Microsoft's ecosystem is a tough sell to Verizon

BARCELONA, Spain--Verizon Communications Chief Technology Officer Tony Melone would love to see a third player in the mobile OS market, but Microsoft's Windows Phone platform may not be it.

Melone said during an interview yesterday at the Mobile World Congress here, that it is important for the mobile industry to have more than two choices in major software platforms for mobile devices. But he is skeptical that Microsoft, which has seemingly had a slow start in the market with its Windows Phone 7 software, will have a chance to be that third horse.

That said, Verizon plans to offer its first Windows Phone 7 product this spring, Microsoft announced yesterday.

"I do want a strong third OS out there," Melone said. "It gives the carriers more flexibility and balances the interests of all the parties. But I still have doubts whether Microsoft will get the traction they are hoping for with Windows Phone 7."

Last week, Nokia and Microsoft announced a close strategic partnership, in which Nokia will focus new product development exclusively on Microsoft's Windows Phone platform in lieu of its own software. But Melone doesn't think the Microsoft-Nokia relationship will help Windows Phone 7 become a dominant force on Verizon's network, since Nokia is not a Verizon handset partner. Nokia got rid of its CDMA business years ago. (CDMA and EV-DO are the technologies that Verizon uses for its voice and 3G data service.) Melone said even if Nokia starts building CDMA devices again, it would be very difficult for Nokia or any new handset player to break into its product line anytime soon.

"If you look at our device pipeline for 2011, we have very strong relationships with LG, Samsung, Motorola, HTC, and now Apple," he said. "So I think it would take a really compelling device from Nokia or any new vendor to break in. It doesn't mean that it can't happen, but it would have to be really good."

In a separate interview at MWC, Nokia CEO Stephen Elop indicated that Nokia may have already begun courting Verizon as part of its new strategy. Elop wouldn't elaborate on any plans to build CDMA phones for Verizon or other carriers, but he noted that he had spoken to Verizon executives the night before the deal with Microsoft was announced last week.

The bottom line, Melone said, is that Verizon has what it needs from its current partners.

"I don't think Verizon needs the Nokia and Microsoft relationship," he said. "Right now the three OS players we see for our network are Android, Apple, and RIM. "

Research In Motion, the maker of the BlackBerry, has seen growth slip the past few quarters. It dropped some worldwide market share in the smartphone market in 2010, according to IDC. In 2010, Nokia, which is still the No. 1 smartphone provider in the world, saw its annual market share fall to 33.1 percent, from 39 percent in 2009, while RIM's share dropped to 16.1 percent from almost 20 percent. Meanwhile, third-place Apple saw its market share rise to 15.7 percent from 14.5 percent.

"People are still buying BlackBerrys on Verizon's network," Melone said. "And I do consider RIM a strong third player. I know the momentum is not in their favor right now. But they have been strong in the past and there is potential for them to rebound. So I wouldn't discount them."

Melone also noted that WebOS from Palm, which is now owned by Hewlett-Packard, is a potential wild card in the OS wars.

"If HP decides to license WebOS that could also become a third or fourth player that is used by OEMs," he said. "I'm more optimistic with WebOS developing into a strong player, just based on the strength of the OS. It has some very unique and good characteristics."

Nokia's Elop acknowledged that RIM is a worthy competitor, but he said that the Nokia/Microsoft relationship offers carriers and consumers a more comprehensive offering. He said that RIM is in the same position that Nokia was in before it partnered with Microsoft. It has the hardware, but doesn't have an ecosystem built around it.

"They are selling a lot of phones, and there are some innovative designs," Elop said in an interview. "But I really believe that this is an ecosystem game. We can offer the consumer both innovative hardware and an OS with a good user experience, and an advertising platform with location services, and the list goes on and on."

Microsoft also believes it has a lot to offer carriers.

"Of course wireless operators want more alternatives that will [help] them to add value," CEO Steve Ballmer said yesterday during his keynote speech at MWC. "And Windows Phone will be the most operator-friendly OS on the market."

But Verizon and Microsoft have not had the best relationship in the past. Microsoft's Kin phone, which was introduced on Verizon's network last year and quickly removed a few months later, left a bitter taste in Verizon's mouth. And in an interview with CNET in the fall, COO Lowell McAdam did not seem thrilled to offer future Microsoft products He said that Microsoft was not at the "forefront of our mind."

Greg Sullivan, a senior product manager for Microsoft, said that he couldn't speak specifically to Verizon's hesitation regarding the Microsoft platform, but he said he was looking forward to changing the carrier's perception.

"We want to change that opinion," he said, "There are things we hope to do in terms of responsiveness to get more developer support. And we want to enable mobile operators to do things that bolster their brands and create more opportunities for them."

Verizon has worked closely with Google and handset makers Motorola, Samsung, and HTC to introduce products to compete against the Apple iPhone, which until this month had been exclusively available for the AT&T network. And the strategy was a huge success helping Verizon add millions of new smartphone customers. But it's clear that Verizon doesn't want to become too dependent on Google.

"We have good and deep strong relationships with Google and Apple," Melone said. "But it's good to have balance in these relationships. As a carrier we want to make sure there is flexibility. We don't want to be viewed as a dumb pipe. And it's good to have choices for us and our customers."