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

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.

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.

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: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.

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.