Wednesday, October 1, 2008 - The Progress & Freedom Foundation Blog

Self Help: The Right Approach to Handset Exclusivity

In June, 2008, my colleague Berin Szoka and I wrote a short piece urging the FCC to refrain from prohibiting the sorts of wireless handset exclusivity deals that brought us innovative "smart phones" like the Apple iPhone (AT&T), Samsung Ace (Sprint Nextel) and Samsung Katalyst (T-Mobile), as well as the recently announced Google (T-Mobile) G1. Some rural cellular companies, through the Rural Cellular Association (RCA), have been trying to prohibit such exclusive deals, and have not only petitioned the FCC for a rulemaking aimed at prohibiting these contractual arrangements, but have also raised the issue in several unrelated proceedings, including the FCC's reviews of the proposed merger of Verizon Wireless and ALLTEL and joint venture of Sprint Nextel Corporation and Clearwire Corporation.

The complaint of the rural cellular companies is that the exclusives have the effect of essentially shutting them out of the burgeoning market for advanced wireless services and equipment, and that they need government intervention to compete. We urged the FCC to refrain from taking action on the RCA petition, suggesting instead that rural wireless players get together, pool their resources, and work with handset manufacturers to develop their own smart phones. RCR Wireless now reports that small carriers may be doing just that by forming NextGen Mobile, LLC, a consortium of more than two dozen existing GSM mobile operators and winners of advanced wireless services (AWS) and 700 MHz licenses in recent FCC auctions.

According to the report, all members of NextGen Mobile operate, or anticipate operating, networks based on the Global System for Mobile (GSM) family of technologies, including 3G Universal Mobile Telecommunications System (UMTS) technologies and eventually the next-generation Long Term Evolution (LTE) technologies. In addition to achieving economies of scope and scale for its members in terms of RF optimization, billing, customer care, roaming and network operations, NextGen Mobile will enable the smaller operators to influence the development of smart phones:

"A huge obstacle for any mobile operator who is not one of the 'Big 5' carriers is procurement of the latest, must-have handsets," said Bob Martin, CFO and treasurer of NextGen Mobile. "By aggregating our orders, NextGen Mobile hopes to entice device manufacturers to develop and deliver the next 'it' handset or data card to those customers shut out in the past."

Joint efforts aimed at innovative product development such as NextGen Mobile are obviously the better approach to the issue of access to advanced handsets for the smaller and largely rural mobile carriers. Banning exclusive handsets deals, we wrote in June, would have deleterious effects on device innovation; is unnecessary since most exclusive deals already have limited life-spans; and would very likely harm, rather than help, consumers. As we noted then, and as the recent NextGen Mobile announcement demonstrates, because rural carriers can band together and develop their own advanced handsets, there is no reason for the FCC to prohibit exclusive deals. For all these reasons, RCA's backward looking rulemaking petition and its requests for conditions prohibiting exclusive handset deals in the Verizon-Alltel and Sprint-Clearwire license transfer proceedings should be roundly rejected.

posted by Barbara Esbin @ 2:18 PM | Broadband , Wireless