Kerry Questions Exclusive Cell Phone Deals

With wireless carriers continuing to offer exclusive cell phone deals such as AT&T's arrangement with Apple's iPhone, consumer and grassroots organizations and some members of Congress are ratcheting up the pressure on wireless carriers to open up their networks to any legal device or service.

Grassroots and consumer groups continued their pressure against exclusive deals between wireless carriers and cell phone manufacturers June 17 with a major assist from U.S. Sen. John Kerry (D-Mass.). While Free Press launched a FreeMyPhone campaign calling on lawmakers to open up wireless networks and promote consumer choice, Kerry held a hearing questioning wireless-carrier practices.

Unlike wireline 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 deals such as Apple's iPhone arrangement with AT&T.

"At the heart of this issue is this question: is it better or worse for competition, for innovation and for the American consumer if the carrier controls the decision over what devices can and cannot operate on their network?" Kerry said in his opening remarks at the hearing. "I think the Commerce Committee should consider how the wireless industry is functioning and whether current practices are in the best interest of competition and the consumer."

Kerry said it wasn't easy to round up witnesses for the hearing, noting every major handset manufacturer was invited to testify and each of them declined the offer. Paul Roth, president of AT&T's retail sales and services, though, was willing to testify on the merits of exclusive handset deals.

"Exclusive handset distribution arrangements encourage the necessary collaboration that optimizes handset performance and accelerates the delivery of next-generation features," Roth said. "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 Hutchinson (R-Tex.), 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, Hutchinson 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."

Hu Meena, president and CEO of Cellular South, found fault with Hutchinson's free market reasoning.
"Our country's banking and finance policy mistakenly believed that free reign in the marketplace with little oversight was the best course of action and that certain institutions were simply too big to fail," Meena said. "This reasoning will lead to the same market failures in the wireless industry. Congress must take action now to ensure that the wireless industry remains the competitive and innovative marketplace that Congress intended for consumers to have."

While Kerry spoke of possible Congressional action to force wireless carriers to open their networks to all legal devices and services, the more likely forum for reform will be the Federal Communications Commission, where President Obama's nomination for FCC chairman, Julius Genachowski, is expected to be confirmed by the July 4 holiday.

In a June 15 letter to Acting FCC Chairman Michael Copps, Kerry asked the FCC to investigative whether exclusive deals between cell phone makers and wireless carriers are unfairly impacting competition and restricting consumer choice in the commercial wireless marketplace.

"Based on this record, 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," Kerry, along with Roger Wicker (R-Miss.), Byron Dorgan (D-N.D.) and Amy Klobuchar (D-Minn.), wrote to Copps.

Timothy Karr, campaign director of Free Press, said the FreeMyPhone campaign offers consumers a chance to get involved and demand better policies.

"Wireless companies promise the Internet in your pocket, but deliver the walled wireless Web. Through exclusive deals for phones like the iPhone and BlackBerry Storm, wireless companies have stifled innovation, crippled applications and stuck users with the bill," Karr said in a statement.