Cell Phone Exclusivity: How It Fails

I suppose that some people did buy iPhones because the phones worked on the AT&T cellular network. This is supposition on my part because I have not seen any articles claiming this to be the case nor have I read any blogs commentaries that support the concept. In fact, when the iPhone first came out, about all of the discussion that was not about the iPhone itself but about how annoyed people were that they would be forced to use the AT&T network. There is now a rising chorus of voices saying that such exclusive arrangements are not in the best interests of consumers.

By all reports, the exclusive deal for the iPhone has been great for AT&T. They now have more than 78 million wireless subscribers, up 24% from a year ago, due in no small part to the iPhone. The exclusive arrangement seems to be a very mixed bag for Apple. It has been able to extract concessions and revenue from AT&T far beyond what any other handset manufacturer has been able to do but it is clear that having the iPhone tied to a single carrier significantly reduces the overall sales of the device. For example, Research In Motion's BlackBerry Curve outsold Apple iPhones in the first quarter of 2009.A major factor may have been that the Curve is available on all four major U.S. carriers. I expect that Apple would actually sell many more iPhones and make much more money if it was not in the exclusive arrangement with AT&T. But Apple would have less leverage on what kinds of packages the carriers offered and likely would not be able to get as much of a revenue stream from post sales payments from the carriers.

Apple has gone further that many people like in trying to enforce the exclusive arrangement. Timothy Maun has a good article in the Wisconsin Law Review on the legal non-niceties of what Apple has been doing. (See "IHack, therefore iBrick: Cellular Contract Law, the Apple iPhone, and Apple's Extraordinary Remedy for Breach" here.  

Acting FCC chair Michael J. Copps has announced that the FCC will open a proceeding to "closely examine wireless handset exclusivity arrangements."

Incoming FCC Chair Julius Genachowski has indicated support for this investigation. Congress has also gotten into the act -- for example, Sen. Kerry asked Genachowski to answer a question on handset exclusivity as part of his confirmation hearings.

As you might expect, AT&T has come out strongly in favor of this type of exclusive deal. Using the kind of logic too often presented by big carriers whenever anyone suggests introducing actual competition into the carrier world in the United States -- Paul Roth said in sworn congressional testimony that removing exclusive deals "would serve only to harm consumers." (See "FCC to probe exclusive mobile handset deals" here.) 

He went on to claim that "devices would devolve into the lowest common technical denominator." That, of course, would only be the case if the handset manufactures collectively decided that they no longer had to compete against each other at the very time that full competition was required.

I hope that the FCC investigation is not fooled by that type of nonsense and that the buying public will see full competition between both carriers and handset manufactures without the distortion imposed by requiring someone to get a handset they do not want in order to use a carrier that gives them better service or be forced to use a poor carrier to get the phone they want.

Disclaimer: Harvard students do not have complete freedom in what classes they have to take but the constraints are minor compared the handset deals. In any case the university has not offered an opinion on the desirability of iPhones on other carriers so the above is my opinion.

For comprehensive coverage of the Android ecosystem, visit Greenbot.com.

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