Verizon Offers Compromise In Exclusivity Debate

For about a month now, Congress and the FCC have been investigating the exclusivity deals between mobile carriers and phone makers which require that certain handsets only operate on certain networks (for example, the iPhone on AT&T). Now, Verizon has volunteered a compromise to Rep. Rick Boucher (D-VA), chairman of the House Energy Subcommittee on Communications, Technology and the Internet, which would allow smaller carriers access to the restricted phones after a six-month delay, while continuing to block the major carriers. "From now on, when Verizon strikes a deal with a manufacturer for exclusive access to a handset, it will allow the phone be sold after six months to any carrier with fewer than 500,000 customers." In a letter to Boucher, Verizon said, "Exclusivity arrangements promote competition and innovation in device development and design. We work closely with our vendors to develop new and exciting devices that will attract customers. When we procure exclusive handsets from our vendors we typically buy hundreds of thousands or even millions of each device. Otherwise manufacturers may be reluctant to make the investments of time, money and production capacity to support a particular device." Many remain unimpressed by Verizon's generosity.

Comments

Ah yes, the old chicken scratch compromise

[Anonymous Coward]

Because obviously this is going to be tons better for consumers. Think they'll keep to this if they get the next iPhone contract deal as has been rumored?

Hmm

[dakohli]

How many carriers are under 500,000 in the states?

I'm thinking they thought long and hard on that number, and made sure they came up with a promise that will not affect their overal sales.

Re:Hmm

[rsmith-mac]

How many carriers are under 500,000 in the states?

None that own their own networks, which I suspect is the the other half of the point. Letting their vassals have their "exclusive" phones doesn't really change anything for Verizon.

Re:Hmm

[SteveTheNewbie]

Interesting, I guess that means the iPhone 3G I've had that's been running on T-Mobile for the past year has been a clever illusion then.

Hmm.

[ground.zero.612]

Exclusivity arrangements promote competition and innovation in device development and design.

Citation needed.

I would argue that it is either an antitrust issue, or dances on the fine line. To make a car analogy, wouldn't it be illegal if Ford and BP paired up to make Ford's only run on BP gasoline/diesel? Of course IANAL.

Re:Hmm.

[larry bagina]

Consider the iPhone. Apple went to Verizon and said "Hey, we have this phone. But we need you to add support for visual voicemail. Also, you're going to act as a dumb pipe only (did we mention the reasonably priced unlimited data plan?). We'll handle the ringtones, music, wallpaper and anything else like that. One more thing: you'll give us a cut of the monthly revenue."

That was too much innovation for Verizon, so AT&T got the exclusive deal.

Re:Hmm.

[aldousd666]

just exactly what is the problem here? Consumers didn't invent the technology, but if consumers don't buy it it's bad for those who did. There is no 'inherent interest of the consumers here.' They didn't have a right to 'buy and use this cell phone' before it was invented, so now, all of the sudden when some smart guy invents it, they suddenly gain the right to have it how they like it regardless of what the guys who invented and brought it to market want to do with it? Consumers are essential to making successful businesses, but business can screw themselves over if they like by making whatever contracts they want. Anti-trust is not defined. What is "anti-competative?" You'll know it when you see it? So.. you don't know if you've committed a crime until after you have, and the jury hands down an indictment? Hmm... I'm pretty sure that you can't have anti-trust over a particular MODEL of phone, when everyone and their uncle has some kind of smart phone somewhere. Consumers put fuel into the engines of the companies that make things by buying them, so it's wise for companies to consider the interests of those buying their stuff. But there is no law (nor should there be) against being stupid and making stupid business decisions (locking out a portion of the market you might have had based on exclusivity deals.) Look at the iPhone... they asked verizon first if they wanted to invest... and they said no. AT&T paid money to enable the very thing to come to market at all. Without that, apple's brilliant design would be sitting on a hard drive somewhere.

Understandable

[sanosuke001]

I would love to see the major carriers have to compete with their services alone, but Verizon does make a valid point.

However, they also talk out of their asses. "Exclusivity arrangements promote competition and innovation in device development and design" but they fail to realize that we want a choice for where to go with whatever phone we want. Handset manufacturers would make new handsets regardless; I don't think the major carriers have as much influence as they think they do. Unfortunately, its tough to force them to do anything because people are tethered to their cell phones; a boycott would be impossible since nobody cares enough to do so. They care enough to complain but when push comes to shove, nothing.

Re:Understandable

[Anonymous Coward]

"but Verizon does make a valid point."

No they don't. They along with other mobile providers in the US are among the very few carriers of any sort of consumer service in the world that enjoy this sort of exclusivity.

This shit wouldn't fly if you could only use Samsung TVs on Comcast. Nor would it fly if Earthlink required you to use a Dell computer to access their dialup service.

Really?

[Darkness404]

Exclusivity arrangements promote competition and innovation in device development and design. We work closely with our vendors to develop new and exciting devices that will attract customers. When we procure exclusive handsets from our vendors we typically buy hundreds of thousands or even millions of each device. Otherwise manufacturers may be reluctant to make the investments of time, money and production capacity to support a particular device

Really? Because T-Mobile, even though they don't have an iPhone offered still supports it. (see http://consumerist.com/5243325/t+mobile-provides-iphone-support-despite-not-offering-iphone for a reference).

Exclusivity arrangements do not provide competition, competition should be done with -gasp- the networks. Lets see, AT&T is pretty expensive, but they have a decent 3G network, T-Mobile is a bit cheaper, but their 3G is lacking outside of major cities. Verizon is CDMA and so is Sprint and I'm not a fan of CDMA phones so I doubt I will ever use them. That is how competition is supposed to work. Not -insert major phone maker here- just announced a new phone exclusive to -insert network here- so you buy the plan to get the phone. Thats not how its supposed to work at all.

Re:Really?

[mariushm]

And furthermore, US has some of the worst cellphones and some of the most stripped down cellphones. Here in Europe I can buy retail any Nokia phone and just insert my SIM card and it just works. The worst I've seen when buying a phone from a GSM company like Orange or Vodaphone with a plan (so the cellphone is much cheaper than retail) is having VoIP or FM radio disabled but otherwise there's no such thing as not being able to use your own ringtones or stuff like that..

NO COMPROMISE ON THIS

[erroneus]

It simply can't be allowed. What we need is the exact same deal that exists for POTS. The phone company pulled nearly the same crap with phones years ago until the government stepped in and said "no more!" In this day where people are increasingly dumping POTS for mobile phone services, it won't be long before we're trapped in the same situation. The time for action is now rather than later... truly, the time for action was at least 10 years ago.

As it stands, phone makers have a technological means of restriction in that AT&T and T-Mobile operate on GPRS while Sprint and Verizon operate on CDMA. But really, those could be pluggable modules installable at manufacture time. Not sure that would be terribly hard to overcome.

But when handsets are "free" (as in freedom) I think we will see not only a drop in prices of the phones but also of services. The control of phone prices and availability by the carriers has raised prices, nearly eliminated the used handset market, has essentially prevented a 3rd party phone market and created a disincentive for people to change carriers because they know it means buying another new expensive phone. This is a rather perfect example of anticompetitive behavior that should make Bill Gates envious.

Re:NO COMPROMISE ON THIS

[PJ1216]

There is a small difference. Not all cell networks are compatible. If all cell phones had to work on all networks, manufacturers would have to spend more to create different phones or just jam every chip in there like they do with world phones. It *could* cause handset prices to jump (above retail, not subsidized) at least temporarily until the market works itself out and they can figure out how better to address the issue (ie: how many of each phone generally goes to each network, is it cheaper to make different models as opposed to one model, etc.)

Re:NO COMPROMISE ON THIS

[fermion]

The phones are expensive. I think we have seen a drop in prices. I have seen smart phones advertised for $30 with two year contract. That puts the entire two year cost well under $1000, much less that the average two year of landline would costs, assuming that you started with a decent cordless phone.

I can tell you the first phones that appeared after the ATT breakup were pieces of crap. They were cool novelties, but the quality sucked. About the only benefit to the average person was that geeks could plug in a modem.

If the user would pay for it, a multi protocol phones could be the norm. This could be mandated, but congress would likely not do it as it would increase the price of all phones, although it would ultimately benefit the user.

What the exclusivity deals do is lock in the user. The price difference between carriers is not so significant, and typically does reflect quality. Cricket is cheap but does not have coverage. Verizon is expensive but has coverage. The exclusivity deals are just another step to insure recurring fees. First it was a one year contract, then a two year contract, now it is a piece of equipment. I personally would prefer a one year contract and lock in with a piece of equipment. My greatest complaint against the iPhone is that, unlike other phones, it requires two year contract, or a pay as you go contract.

Obviously Verizon is not scared of the iPhone. ATT needs it, which is why they let apple do what apple wanted to do. At this time I don't see anyone else allowing the same access to the network, except maybe t-mobile. I would prefer to see congress mandate minimum service levels, 1 year contract unless the phone is free, and then let the carriers compete on phones. There is no best phone, and there is no shortage of phones. One chooses the compromise between carrier and phone.

Re:NO COMPROMISE ON THIS

[PJ1216]

CDMA world phones will actually also carry a GSM chip as well so it will work abroad (CDMA is bigger in the US than the world in general). So it can use GSM when CDMA is absent. The only technical reason is that it requires an entirely different chip in the phone. So, most phones come with one or the other, however, some will come with both.

Re:Why Should Verizon Compromise At All?

[Darkness404]

It should be regulated so long as we have draconian laws that let Apple say that jailbreaking violates copyright ( http://news.cnet.com/apple-iphone-jailbreaking-violates-our-copyright/ ) and so long as we have a legal system that awards outrageous "damages" for "infringements" we need regulation to keep them in check.

Everything is supposed to be a compromise, if the government didn't help businesses at all, than we wouldn't need laws protecting consumers, similarly when the government over-protects consumers you need balance by giving businesses certain rights. With copyright you have a few publishers screwing the masses and so long as the DMCA and other similarly absurd copyright laws are in effect, you need government protection to protect you from them.

Worst idea ever ?

[wimg]

So what happens if that small carrier gets 500.001 customers ? You can't use your iPhone on their network anymore ?
So small carriers will need to stay small... ofcourse Verizon loves that idea, because then they can keep the status quo in the market !

Re:continued crappy service & coverage

[tomz16]

All this does is allow infighting for handsets but doesn't solve the problem of crappy service over the US. If the war torn middle east and mount everest can get cell coverage why can't we get decent coverage in maine. Mount everest has people on it 1 month a year, there are over a million people in maine at any given time! I can't use my phone is 1/2 the counties here and that's with the AT&T.

DING DING DING DING... There's your problem! GSM service in North America is a complete joke in my experience. ESPECIALLY once you venture out of any major city or highway! Just look at the coverage maps for each carrier!

I've had both a CDMA and GSM work phone for many years. Traveled through much of the US. I always chuckle when I see some reviewer favorably comparing the two, ESPECIALLY on coverage.

I was actually up in Maine (Bangor and Bar Harbor) just last week. I had my personal verizon phone with me, and a GSM work phone. The GSM phone had a t-mobile sim but all of the carriers seem to mutually roam in Maine. The phone could associate with banner (company) : Cingular (AT&T), US-890 (Unicel), and T-mobile (T-mobile). It autoregistered to any one of those networks depending on the strongest signal. All THREE of those GSM networks combined were completely dwarfed by Verizon's native CDMA coverage. I mean it wasn't even remotely close! Hell, I had full EVDO revA coverage in areas that couldn't even get a regular GSM/GPRS signal.

In my experience, GSM in Canada is no different. For example, I continued up to Cape Breton after Maine. At one point, the closest GSM tower (Rogers) was a hundred miles away! Full CDMA coverage almost all the way up there, and many spots with EVDO!

So... In my opinion, the easiest way fix to your problem with coverage in the boonies is to go visit a verizon store, and just bite the bullet on the BS craptacular locked-down handset they will give you. At least you'll be able to use your phone to... you know... make phone calls...

The arugment

[FlyingGuy]

All of the wireless carriers, when you boil it down, offer the same thing, dial tone over a radio.

At some point, in any competitive environment you have to be able to differentiate yourself from the other carrier, so really what are the options?

• Coverage? Well that one is a pretty level playing field. Yes any one carrier can expand their coverage by putting up more cell towers, but most of the metro area's have pretty decent coverage and trying to improve that can be daunting. I live in the San Francisco Bay Area and I can tell that trying to put up a cell tower in the City of San Francisco is a at best a 3 year process from birth of the idea to taking the cell live.
• Price, at some point that becomes a non-issue. In the SF Bay Area you can can get a cell phone with unlimited calling in the SF Bay Area for $35.00 a month with Metro-PCS
• Features, well thats a horse of a different color since features basically come down to bandwidth capacity.
• Cool Factor. This is where the handset makes the difference, and the central point of carrier lock-in

With all of those factors except the cool factor being pretty much equal this is how they differentiate themselves from the next carrier. They go to the handset manufacturers and ask, "Hey what do you have that is really cool?", the look at whats out their and evaluate it and then pick the best platform that will allow them to create the best combination of experiences that add up to the all important cool factor.

Lest anyone be confused, the carriers invest a LOT of money in brining this handset to market and its is not like they make a lot of money on the handsent. They make the money on the service they provide be it providing higher bandwidth, storage services, fancy voice mail or whatever.

It is their money they are spending to do all of this, and the notion of creating a network that lets all this cool factor happen just to have someone else duplicate it, or worse duplicate it badly and sell at a lower price point is NOT a winning business model, in fact it is a model for going out of business.

Re:Why Should Verizon Compromise At All?

[TheRaven64]

The obvious answer to this is that Dell wouldn't sign such a deal because it would dramatically reduce their potential sales. This then raises the question of what market conditions exist that make it attractive for Apple to sign such a deal for the iPhone. Once you can answer that question, you can propose sensible regulation to combat it.

Re:Why Should Verizon Compromise At All?

[QuoteMstr]

Of course exclusivity deals are terrible for ordinary people. That's not factually in doubt. Instead, I'd like to explore why you'd post a comment like this. As I see it, there are three explanations:

1. You're a paid shill: not unheard-of. It would explain your posting as an Anonymous Coward, and would explain the completely idiotic thought wrapped up in perfect grammar and spelling.
2. You're just trolling: in that case, you've succeeded, though you certainly could have done better.
3. You genuinely believe the schlock you spewed: this is the least likely and most depressing possibility. This belief would indicate that you really do lack even the most basic grasp of your own economic best interests, and possibly some kind of childhood trauma that created in you an unflinching obedience to authority. Do you vote Republican by any chance?

I sincerely hope the correct option is one or two. People who genuinely believe the crap you posted are responsible for most of the human misery in history.

Re:Actually, just this...

[maharb]

If they invested money on the assumption that the return on investment was an exclusive phone then I think they do deserve to get that exclusive phone that their own money paid for. Contracts (for investment) can be written with any language they want. This means Verizon, as an investor, does not have to buy shares of stock or ownership in the company. They can invest in a specific product expecting that that specific product is for them. Its not like companies like samsung for example don't sell any phones to other carriers, just not the exclusive ones.

I don't know the details of the financial statements and everything to say if Verizon is paying their share of the dev costs, but regardless I think that this does promote more competition. First, it allows carries to compete with one another for better phones. All the carriers are scrambling to pay for a better phone. This creates a pull on the manufacturers to create better more advanced phones rather than just telling carriers that they have to use their shitty phone because they don't want to develop one. So the current situation creates competition to create better and more advanced phone from both the phone companies and the manufacturers.

The proposed plan will only generate competition in the manufacturing sector... probably driving them out of business as they will compete on price and the phone companies will likely start/buy their own manufacturing businesses.

If these regulations go though Verizon will stop buying phone from phone manufacturers or pouring money into the companies and will just buy one and make their own exclusive phones.

Small companies don't always help the consumer. Things like cell phones and large cell networks both have great economies of scale. Don't underestimate the power a free market can have for the consumer. When the iPhone came out massive amount of research went into new phones. None of them can really compete yet, but without the iPhone (being exclusive) we would have never had this huge jump in competition, lowering of prices etc.

Astro lawn (Re:continued crappy ...)

[unixan]

So... In my opinion, the easiest way fix to your problem with coverage in the boonies is to go visit a verizon store, and just bite the bullet on the BS craptacular locked-down handset they will give you. At least you'll be able to use your phone to... you know... make phone calls...

Your impressive list of Verizon's virtues seems a little suspicious.

Especially when you seem rather sympathetic or unusually knowledgable.

what exactly is Verizon thinking?

[tmach]

Isn't Verizon kind of shooting itself in the foot with a "compromise" like this? After all. it's been trying to get Apple to make a CDMA iPhone for ages, once it's deal with AT&T is up. Under it's own plan, it still wouldn't get to have an iPhone. I don't really have a problem with exclusivity agreements in principle. In the case of the iPhone (and really that's what it's all about--nobody was complaining about exclusivity before it came along) the deal with AT&T has just forced every other company from LG to Motorola to Samsung to HTC to try to come up with that "iPhone killer". They haven't done it yet, but the more they try the better phones in general get. Also, these deals tend to have expiration dates. Apple's agreement with AT&T is up next year, I believe. At that point, it will have to be renegotiated. Apple will have to decide if whatever AT&T is paying them is more than what it would be making by selling the iPhone to other carriers as well--and if it's possible to keep up with the demand doing so would generate. Unfortunately, if AT&T shells out enough to make Apple stick around, it will probably have to jack up the price AT&T customers pay per month for all the neat things the iPhone will do. That rate already seems pretty high.

Re:Actually, just this...

[JorDan Clock]

They help develop phones. They work very close with manufacturers to remove any features they deem useful or that may use more then 8 bits per second of bandwidth. It's a very labor intensive process and I think it earns them the right to keep their crappy, er, customized phones exclusive to their network.

Re:Actually, just this...

[Miseph]

Yep, they work very closely to ensure that all phones they vend have any cool features stripped out in order to promote even tangentially related paid services through Verizon. The phone can print via Bluetooth? Remove that so we can better sell data plans for upload to your home PC via the internet. The phone has a user facing camera to allow for videoconferencing? Yeah, that might hurt our services, so you'd better nix that too. Built in WiFi? We can't charge $1.99/mB for WiFi, are you crazy?

Why does exclusivity help?

[Todd Knarr]

When the carriers trot out arguments in favor of exclusivity, or ideas like this, I have just one question for them: if exclusivity is such a great incentive for innovation, when are we going to see all the neat phones with the great features that're already on the market in Asia? There and in Europe they not only don't usually have exclusivity, they don't even have the SIM-locking that US carriers make standard. Yet, in both Europe and Asia you can buy better phones with more features enabled than is typical in the US.