Google and Verizon Go Toe-to-Toe

Investors should expect some serious fireworks when Internet search giant Google (Nasdaq: GOOG  ) moves to subvert the dominance of Verizon Wireless -- a joint venture between Verizon Communications (NYSE: VZ  ) and Vodafone (NYSE: VOD  ) -- on mobile communications.

The missiles and mortars have been flying lately, as the two companies publicly battle over how mobile communications should be done in the future. Verizon, of course, likes things how they are -- subscribers only buy approved phones, applications, and service from them. Google, on the other hand, wants a more open mobile world where subscribers can buy whatever device and third party applications they want -- opening the playing field to companies such as Microsoft (Nasdaq: MSFT  ) and, by the way, Google. 

Google has succeeded in convincing the Federal Communications Commission to place "open access" requirements on some of the 700MHz spectrum due to go to auction in January. But Verizon has been lobbying hard to remove those requirements, and it's even filed a lawsuit to reconsider the rules and postpone the auction.

The rights to these frequencies are hotly contested. They have more power to transmit over long distances, and they penetrate buildings better than those used for mobile phones today. With other major carriers such as Deutsche Telekom's (NYSE: DT  ) T-Mobile, Sprint Nextel (NYSE: S  ) , AT&T (NYSE: T  ) , and Google eyeing the rights to the airwaves, the government expects to rake in between $10 billion to $15 billion.

Verizon holds a watered-down interpretation of the open access rules: It can sell restricted phones and applications at the same time it supports third-party devices. This allows the company to keep control of the quality of services to its customers and disavow responsibility for any problems customers have with third-party devices.  

The argument has some merit; subscribers expect high levels of reliability from phones. Open devices and applications are naturally more prone to issues with viruses, spyware, and poorly designed applications that cripple a phone's resources.

The final interpretation and execution of the 700MHz spectrum use rules will have a huge impact on the future of wireless services. Open access provisions could potentially create a more costly and uncertain business environment for carriers. It also stands to open the floodgates and forever change the somewhat protected and lucrative business wireless carriers have enjoyed up to now.

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