What would happen if exclusive handset deals were outlawed? Page 2

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A range of wireless industry analysts generally agreed with Siegel's basic stance, though with plenty of caveats and stipulations. (Other top-tier carriers and handset vendors contacted by FierceWireless either declined to comment on the topic or did not respond to inquiries.)

First, the obvious: If exclusive handset deals were outlawed, carriers from Sprint to Cellular South could offer the iPhone and other exclusive gadgets--but that's assuming there were versions of the devices that could work on various carrier networks, from CDMA to GSM and 1900 MHz to 2100 MHz [2]. But that's just the beginning.

If exclusive handset deals were banned, Iain Gillott, founder of iGR Research, said prices on cell phones would likely go up because carriers would have less impetus to subsidize the cost of the devices. ABI's Kevin Burden agreed."If the iPhone was available at every carrier, what you would not see is a $100 or $200 iPhone," he said.

[3]Interestingly, though, there are examples of the opposite. Among the four carriers [3] offering service for an HP netbook at Best Buy, one (Sprint) has subsidized the full $389 cost of the netbook, two (AT&T and Verizon) offer it for $200 and one (Rogers) offers it at $300. A caveat: The netbook market is very much in the early stages, while the cell phone market is maturing rapidly.

Nonetheless, if carriers reduced their subsidies and were no longer able to market exclusive gadgets, they may resort to lowering service prices in a bid to separate themselves from the competition. But even this tactic likely wouldn't result in drastic changes on the price of wireless services because, as ABI's Burden pointed out, there is already white-hot competition among carriers on service prices. Indeed, Sprint's current service fees are notably lower than those of its main competitors, a situation that hasn't directly resulted in lower prices across the board.

Another possible result, noted by several analysts, would be a potential slowdown in the pace of innovation on the handset side--exacerbated by a longer replacement cycle sparked by overall higher device price tags (since carriers likely would reduce handset subsidies).

Current Analysis' Avi Greengart summed it up: "For example, when Apple launched the iPhone exclusively at AT&T, that left an opening for other handset vendors to compete with Apple at other carriers using those rival carriers' resources. Exclusives are fueling handset innovation and speeding competition, and if you remove that structure, who knows what will happen?"

Added Greengart, tongue firmly planted in cheek: "One possible scenario is that regulators' next investigation will be into lack of competition among handset vendors."

Further, exclusive handset arrangements allow carriers and handset makers to more closely align their products, thereby creating devices that potentially introduce new features and services. Indeed, the visual voicemail function on Apple's iPhone requires a connection into Apple technology on AT&T's network, and presumably in an industry that forbade exclusive handset deals, Apple could be required to install that same technology into the networks of all of the nation's carriers. However, the course of this argument travels into the debate over open access, wherein industry critics argue that wireless carriers should allow all manner of devices and services onto their networks. It's a separate issue from exclusive handset deals. "The devil is in the details," counsels Gillott.

De facto reality

But perhaps the most interesting and potentially notable consequence of prohibiting exclusive handset deals would be the de facto exclusive deals that would evolve as a result. According to iGR's Gillott, a carrier could potentially supply a handset maker with a reference design for a cell phone and then buy six months worth of production capacity from that handset maker for that device. For example, Verizon Wireless could provide Research In Motion with the basic design of a touchscreen BlackBerry, complete with a dual RIM and Verizon logo, and then pre-pay for all of those devices that RIM could manufacture during a six-month period. RIM wouldn't have any additional production capacity for another, competing carrier, and no other carrier would want the device anyway since it theoretically contained specifications specific to Verizon's brand and network.

Thus: De facto exclusivity.

But, ultimately, Gillott acknowledges that no one really knows what would happen to a wireless industry unable to trumpet exclusive handset arraignments. He points to the introduction of wireless number portability several years ago as an example: Analysts across the board thought the ability for consumers to carry their number with them would result in massive churn among the nation's wireless operators as customers sought out the best deal. Instead, Gillott said, churn remained relatively flat and it was actually wireline operators that suffered defections as customers cut the cord and moved their wireline number to a wireless phone.

"There are always great, unintended consequences in these things," Gillott cautioned. "The people who are pushing this thing do not understand how the wireless industry works."

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