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What would happen if exclusive handset deals were outlawed?
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Much to the vexation of the big operators, the federal government has begun raising questions about potentially anticompetitive business practices in the wireless industry. Congress, the Department of Justice and the newly revamped FCC are all in various stages of diving into the issue--and not surprisingly market leaders have responded with vehemence.
Critics of the industry have raised a number of concerns over the past few months, from the cost of text messaging to the increasingly commanding position of Tier 1 operators. But one gripe seems to have struck a cord among market players and industry pundits: exclusive handset deals.
Such agreements, inked between a carrier and a handset maker, essentially bar other carriers from selling a specific phone for a specific period of time--sometimes six months and sometimes, in the case of the iPhone, more than three years. These deals typically involve a high-end handset, a substantial subsidy on the device from the operator, and a major marketing push from either the operator or the manufacturer or both. Some of today's more notable exclusive handset agreements include the Pre deal between Sprint Nextel and Palm, the BlackBerry Storm agreement between Verizon Wireless and Research In Motion, the G1 arrangement between T-Mobile USA and HTC... oh, and that iPhone thing. Each of these deals has resulted in significant industry buzz and, for all but the Pre, more than 1 million device shipments. (Don't fret, Palm: Forecasters expect the Sprint Pre to reach that milestone within the next few months).
But those are just the exclusives of today. Such arraignments have been a key element of the wireless industry for the past decade; indeed, there was debate around Motorola's distribution of its StarTac phone in 1996 and AT&T had an exclusive on the Motorola Razr in 2004.
And wireless isn't the only industry where exclusivity resides. AT&T spokesman Mark Siegel noted, for example, that McDonald's sandwiches aren't available at Burger King.
Despite such mouth-watering analogies, there remains Senate hearings on the issue, a potential investigation by the DOJ and promises to review the issue by the newly confirmed FCC chairman. The concerns arise from arguments that consumer choice is limited by the deals, a situation that potentially stymies industry competition.
Whether you agree with the validity of exclusive handset deals or not, the question remains: What would happen if the government acts on critics' concerns and outlaws exclusive handset deals?
The arguments
AT&T, the carrier that has the exclusive deal for the iPhone and the operator that has to date most vigorously debated the issue, says that exclusive deals are good for the industry. "These exclusives encourage collaborations" between carriers and handset makers, said AT&T's Siegel, echoing recent, similar comments by carrier executive James Cicconi. "This is a system that has worked."
Siegel said exclusive handset arraignments spark innovation between carriers and handset makers, thereby pushing newer and more inventive phones to market. And such deals also force competitors to respond. "There were dozens of smartphones designed in direct response to it (the iPhone)," Siegel said.
Although Siegel strongly declined to speculate on an industry bereft of exclusive handset deals, his arguments for the practice essentially stand as a warning of what would happen without them...Continued.
More stories about Verizon Wireless T-Mobile Sprint RIM Motorola RAZR iPhone exclusivity exclusive handsets AT&T
Comments
Posted by WilliamC | July 15, 2009 - 9:34am
I understand the comments in the article very well. We have to stay on message. The problem is this Iphone exclusivity deal with AT&T. This drives all the customers from other carriers to AT&T solely. How many more customers does this behemoth need??? Are they not big already and getting bigger by the day and as the years go by??? This is why the FCC and government broke them up years ago. Now they are of mammoth proportions again. This is a problem with the other carriers and exclusive deals made with the top four. It makes it difficult for the smaller carriers to get phones and limits their selection of phones that they can offer to potential customers. Sometimes a carrier cannot get the phone of their choice at all whether it meets its systems specifications or not. It has a lot to do with the deep pockets of Verizon and AT&T. The FCC should limit these exclusivity agreements to two years. That is fair in my opinion. Don't end it - mend it and fix the problem. Make it fair for all the carriers. Maybe it sparks innovation. But let innovation go further by letting others embrace it and not hope and pray for it. What we do not need is thousand's upon thousand's of phone models out there.
Posted by WilliamC | July 15, 2009 - 10:00am
P.S. Do not forget - How the Iphones prices have dropped to the bargain basement price of $79.00. Looks like somebody is trying to keep a lock on suscribers. How did the price get this low in such a short period of time??? That's a good question to ask Apple and AT&T. Let's see if we get an answer or non-answer. Behemoth number one - is famous for that!!!
Posted by MikeK | July 15, 2009 - 8:37pm
Hogwash to last comment. We have four large carriers. We need these strong carriers and the comptetive edge they bring. The rest the world generally have more dominant carriers than we do. If we were to regulate our carriers we would all suffer because investment in networks would go downhill. Our service is as good as it is because we have carriers with big build-out areas that they are constantlt improving and provide roaming. Small carriers will always wine and cry til the cows come home ..unfair ..unfair ..unfair its natural to for them to want to regulate for them to get a free edge.
Posted by Manfred | July 15, 2009 - 8:58pm
AT&T is only the second largest carrier in US w/ 78 million subscribers | Verizon has 85 million. COMPARE that to China Mobile's 488 million subscribers and all our carriers are dwarfed. Vodafone overseas has nearly 180 million subscribers. We have more than plenty of healthy competition and great variety of choice of phones. To put into light -- China Mobile has 400 million more subscibers than our largest carrier. Even Vodafone has nearly 100 million more than our largest.
Posted by WilliamC | July 16, 2009 - 12:52pm
What does that have to do with the smaller carriers grumbling about these exclusivity agreements??? I'm glad for China - especially when they have almost 1.5 billion people and counting. I would expect their suscriber numbers to be that high. Has nothing to do with the handset availability or exclusivity in the United States. Let's stay on the subject!!! They do not use the tactics that American carriers use to get a suscriber - like gimmickry, perceptions and all kinds of advertisements(misleading or not). Here in th U.S. the few carriers are trying to put a lock and key on the suscribers they get....Abroad - at least they let these providers exist side by side without the shenanigans you see here in the states!!!
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