Cell phone exclusivity contracts and Congress

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Congress is reported to be concerned about cell phone exclusivity agreements between manufacturers and carriers. For instance, in the US, the iPhone is only available with AT&T:
"We ask that you examine this issue carefully and act expeditiously should you find that exclusivity agreements unfairly restrict consumer choice or adversely impact competition in the commercial wireless marketplace," the Committee wrote.

Senator John Kerry (D-MA), the Committee chair, also said he would convene a hearing on Wednesday to explore whether the marketplace for mobile is best served with or without exclusive contracts.

"Today, we've got a wireless marketplace where four companies account for more than 85 percent of all subscribers," Kerry wrote on SaveTheInternet.com's blog. "In fact, nine of the most popular ten phones are locked in a deal with one of these big wireless carriers, and are only available through one network."

It's certainly true that handsets are often locked to manufacturers, but there's a technical obstacle as well: the US, unlike Europe, has multiple cellular standards. In particular, the iPhone is GSM-only, so as far as I know it couldn't be used with either Sprint or Verizon even if it were unlocked. Apple could of course completely reengineer the phone, but it's not just an arbitrary matter of vendor lockin. If you want to run the iPhone on a non-AT&T carrier in the US, pretty much you're looking at T-Mobile. I guess some choice is better than none, and I'm not exactly thrilled with AT&T's network, but my impression is T-Mo is even worse.

It's important not to confused subsidized handsets and long-term contracts with exclusivity arrangements. In the US, handsets are sold at a discount but you need to sign a long-term contract to get the discount. Clearly, if the manufacturer is going to give you a big discount, they need to ensure that you don't take the discounted phone and go to a different carrier: but this doesn't require any kind of technical lock-in, they just need to penalize you for cancelling your contract early, which, in fact, they do.

By contrast, locking the phone to a carrier provides the carrier with a competitive advantage: if you want a cool phone, you have to go with the exclusive carrier. This would work fine even with no vendor subsidy. In fact, the first generation iPhones phones weren't really subsidized, but you still couldn't use it with any US carrier besides AT&T. I have one, and even once my two year contract runs out, I'd still need to jailbreak my phone if I wanted to use it with T-Mo.

Fans of the ultra-popular iPhone have been complaining to ConsumerAffairs.com and elsewhere that AT&T -- the exclusive carrier of the iPhone -- cripples the phone's functionality and has made upgrading to the new 3GS model too confusing.

"I purchased an iPhone on May 4th and they are not allowing me to exchange my 3G iphone to a 3Gs when it comes out," wrote Anthony of Lawrenceville, New Jersey. "I have discussed my problem with Apple, who has agreed AT&T is engaging in poor business practices."

I don't really have a position on whether this is a poor business practice or not. On the one hand, AT&T did subsidize the phone and people's two-year contracts aren't up. On the other hand, in the past when I've upgraded phones before the end of my contract, the carrier has just extended the contract for an additional X years and given me the subsidized price. Also, it's not like it was a huge secret that Apple was likely to announce a new iPhone at WWDC. So, I'm not sure it was the wisest decision to buy one of the 3G models a month before then.


T-Mo is actually great... and they've started specifically *not* adding additional contract terms to changes to your phone, plan, etc. Which is why I was able to avail myself of their Loyalty plan on a jailbroke iPhone and get unlimited data and minutes for $70 on a month-to-month plan. Pretty sweet... and I've found their network to be strong where ever I'm at. So, I'm not sure your impression is right wrt T-Mobile.

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