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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. 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.
Interestingly, though, there are examples of the opposite. Among the four carriers 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."
More stories about subsidies netbook iPhone Handsets exclusivity exclusive handsets Cellular South CDMA
Comments
Posted by Anonymous | July 13, 2009 - 12:10pm
Does anyone realy undersatnd how the wireless industry works?
Posted by J.E. | July 13, 2009 - 12:12pm
WOW!! Just how big a idiot is AT&T spokesman Mark Siegel, or is he simply as arrogant as the rest of the company and thinks we consumers are just plain stupid? To compare handset exclusivity with not being able to get a McDonald's burger at Burger King is like saying the Nokia store doesn't sell Motorola handsets, or you can't buy a Toyota at a Honda dealership. Come on Mark get real! Add something meaningful to the discussion like, "If other carriers, especially Verizon were allowed to sell the iPhone, we'd bleed customers like crazy. We want to milk this gravy train as long as we possibly can before we're screwed!"
Posted by Mediaman | July 13, 2009 - 12:43pm
Hello?!?!?!?!
Does anyone remember Carterphone? The Justice department forced then AT&T to open up it's line to competing phone sets, with the ONLY requirement that they be compatible with AT&T's phone technology; capable of carrying a signal.
Look what happened.
Within just one year there were literally hundreds of phones competing for consumer dollars with everything from basic phones to full-featured phones with answering devices and other features, with the basic models as much as 80% less than the AT&T buggy whip model.
In other industries "refusal to sell" has been met with anti-trust legal action; the so-called fierce completion in wireless has not resulted in lower prices.
If a handset looks like a computer, acts like a computer and talks like a computer, what opportunity does that present for Dell, and HP and ...and...? You can buy as much or more capability in a desktop, even some netbooks, for the same ort less than the new 3G and soon-to-come 4G technology.
Since the Internet is eventually going Wireless, who is in the best position to "own" the consumer?
Why do you thing Google is investing so much in Android and OS development?
When the consumer and the marketplace wakes up to tomorrow's AnyThing, AnyTime, AnyWhere society, to the opportunities for Cloud Commuting, Cloud Health, Cloud Education, do you think they want to be held back from full enjoyment of the marketplace by restrictive device access and utilization.
What will the response be to "I'm sorry, you can't get that application on your device."
If we want to reach the AAA point sooner, rather than later, the first step is to force separation of Content from Infrastructure, just as Justice did with TV studio-owned production companies a generation ago.
Result? Much more Content, better Content, originating from more sources.
If manufacturers want to offer exclusivity to handset manufacturers, that's OK AS LONG AS other handset manufacturers get to compete for a consumer's business on that carrier's infrastructure.
Starting to sound a little like the Cable wars to come?
You betcha!
Separating Content from infrastructure is the top priority for arriving at the Internet/WWW Holy Grail of AnyThing, AnyTime, AnyWhere (AAA).
Posted by Anonymous | July 13, 2009 - 1:16pm
We have descended into a Soviet-style capitalist system. We are forced to accept the whims of closed dictatorial industrial bureaucrats with their preposterous self-justifications and outrageous economic demands.
Mike Dano whines about the danger that the "handset subsidies" will disappear. Mike, you obviously think we're morons. There is no subsidy as such. We pay for the phone in our plan costs. What's more, if we don't get a new phone immediately when we renew the contract, we are being ripped off. We are still paying the surcharge (what the "subsidy" really is) without getting the new phone.
Why would we do that? Oh, I don't know. Maybe because not all of us are wasteful brainless consumers who throw perfectly functional phones into the toxic waste dump so that impoverished Chinese workers can grind them up and poison themselves. Mike, not all of us are on-board with the stupid self-destructive consumer culture that is foisted upon us at every turn.
Welcome, Comrades! Welcome to the Glorious Union of Soviet Capitalist Republics!
Posted by Debra Kaufman | July 13, 2009 - 2:25pm
This is exactly the reason why content on mobile phones has been slow to take off in the U.S. As handset manufacturers and wireless companies keep the platform mired in the politics of competing operating systems/formats/exclusive deals, content creators are unable to launch across mobile platforms and thus gain economies of scale. Online video was hard enough for Hollywood to adopt; the mysteries of wireless will indeed discourage significant content development and distribution. Read more on MobilizedTV.com
Posted by Anonymous | July 13, 2009 - 2:35pm
Outlaw subsidies. The rest will take care of itself.
Posted by Little Guy | July 13, 2009 - 2:39pm
To say that there would be less competition by making the playing field equal for everyone is almost as idiotic as saying you can't buy a McDonald's burger at Burger King... (You can still buy a Coke at both places!)
The argument about needing exclusivity to keep device subsidies high is also a farce. If anything removing device exclusivity would force the big 4 to increase subsidies as a way of differentiation from their competitors. They argue to keep exclusivity because without out binding a specific "it" device to a carrier they loose the incentive to force customers to remain on their network.
If you think removing exclusivity hurts the wireless market, look at Asia and Europe. Both markets are extremely competitive, even without (as many) device exclusivity deals.
Posted by Anonymous | July 13, 2009 - 3:02pm
>>>Does anyone remember Carterphone? The Justice department forced then AT&T to open up it's line to competing phone sets, with the ONLY requirement that they be compatible with AT&T's phone technology; capable of carrying a signal.
Look what happened.
Look what happened?
Carterfone delayed the break-up of AT&T for another decade. If we didn't have Carterfone, AT&T would have been broken up in the 70's, instead of 1984.
Posted by Anonymous | July 13, 2009 - 4:02pm
What you would see is a sub-$30 monthly charge for a slightly more expensive iPhone from other carriers - or even cheaper subsidized iPhones since there would be iPhone competition. Let's face it - there is no use trying to pretend the iPhone is on the same playing field as any other phone out there, whether or not you are a fan, because plenty of people ARE. So it's no surprise that AT&T is screaming loudly while everyone else is keeping quiet. The iPhone deal is the proverbial goose laying the golden egg.
If all carriers sold iPhones, then RIM would have to respond by making a MORE competitive phone to sell through all carriers - what does the exclusivity agreement have to do with that? You think they'll just make less competitive phones or slow down development of new models - that makes no sense. They'll be forced to keep up with Apple and then you have HANDSET competition, in addition to CARRIER competition.
These agreements simply allow handset manufacturers to depend on guaranteed sales and support from carriers so they can deliver sub-par products on the bet that the consumer won't switch carriers because of contracts or service or something besides the device.
Carriers will still subsidize handsets - that way they can lock customers into contracts and guarantee the REAL money-makers - monthly access fees, overage charges, and content downloads.
Posted by Long Term Planner | July 13, 2009 - 4:37pm
Agreed, you have a unique profiting ecosystem in our wireless network and handset businesses. Unfortunately, the current path is not leading anyone to open content across smart phone platforms. Furthermore, until the industry collectively moves towards some guidelines for displays, user entry, storage, power management, and interoperability with universal access methods, carriers and handset providers will first enjoy and then pay the price in the coming years. I liked the idea from one European Politician to force every device maker to use a standard adaptor for all handsets. That is a great start!! So simple, yet great. If you can imagine a can of pop recycled reduces the "net energy consumed" of a TV set running of 3 hours, imagine what our ecosystem could save enviromentally if we applied recyclable electronics to the many areas in our fields. We really need to get the top brass thinking with this in mind admittedly, we are right behind the PC and automotive industry as the most enviromentally polluting industries. OK, enough of the nature talk, lets get back to the table and come up with something better that just arrogant talk!! We are innovators, lets do something good for mankind again with good universal policy and standards. After all, it's been 35 years since the Mobile Phone Technology came into existance.
Posted by Anonymous | July 13, 2009 - 5:34pm
There seems to be a lot of fear of the unknown by the analysts. However, exclusivity are rare in other regions of the world, and that has not stopped neither subsidies from operators (now called service rebates against a one-year contract) nor innovation from device OEM. To the contrary! Why did it take 6 months to get the Nokia E71 to the US?
Do we really think that other OEMs would not have deployed touch screen smart phones if the iPhone had been available on multiple networks???
This article is showing the industry disconnect and misinformation that we have to deal with just to protect a susbsidized status quo.... Unless it is just showing how everybody sings in tune to protect the large carriers!
Posted by MBA Candidate | July 14, 2009 - 12:58am
Wow, Siegel. Way to go. Could someone fire this douche? Does he really think people we are all that dumb?
You guys already laid out what I wanted to say:
Obviously, a non-exclusive iPhone would have led to even higher iPhone sales which in turn would have made other companies scramble even faster to be able to compete with Apple in order to protect their market share. It's not like the Nokias of this world would go, "Oh darn, now that the iPhone is available everywhere we're screwed. Let's just give up"
The competition is lucky that the iPhone is not available everywhere, because it gives them more time to react - this actually means less competitive pressure.
Posted by Danny | July 14, 2009 - 1:43am
People buy the iPhone because of Apple not for the misfortune of using ATT's network.
ATT tells everyone they have the fastest network with the best coverage worldwide while their domestic customers suffer from dropped garbled calls and inconsistent data connections. Typical marketing BS to confuse the confused.
If the iPhone was available with T-Mobile or Verizon, believe me there would be an explosion of new sales.... at least until the old played out RAZR effect kicks in and Wal-Mart starts giving them away for free with new prepaid service.
Posted by Anonymous | September 21, 2009 - 2:15pm
Little Guy - you stated "You can still buy a Coke at both places!"
When was the last time you were at McDonalds and wanted Pepsi?
There are numerous exclusivity deals all over the place - but no one wants to admit it. Try to buy something from Kathy Ireland at Target - you can't. It's only at Kmart.
The handset manufactures do make models compatible with every wireless provider. And yes, at the same time, they make specific handsets that only work with 1 provider - of course Apple being the one that only makes 1 handset.
Why do you think the other carriers don't offer the iPhone? Maybe because the iPhone is working on last decades technology? Is there a 3G iPhone out there?
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