current growth trends in data traffic?McAdam: I think we should be good for quite a while with the spectrum we already have. I think this will carry us long enough until we can repurpose some of other older spectrum licenses so that it accommodates more usage. But I don’t foresee a problem for us.
With that in mind, would you say that the U.S. wireless industry is really facing a spectrum crisis? The Federal Communications Commission and the CTIA each say there is a major lack of spectrum? McAdam: Eventually, if more spectrum isn’t made available and the current spectrum holdings aren’t managed properly, then yes, the industry will eventually run out of spectrum. Verizon in particular is in a tremendous position to have the spectrum that we do have. So we don’t feel the urgency that some carriers do. But as an industry, we need to resolve this. It can take up to 10 years to free up additional spectrum. So we need to get on this now. From that perspective, if we want enough spectrum in 2020 to satisfy spectrum needs, we need to make it a high priority today.
What about the “white space” spectrum that the FCC is freeing up now. This is unlicensed spectrum that any company can use to build a wireless broadband network. Does Verizon view this spectrum as a threat? After all, Verizon and other major wireless carriers have spent billions of dollars on spectrum licenses to build networks.McAdam: This is a very complicated issue. The white space spectrum itself is very fragmented. And there are interference concerns. There is also a lot of overhead to manage devices, which could suck a lot of battery life. It may be part of the solution, but it’s no silver bullet.
Verizon hasn’t announced pricing for its LTE service. But you have said that you expect to move to a usage-based model at some point. It seems like usage-based pricing could be part of the solution to better manage a potential spectrum and capacity crisis, right?McAdam: Eventually, we will see tiered pricing on LTE. And I think that tiered pricing models will migrate across the industry because no matter what your spectrum position, if you load up a cell site with 50 people all watching streaming video at the same time, then you will put strain on the network. It’s no different than the water system in a neighborhood. If everyone is watering their lawns at the same time, then water pressure goes down. And when you leave your house, you don’t leave your kitchen faucet running. With unlimited bandwidth, the tendency is to leave the faucet running. We want to make sure that we are focused on efficiency. And I want readers to know that we are making sure the content and applications on our network as well as the network itself are as efficient as possible.
If everyone is watering their lawns at the same time, then water pressure goes down. And when you leave your house, you don’t leave your kitchen faucet running. With unlimited bandwidth, the tendency is to leave the faucet running. We want to make sure that we are focused on efficiency.
Earlier this week, Verizon admitted that it had inadvertently overcharged some customers who may have accessed Verizon’s data network unknowingly. And to Verizon’s credit, you are refunding some 15 million customers money on these so-called “phantom charges.” But the FCC and some consumers are wondering what took the company so long to do this? McAdam: I’m glad you asked this question. First of all, we know the billing relationship we have with our customers is a sacred trust. And we put a lot of resources into making sure we get the bills out to customers accurately. In the days of the old walled garden, when we controlled every device and every app on the device, we were able to do a very good job of keeping on top of these billing issues. But in an open environment where there are 200,000 apps in a market, we have to invest heavily in looking at what accesses data and where. We need to manage the billing records for all these activities to make sure we get it right. For example, with Android there were constant updates on these apps. We have to keep up with the changes. In some cases, we admit that things have fallen through the cracks.
Yes, but smartphones and Android devices already require data plans. I was under the impression these charges were happening to customers who were not on data plans.This is where some of the press has been misinformed. We offer data-capable phones that people do not necessarily need to get data packages for. They can pay as you go. So when they access data from these phones they are paying $1.99 per megabyte. What we have tried to do is go back and see that if someone inadvertently hit a key and accessed a mobile Web site for 15 seconds, that they aren’t charged for it. We’ve given every customer an allowance so that if the phone is in your pocket or an app automatically accesses the data network and you didn’t know, we aren’t charging you for that access. We are constantly examining this.
I think many consumers think Verizon is only doing this now because the FCC has been investigating the company and putting pressure on you. Is that the case? McAdam: No. This has been a continuous effort. In fact, we’ve been working on this since we started offering BREW apps on phones. It’s always been an ongoing process. It has nothing to with the FCC. We just wanted to bring them up to speed on our efforts and how the process is going. This is an ongoing process that every carrier deals with. And every carrier is trying to mitigate these problems, but some things slip through the cracks. That’s what we are trying to fix now.
You recently were promoted to chief operating officer of Verizon Communications, and you’re now the likely candidate to succeed Ivan Seidenberg as CEO when he retires. What will this change mean for you and the company going forward?McAdam: Well, Ivan has let it be known that he plans to retire next year. I think for me, I see a ton of opportunity ahead of me. If I look back on my career, I spent the first 10 years on the wireline side of the business and then 20 years on wireless. And I can see a lot of opportunity in what Verizon can do over the next few years. There is opportunity internationally with its partnership with Vodafone; opportunity with this new 4G network. So I’m very excited for the next several years and what that holds for Verizon.
