FCC Agrees to Probe Handset Deals

The Federal Communications Commission plans to open an anti-competitive review into exclusive deals between wireless carriers and cell phone manufacturers such as AT&T's arrangement with Apple to carry the Apple iPhone. Unlike traditional wire-line services, which are required by law to allow consumers to connect the legal devices of their choice to carriers' networks, the wireless market is pocked with exclusive cell phone deals.

Speaking at a June 18 broadband policy event, FCC Acting Chairman Michael Copps said, "We should always be concerned about potential gatekeeper control." A day later, President Obama's nominee to be FCC Chairman, Julius Genachowski, said if he wins Senate confirmation as expected he will have the FCC launch an investigation into the deals.

"I appreciate the concerns that have been expressed on Capitol Hill and elsewhere, and I agree that we should open a proceeding to closely examine wireless handset exclusivity arrangements that have reportedly become more prevalent in recent years," Copps said. "The commission as the expert agency should determine whether some of these arrangements adversely restrict consumer choice or harm the development of innovative devices, and it should take appropriate action if it finds harm."

Genachowski's comments came in the form of a written response to questions from the Senate Commerce Committee, which voted June 19 to approve Genachowski's nomination. Specifically, Genachowski said the FCC under his leadership would act on a petition by the RCA (Rural Cellular Association) complaining about the exclusive cell phone deals.

"I will ensure that the full record on the RCA petition is reviewed, and act accordingly to promote competition and consumer choice," Genachowski wrote.

The FCC review of the exclusive deals boosted consumer and grassroots organizations that have been pushing both the FCC and Congress to take action against the arrangements.

"This is an important step in the right direction. Senate hearings this week exposed the laundry list of harms caused by exclusive deals in the wireless industry," Ben Scott, policy director of Free Press, said in a statement. "These exclusive deals back consumers into a corner—forcing them to choose phone or service. The path to innovation is paved by openness—and unlocking devices is a good start."

While consumer and grassroots groups were riding high, the telecommunications industry was circling the wagons, preparing for what it feels is going to be a Democratic assault on not only exclusive cell phone deals but also the entire issue of open wireless networks.

Paul Roth, president of AT&T's retail sales and services, said at a June 17 hearing, "Exclusive handset distribution arrangements encourage the necessary collaboration that optimizes handset performance and accelerates the delivery of next-generation features. They increase a carrier's incentives to make purchase commitments and to invest in promotions, network improvements and special training of sales staff. They lower manufacturer entry barriers and serve as a key tool to maintain brand value."

Sen. Kay Bailey Hutchison (R-Texas), the ranking member of the Senate Commerce Committee, also weighed in with the Republican free market approach favored by the GOP when it controlled Congress for almost a decade.

"I understand the concerns expressed by some of my colleagues; however, it is important to note that these arrangements are largely responsible for many of the exciting products in the marketplace today," Hutchison said. "The marketplace is competitive, and the introduction of a breakthrough new technology by one company, spurred by a competitive desire to offer consumers something new and exciting, in turn drives other providers to invest heavily in research and development of similar devices."