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.

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.

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 [consumerist.com] 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.

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: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.

[Anonymous Coward]

Citation needed.

Ooo Ooo look at me, I'm a Wikitard! I make requests that take two seconds to make and much time to fulfill because I'm too lazy to do my own research, which is appropriate for an encyclopedia but I want to make everything work that way! That's because I make requests in one culture (Slashdot) that are only appropriate to make in another, different culture (Wikipedia). That's because as a Wikitard, I am uber-cool and standard things like "knowing where the fuck you are" do not apply to one as cool as me.

Seriously, stop use trendy little phrases and mannerisms as though they have always been your own. It's fake, it's cookie-cutter. Your recent discovery of the phrase "citation needed" is NOT some kind of expressive act of individualism. If you question that party line you quoted, and any reasonable person does, just question it. You can do that without being a Wikitard.

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..

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: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.

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: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: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.

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.

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.