U.S. senators told Apple-AT&T iPhone exclusive deal has created ‘digital divide’

“The success of the Apple iPhone has translated into millions of new customers for exclusive U.S. carrier AT&T. But a Senate panel on Wednesday explored what impact such exclusive agreements have on wireless prices, innovation and competition,” Leslie Cauley reports for USA Today.

“Paul Roth, head of retail sales for AT&T — the only big carrier that testified — made the case that exclusive arrangements help spur innovation, noting that there are now more than 30 smartphones competing with the iPhone. Those sorts of competitive responses help keep prices in check and also give consumers plenty of choices, he argued,” Cauley reports. “In short, these arrangements ‘are really good for consumers,’ Roth told the Senate Commerce Committee.”

Cauley reports, “John Rooney, CEO of U.S. Cellular, had a different view. He said exclusives are ‘damaging’ to consumers, arguing that they limit choice, tamp down innovation and tie the hands of subscribers. U.S. Cellular is the fifth-largest wireless carrier in the country, with about 6 million customers. People in rural areas are particularly hard hit, Rooney told the committee. Owing to exclusive deals, he says, a wireless ‘digital divide’ — between people who have access to top devices and those who don’t — is starting to take hold.”

MacDailyNews Take: Who’s up next? The CEO of Joe’s Burger Shack complaining that McDonald’s Big Mac should be available to all burger joints because not having it is damaging to his business, limits consumer choice, and – sob – people in rural areas are particularly hard hit? Puleeze. Normally, we’d say, “Not in the United States of America,” but, lately… Hey, maybe the government could take over the U.S. wireless industry, too? iPhone MMS and tethering coming summer 3009! Don’t worry, government health care will get us all there in fine shape. Yes, we know all about “the public airwaves.” We also know that without AT&T’s willingness to subsidize 2/3rds of the iPhone’s retail price upfront in exchange for competitive advantage, the iPhone platform would be much smaller and less vibrant, if it even existed at all. By the way, the last time we looked at the U.S. Constitution, owning an iPhone wasn’t a right. All that said, the idea of a limit to the length of exclusive deals is an intriguing idea. What do you think?

Cauley continues, “To help make his point, Rooney held up a list of the top 14 devices, including the iPhone, that are locked down in exclusives with the Big Four — AT&T, Verizon, Sprint and T-Mobile. ‘That puts a big dent in our ability” to serve customers, he told the committee.'”

MacDailyNews Take: Did you know that just before General Motors’ CEO Rick Wagoner “resigned” at the “request” of the Obama administration, he visited a congressional committee and held up a list of the top 14 vehicles, including the Toyota Camry, that are locked down in “exclusives” with other car dealerships? “That puts a big dent in our dealerships’ ability” to serve customers, he told the committee. It sure did.

Cauley continues, “The duration of AT&T’s iPhone exclusive was also a point of discussion. Device exclusives typically end after 12 months. AT&T’s deal, penned around 2006, is still going on. Citing contract confidentiality, Roth would only say that AT&T has a ‘multiyear’ arrangement with Apple. That has been AT&T’s standard response since the iPhone made its U.S. debut in June 2007. Sen. Roger Wicker, R-Miss., who raised the question, suggested he might want to revisit that question with AT&T later.”

MacDailyNews Take: As we mused above, a limit to the duration of exclusive deals between carriers and handset makers would still allow for revolutionary products such the iPhone to be developed and sold successfully while also providing for such innovations to eventually spread to more people. The big problem with that, of course, is what happens say a year or so before the law stipulates that deal must end? Do the subsidies dry up? In other words: Does the iPhone 3G S start at $699 for everyone when it arrives in the last year of legal exclusivity?

Cauley continues, “Wicker and other lawmakers on Monday asked the Federal Communications Commission to take a look at exclusive arrangements between handset makers and carriers. That task will likely fall to incoming FCC chief Julius Genachowski. His confirmation hearing was held Tuesday, and he is expected to be officially confirmed shortly.”

Full article here.

MacDailyNews Take: This is a complicated issue and any legislation is bound to complicate matters further – along with introducing unintended and/or unforeseen consequences. If we let the market decide, then the market has already decided: The exclusive AT&T and Apple iPhone deal is a raging success. At some point, market forces might require Apple to end their exclusive agreement with AT&T without government intervention (imagine that).

Could iPhone be more of a success with government intervention? That would depend on how you define “success.”

An end to exclusivity would likely more market share for iPhone, but not necessarily more profits for carriers and/or Apple. Would carriers’ incentive to improve their services be impacted? Would competing handset makers even be able to compete without the advantage of being on networks that don’t offer the iPhone? Imagine if iPhone was available on Verizon right now: How long would the pretend iPhone makers last? And, who would pay their employees’ unemployment checks? iPhone users, that’s who.

Would the U.S. government force Apple to make device compatible with other wireless standards so it can work on, for example, Verizon’s iPhone-incompatible CDMA network? How many different devices would Apple be legally bound to produce? How much would that cost Apple? Should the government subsidize Apple with our tax dollars for having to produce compatible iPhones under new laws? Would congress require carriers to allow all of iPhone’s features or would they get to alter/exclude those that impact their own services?

What if, even with an iPhone, Sprint keeps hemorrhaging customers? Would Apple have to keep supplying iPhones to carriers with bad service, thereby damaging Apple’s brand? Does the government compensate Apple for requiring them to damage their brand by providing iPhones to carriers that can’t offer quality service? Do all devices have to have an exclusivity limit or just successful devices? After all, it wouldn’t be cost effective to require multiple versions of unsuccessful devices for all qualifying carriers. And what constitutes a qualifying carrier anyway? What would the law define as a successful enough device to trigger exclusivity limits?

We could go on, but you get the point: It’s a can of worms. It always is.

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