RSSCongress: Should cell phone exclusivity contracts be illegal?
By Scott M. Fulton, III | Published June 22, 2009, 5:21 PM
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We're already seeing the initial wave of exclusivity arrangements between carriers and PC manufacturers in the netbook arena, with the arrival of the AT&T-subsidized Acer Aspire One at $99.99 last December, and Verizon Wireless-subsidized HP netbooks last month. This raised the ire of Cellular South President and CEO Hu Meena, who's worried that netbooks will become just one more category of device his customers -- mainly in rural areas in Mississippi -- will be locked out of.
"Will Congress sit by and allow the largest carriers to lock the most attractive netbooks into exclusivity agreements before this segment of the market fully emerges?" Meena asked the Sen. Commerce Committee members last Wednesday. "Left unchecked in this segment of the PC market, the largest wireless carriers will gain control and begin to restrict PC innovation and distribution, just as they have wireless handsets. Furthermore, the claim that exclusivity agreements drive innovation is completely unfounded in this segment of the market. Companies like Dell, Acer, and others were advancing the netbook market well before the largest carriers got involved. How, then, can the largest carriers claim a divine right to exclusivity on netbooks?"
Advancing Meena's argument, Sen. Kerry asked AT&T's Roth why a handset or netbook manufacturer wouldn't be compelled to simply produce the best device it could, given the tremendous size of the US market. Roth pointed to a case in point -- one which continues to leave a bad taste in his mouth.
"The first attempt at a music-centric device is this device...the Motorola ROKR," said Roth, holding one up the way an agricultural biologist holds up a cow chip. "It was our first attempt -- Motorola, Apple, and AT&T went together in 2005 to create a device that we thought would cater to the music-centric, it was the predecessor of the iPhone. Colossal failure. I still have them in inventory. Motorola bore the brunt of that, so did AT&T. It was a huge risk for both companies. Large inventory commitments were made...on a device that we thought would be successful. And it wasn't. That type of risk is what manufacturers are looking for carriers to say, if you want to specify a device, if you want to bring innovation that's not part of their product roadmap, then you need to share the risk with us."
But why shouldn't a customer of Rooney's US Cellular, for instance, have the right to purchase an iPhone for whatever price US Cellular might make it available, Kerry proceeded. Roth responded that the real reason was because US Cellular -- along with Cellular South, which was also represented -- made the wrong choice of network protocols: CDMA as opposed to GSM, which he described as the global standard and the one that AT&T, and any other network that cares about customers, supports. Comparing CDMA to GSM, Roth argued, was like comparing VHS to Beta, in that order.
Sen. Roger Wicker (R - Miss.) then picked up that argument, asking Cellular South's Meena, why shouldn't a carrier like AT&T be entitled to recoup its investment in cellular technology with an agreement that helps ensure the value of that technology? Meena responded by pointing out that AT&T's real investment wasn't in the iPhone so much as the network behind it, turning Roth's argument (that AT&T chose the right network protocol) on its head.
"Their primary investment in the iPhone was in the network. We put in a 3G network without any guarantee from Apple or any other manufacturer that we would have access to a latest technology device. I don't know why they have to be guaranteed success when we're not guaranteed success," said Meena. "We're willing to go out there, put our capital to work, put in 3G speeds throughout the state of Mississippi and other places, and be able to compete in the marketplace."
AT&T's Roth wasn't one to let that argument pass, and in so doing, perhaps lose the point that a carrier should be permitted to purchase guarantees and invest in success. He emphasized his point not only that carriers drive innovation, but that they themselves are the innovators -- the ones coming up with the ideas (again, Apple notwithstanding) that produce the functions that customers crave.
"The manufacturer doesn't come flying over from Korea or Canada, opening up a suitcase and saying, 'Which one of these do you want to buy and monopolize in the US?' That's not the way it happens," said Roth. "You can buy what they want to sell...or you can sit down with them and say, 'I want a touchscreen device when no one has a touchscreen device,' or, 'I want a two-way slider device that allows someone to text, and I want this chipset in it, and I want it in this color, and I want it at this price.' Exclusivity starts with the carrier, not the manufacturer, saying, 'I want you to produce something that's not on your product roadmap.' And the manufacturer says, 'There's significant risk in doing that. You need to share that risk with me. Volume commitments.' You can't make a volume commitment if it's suddenly going to be available to everybody and it's wildly successful. You won't achieve your volume commitments back to the manufacturer."
But Cellular South's Meena argued that because Korean manufacturers such as LG and Samsung come to America to deal with AT&T, he and his fellow rural competitors formed a purchasing association to go to Korea.
"We have been to Korea, we have tried to meet with manufacturers in Korea about purchasing the latest and greatest devices. And it's hard to get a straight answer when we talk with them about those devices," remarked Meena. "It seems like they would be able to make the decision as to whether they could sell their product to us, but they're checking back with somebody. And we think we know who it is."
And US Cellular's Mooney supported Meena's argument by pointing out that it's the volume commitments Roth makes that put carriers such as his out of the game, enabling them to sell 9 of the world's top 14 selling handsets under exclusive arrangements that lock him out. The collective power of the buying consortium, he said, cannot equal so much as one of the Big Four carriers' volume commitments.
"It's a volume game. So if you want to consolidate, you gotta have enough volume to justify the consolidation. And it's just not there," remarked Mooney. "I mean, these guys, they've gobbled up all the spectrum, they've gobbled up the control and manufacturing side of the business. You're building an oligopoly there, and it's already happened.
"I think there's a mythical aura to the idea that there's competition. It's not technical competition," he continued, "when you get a hold of somebody else's technology and don't allow it to be disseminated to anybody else. That says, 'I'm technically good, and the rest of you are technically bad,' or, 'I have a better deal with Apple than you can ever get.'"
Last Thursday, in response to this congressional testimony, FCC Acting Chairman Michael Copps announced he has ordered his agency's Enforcement Bureau to open proceedings as to whether wireless exclusivity agreements are helpful or harmful to consumers.
I for one wanted a I Phone but no serivce in the area code 39476. Ported my number to Altell and AT&T cut of my high speed 6.0 internet off. They spend Billions trying to get you to bundel but when it comes to a quick call that your ported number disconnects you from the internet Not A Word. Then it took 2 days to get back up running. they only work from 9-7 if you can get through in 10 t0 20 minutes . They say heavy call volume then connected to a computer answering machine that will tell you everything but what you need,so another 5 minutes to get to a live operator. Ha not enough people working Was talking with the regular phone service to straighten this out at about 7 oclock he just sends me back to DSL internet people and goes HOME. Then they finally get the message that am down only had this for 3 1/2 years they give me another number and here comes the new installation kit with CD and everything I don't even need> More lost expense on there part, Oh yes I have CDMA from Altell and it work get Celluar South also has service at 39476 CDMA but none of the big carriers. Oh yes I would have perfered the GMS type phone but to no avalibilityat 39476.
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|I'm sick to death of people buying phones for hundreds of dollars, and [it's a great phone] but you can't use it anywhere else but with Tmobile, ATT or Verizon... it's stupid. Phones could be made to handle all these formats and communications, but yet they don't. They want to lock you in...
Point of fact, if you go with iPhone and ATT and you think you're getting crappy service, you cancel [you get termination fee] and you can't use your phone anywhere else... where is this fair?
Phone companies need to be put on a level playing field saying this is THE standard; this is what a phone must be able to do..
Where's the option to advise you your going over your planned budget? Where's the customer relationship? Acting in the customers best interest? Nah- they'll just charge you out the wazzoo...
They suck.
Thanks for reading!
www.lehsys.com
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|I kinda like the anti-competitive laws in Australia and the 4 Pillar Bank system (Top 4 banks can not merge. Should be upgraded to Top 5 to be honest). If you want a law to stop "too big to fail institution from forming" and force competition this is a way to do it
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|But where would you even begin to institute something like that in the US?
The "too big to fail" companies are already....too big to fail.
I still think we should have just offloaded the customers of AIG to other companies, covered whatever losses remained and let AIG fail. Still wouldn't have cost anywhere near as much as these continuous bail-outs are...
FTM, let the car companies declare bankruptcy, dissolve, reform and come back without 90% of their legacy costs. That's what we have medicare for, right? It's not like GM and Chrysler would just disappear. They'd restructure, lose the majority of their debt and actually be able to *compete* with Toyota, Honda, and such.
I keep telling myself I'm missing something...that it couldn't be that obvious, but frankly, the more I think about it, the more I can't help but think all these bail-outs and stimulus packages are designed to do something completely *other* than "help" the "people"...
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|Actually though I agree with you on most part the idea that "too big to fail" companies can never fail is probably slowly fading awy. I agree US has probably not seen such a thing but Europe is already seeing this and the trend is a bad one. Probably one of the biggest examples are branches of Siemens like siemens Communications, semiconductors . They are all dead or look at the wireline market, the once big is dead.
Exclusivity in a way hurts competition a lot I would probably agree with Sen. John Kerry on this point. Price is only a very small part of the bigger picture. Taking example of iPhone itself (not saying that it is a bad phone), wouldn't you agree iPhone could have seen much better innovations/featuresets if it did not enjoy the exclusivity?
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|.....wouldn't you agree iPhone could have seen much better innovations/featuresets if it did not enjoy the exclusivity?
Errrrr no not all. That's a complete load of rubbish mate.
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|Exclusivity seems bad for competition, to me. It can run the risk of being about which network has the money to secure the most popular phone. Exclusivity also doesn't provide any incentive for the phone manufacturer to drop the price, nor the network to push to get customers a better deal. Competition is a good thing, exclusivity never is.
Dell with only Intel Processors, ie? Other people make computers, so by everyone's logic of "no-one makes you sign to that carrier and get that phone" the Dell situation should never have been a big deal either and allowed to continue.
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|"the Dell situation...."
...is completely different.
Intel told Dell they'd get a special deal if they promised not to sell AMD cpus.
Apple said nothing of the kind to AT&T. AT&T's network still supports *any* GSM-capable phone and their website offers a rather wide variety.
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|Carriers have the right to exclusivity and if you think that sucks - don't buy the phone and stop whingeing. Simple as.
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|Crap. I agree with you. Stop that. :p
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|lol :)
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|Two points of BS:
"And when you purchase a wireless phone in Asia or Europe, you typically don't buy it through a wireless carrier" - Nonsense. You typically buy subsidized from the carrier in the EU (don't know Asia)
"If you level the playing field nationwide, you end up driving handset prices up and the incentive to make better handsets down." - Nonsense. We are talking about exclusivity. Carriers can still subsidize as much as they want, which will effectively introduce transparent competition and drive DOWN prices.
This is fairly trivial stuff. Tired of the BS spawned by corps and politicians - clearly fabricated lies on both ends to support their arguments.
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|Already illegal in Australia. Competition law prevented Apple from tying in the iPhone 3G with any carrier - so we ended up with all but one carrier supporting it (the last didn't get it because they didn't have decent 3G coverage).
I think most consumers would prefer choice.
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|You have a choice, don't buy an iPhone. As they said, this created mor eiPhone like phones. Its not like there are carriers without cell phones available. This whiole thing is nonsense, its not worthy of a debate on Capital Hill. LIBERAL WASTE IN FULL FORM!!!
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|Sure, we all know Republicans would never do anything like this. *rolls eyes*
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|@Tenoq:
What price are we talking with these phone in AU now? Still $99 without the carrier lock-in?
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|Thats not the issue at all..
The issue is not so much "omg i am contracted to verizon, and have no choice but to break said contract to get an iphone since its only on ATT" (obviously if your contract is not up you are gonna break it to get a new phone even if it is offrered by your current carrier)
The concern is the sweetheart licensing/exclusivity deals, and the tying of phones in general to carriers..
IE not ONLY the fact that you can only get an iPhone on ATT, but that you can only USE the iPhone you just bought on that carrier's network.
The Corp line is "we are paying for the phone its our right to restrict you from using it on another carrier.." the senator/FTC are more saying.. no my signing a contract for 2 years with you to get a discount on the phone, is the extent of what you should legally be able to do as far as carrier locking..
And this was largely prompted by the fact that any phone (the iPhone is just the most recent example) that is carrier exclusive cannot be used in certain geographical areas because we do not have 100% coverage in the US of all carriers..
Because ATT for example chooses NOT to build out in my area I am being barred from using the iPhone..
Personally I wish they would look more at the contract terms and laughable pricing but meh
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|"Because ATT for example chooses NOT to build out in my area I am being barred from using the iPhone.."
It should work just fine on any GSM network. Unfortunately, in the US, that's AT&T and T-Mobile. The rest, I believe, use CDMA.
Unless they make the device dual-band or CDMA, your options are limited more by the hardware than the contract.
There's nothing stopping you from buying the iPhone, breaking the contract and signing up with T-Mobile, though. ;)
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|Considering Apple has whined in the past about other companies "monopolies", it's quite laughable that they are doing the same thing with their phones.
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|quite evident you have no idea what a monopoly is
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|"Churn itself is a sign of competition"
Could also be a sign of unhappiness.
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|Its very simple... pay full price for the phone with no contract, or get the free or discounted phone with a contract. Some companies already do that option.
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|Most do. I got my Voyager for $50. Touchscreen, qwerty keyboard, net, music, video....
..and yet people want *more* for *less*.
It's crazy.
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|US Senators are a JOKE!!!! Vote them out already!!!! The US East coast needs to get a CLUE!!!
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|What like our West Coast has a clue.. i.e. California, Bankrupt...
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|Agreed, but if you want these losers to actually do their job instead of protecting it, we need term limits. This way we wont be subjected to retards that let their dates drown in a car because they were too drunk to care, or didn't want the DUI charge, and what's one life anyway, right.
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|I agree with the House only having term limits. The way the framers wanted it the house was for common people (hence the two year terms). The senate is for career politicians (hence the six year terms).
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|Our society demands cheap phones but doesn't want to be locked into long terms contracts. Unfortunately we don't seem to realize that the rest of the world has expensive phones but no long term contracts.
you get one ... not both.
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|Agreed. This is a waste of time. The manufacturers subsidize the high cost of developing phone after phone (most manufacturers come out with a new one every month it seems) with carrier tie-ins. The cost of R&D alone on these things has got to be enormous.
Our "society" has been notorious lately for wanting "everything" for "nothing". No-one seems to realize (or care) what it costs.
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|I really think your warping this entire argument for your own agenda. No one is asking for handouts here. We just want to choose what we want for our money. If ATT can subsidize an iPhone, why can't they do the same for a Palm Pre? Or an android phone? Apple and Palm both do their own R&D, they aren't subsidized by Sprint or ATT. They make money on the phones. (and in Apple's case, the App Store.)
Of course phone companies have a right to recoup there expenses on subsidized phones. That's why we sign CONTRACTS. If I leave ATT for Verizon, I still have to buy out of the contract no matter what phone I have. Their costs are covered, so why do they care what I do with the phone?
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|"Apple and Palm both do their own R&D, they aren't subsidized by Sprint or ATT"
???
How is the iPhone *not* subsidized? You are locked to AT&T and get a discount on the phone because of it. Do you honestly think the phone would be the same price unlocked? Seriously?
The contracts aren't what matters. Contracts are relatively easy and not overburdening to break. Any carrier can offer a contract, and while they do offer "$50 off" or whatever when you sign a 2 year contract, that's not even close to they will subsidize for *exclusivity*. Especially on phones like the iPhone, Palm or Blackberry.
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|BIG GOVERNMENT, PLAIN AND SIMPLE!!!
Let consumers handle this, another waste of taxpayer's money on frivolous debates. Just like having baseball players on the hill, this is stupid, this is NOT a matter for the government. The US is still called a free-market economy but not for long. EVEN having this debate is WRONG! This is debating the little things that may give some votes yet we are in a recession CAUSED by the liberals who have been in control of congress for YEARS, and the same ones wasting our tax money on crap like this!
What has the 1 trillion dollars you nit-wits spent done for the economy? Our economy would be best served if all these people up there were replaced in the next election, and stupid debates like this cease to happen in the future. STOP the WASTE!
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|oh shut up. you might have had a valid point in there somewhere but then you had to start railing on the government and the liberals and the economy. just shut up if you're not going to talk about the actual article.
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|The-One: Amen to that. Now with the national health insurance plan, they plan to spend at least another $1 tril, but we all know it is going to end up costing the citizes $3 tril. Guess how they are going to pay for all that spending? Higher taxes. They can only get an extra $160 bil or so for raising taxes on the rich. We are next in line for the massive tax hike. Perfect example of why we need the FairTax.
Also, you forgot to mention the Congressional Hearings into College Football and the BCS.
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|BETANEWS ... say it with me ... this isn't the drudge report.
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|You're right, I should shutup and let the government continue this ludicrous destruction of our free market economy with YOUR tax dollars. Thank you for pointing me in the correct direction.
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|Well actually, The-One has a few good points. Big government + Big bulls*** = tax payers money. Damn government constantly interfering in everything. It's just nuts.
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|Calm down sweetheart, I'm sure you've never rambled on incoherently about a righty.....
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|ROFL. "free market economy"...i sure hope you are not talking about the USA as the USA does not have a "free market economy". You probably also think the USA is a Democracy.
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|The-One: I guess you forgot about the first stimulus package that was passed by Bush. Not to mention the Iraq war, which reasons to go there were fabricated by the Bush Administration and Tony Blaire. Just to let you know, you can't just blame one side for all the problems. Blame falls on everyone.
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|vikampion - old excuse, Republicans aren't in power now, and cannot waste our tax money. Dems have been in control of congress FOR MANY YEARS!!! The current congress is no better, and there was a vote that 98% of congress agreed to the Iraq war (thats both republicans and democrats, bush, blair, etc..) Hindsight blaming Bush is stupid and old. Even Kerry said we should do it(look on youtube). When it was popular, every politician agreed.
Anyways, I'm only blaming those who are on power now and have the ability to CHANGE, but will NOT do so. This telecom forum is another example of WASTE!
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|Again...you need to check your facts.
Dems only have been in control of congress for the past 2 years. Repubs had control of it from 2003-2007
Also, I agree w/ you that everyone was in support of the Iraq war going in. The problem is that you are ONLY blaming dems, when teh blame ALSO falls on Repubs (which is why in my original post, I said the blame falls on everyone).
Also, the statement saying to only blame the people in charge now is ludicrious. You can't blame someone who just got into power for problems that have been caused by the last 15-20 years.
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|"Repubs had control of it from 2003-2007"
Not hardly. No-one had control. The margins were so close that *nothing* could get through unless one side gave in.
Talk about your perfect system. ;) Moved only by rhetoric and emotional response; the only things they could accomplish were zero substance "looks like we're doing something" BS and overblown, "no time to think about it", "emergency" decisions.
Now, if we could get that system without the "emergency" decisions, I wouldn't mind so much...other than billions spent on BS "makes 'em look good" legislature. Stack both idiot sides equally and let *nothing* get done. At least then they aren't spending us into 30+ years of debt, waging "military actions", or taking our freedoms away.
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|vikampion - so, because republicans "were" in control, and dems just recently spent 1 trillion dollars on nothing, and dems are wasting their time with this BS instead of something important like...ummm... nuclear N.Korea, republicans should be blamed too? Your logic is mystifying :)
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