Verizon’s missing ‘wallet’

Verizon Wireless has been a key supporter of Google’s Android software for smartphones and other devices, but the relationship between the two companies got complicated last week. Google disclosed that, at Verizon’s request, it had withdrawn an innovative feature from a hotly anticipated phone being made for Verizon’s network. The feature is a wireless payment system called Google Wallet, which just so happens to compete with a service that Verizon and two other mobile network operators are developing. Verizon denied that it was blocking the application, but the mere suggestion that it might be is reason to support broader federal rules barring telecommunications companies from denying consumers access to their rivals’ products and services.

The Federal Communications Commission has adopted several rules to promote open networks, but they’ve run into tough criticism from conservatives and other opponents of federal regulation. One such regulation, adopted in 2007, requires winning bidders in the auction for a particularly valuable band of airwaves to let customers use the devices and applications of their choice. Verizon uses those frequencies now in its “4G” mobile data network.

Generating even more controversy, the commission adopted a “Net neutrality” rule last year that imposes a similar requirement on DSL and cable-modem services but not on the “3G” mobile networks that serve most smartphone users today. Instead — at the urging of Google and Verizon, among others — it forbids network operators to block only those applications that compete with their voice and video-calling services.

Google Wallet doesn’t compete for voice or video calls, but it does compete with Isis, the digital payments venture by Verizon Wireless, AT&T and T-Mobile. The stakes are small today, but the transformative potential of these services is enormous. More than just another alternative to cash, they offer a way for merchants to interact with shoppers in their store the way they do on their websites.

Verizon offered an opaque explanation for keeping Google Wallet off the forthcoming Samsung Galaxy Nexus, saying the application “needs to be integrated into a new, secure and proprietary hardware element in our phones.” Whatever the reason, the hold-off is likely to be temporary. The Galaxy Nexus uses the 4G airwaves, and Verizon has to abide by the ban on blocking apps. But that’s not very reassuring for the vast majority of consumers, who are likely to remain on 3G networks for several years. The Google Wallet episode gives the commission good reason to bar anticompetitive behavior by telecommunications companies no matter what kind of network they operate.