Smaller Cellular Carriers Objecting to Handset ExclusivitySmaller Cellular Carriers Objecting to Handset Exclusivity

There's no joy in Mudville and there's no iPhone in Podunk!

Back in 2007 (i.e. when BCR was still on paper), I wrote an article titled "Why Your Cell Phone Stinks." As I recall, I had a somewhat more colorful title, but BCR was a family publication. As it turns out, I'm not the only one who's disgusted with the unholy alliance between cellular carriers and handset manufacturers that has been strangling the market for the type of mobile devices that consumers want. That alliance is built on the idea of locking in the customer with equipment subsidies underwritten by long-term contracts and maintained by exclusive distribution agreements (i.e. ATT's got the iPhone, Verizon's got the Storm, T-Mobile's got the G1, Sprint's going to have the Pre, and on it goes).The Rural Cellular Association, which represents the smaller wireless carriers, has gotten the FCC to initiate Rulemaking 11497, a probe into what they called "the widespread use and anticompetitive effects of exclusivity arrangements" between the nation's largest wireless carriers and handset makers. It turns out that customers in smaller markets that depend on those smaller carriers rather than the big nationals, can't get any of those nifty handsets--there's no joy in Mudville and there's no iPhone in Podunk!

Needless to say, the majors can line up the high-paid throw-backs to bolster their case--regardless of how meritless and self-serving it might be.

In Verizon's opinion "The jurisdictional premise of RCA's Petition is fundamentally flawed.... The Commission does not have jurisdiction over equipment vendors generally and their contracts for sale of equipment to wireless providers; therefore, the Commission cannot regulate the terms and conditions in supply agreements between wireless providers and equipment manufacturers that are the subject of RCA's Petition." The FCC doesn't have jurisdiction, then who does? So you mean we've got to send Moses back up the mountain to get a ruling on this one!!

AT&T tried a little convoluted logic to back their claim. "These types of arrangements, which have been a feature of the U.S. wireless marketplace since its inception, and which promote both carrier and manufacturer risk-taking and investment, are overwhelmingly pro-competitive.... When an exclusive handset gamble pays off for one carrier, that provokes competitive responses and further innovation from other carriers and manufacturers, benefiting all consumers."

Of course, in their opinion RCA's is "a Petition that is remarkably devoid of evidentiary support or even a recognizable theory of harm." How could they have any evidentiary support, you just said the linked handset deals "have been a feature of the U.S. wireless marketplace since its inception"!

Michael Katz, a professor at New York University's Stern School of Business and the University of California at Berkeley, said, "Economic theory has identified circumstances in which exclusive arrangements can harm competition and consumers by excluding competitors"--right on Mike!--"but those conditions do not apply to the wireless telecommunications industry and the arrangements under attack by the RCA Petition."

Conclusion The cellular industry is strong enough that they can compete on their own merits. Frankly, there's no reason why we should not be able to use any mobile device on any network without the hanky-panky of backroom deals between the carriers and manufacturers. Here's a novel idea: if they're so worried about churn, how about providing better service or a better price? It seems the carriers' real concern is that their services aren't distinguishable enough that they can hold onto customers with this crutch, so consumers and small carriers be damned. I think it's time to kick the crutch out from under these guys, and have them compete on their own merits.

Michael Finneran's classes on wireless, mobility, and fixed mobile convergence are offered through Telecom+UC Training.There's no joy in Mudville and there's no iPhone in Podunk!