Verizon and other major wireless carriers contend the exclusive handset deals are essential to promote competition and innovation in device development and design.
"This new approach is fair to all sides. 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," McAdam wrote to Boucher. "Otherwise manufacturers may be reluctant to make the investments of time, money and production capacity to support a particular device."
Nevertheless, the practice of exclusive handset deals is drawing the attention of key players in Congress, including Sen. Herb Kohl (D-Wisc.), chairman of the Senate Subcommittee on Antitrust, Competition and Consumer Rights. In July 6 letters to FCC (Federal Communications Commission) Chairman Julius Genachowski and Christine Varney, head of the DOJ's (Department of Justice) Antitrust Division, Kohl wrote, "We on the Antitrust Subcommittee have become concerned with emerging barriers to competition in an already highly concentrated market."
Kohl urged the DOJ and the FCC to begin investigations into the practices of wireless carriers to ensure that the wireless telephone market remains open to competition and to remove barriers to entry and expansion by new competitors. Kohl raised a host of questions about the wireless carriers including price fixing in text messaging, roaming arrangements and prices, spectrum restraints, exclusive handset deals between carriers and cell phone makers and early termination fees.
"The practice of large cell phone companies gaining exclusive deals to the most in-demand cell phones is a serious barrier to competition," Kohl wrote. "Consumers are unlikely to obtain cell phone service from companies if they cannot obtain desired handsets."
Kohl's letters were sent on the same day reports surfaced that the DOJ is opening an antitrust investigation into the consumer practices of such powerhouse providers as AT&T and Verizon.
While accusing companies such as AT&T and Verizon of engaging in anti-competitive behavior has become a popular sport in Washington lately, Harold Feld, the legal counsel of Public Knowledge, thinks it's a tough case to make.
"In a world where even potential competition is supposed to be part of the market analysis, how can a modest 60 percent of the wireless market shared by the two companies, with no evidence of price fixing or coordinated behavior, support any sort of antitrust action?" Feld wrote in a PK blog posting. "But for now, I applaud the DOJ apparently making good on Christine Varney's pledge to reinvigorate antitrust and her recognition of how important antitrust enforcement is to the digital economy."
That said, Feld also dismissed the Verizon offer.
"Verizon's gesture should be seen for what it is - an inadequate attempt to influence legislation and regulation. It should not be up to Verizon to decide the terms and conditions under which consumers can have the benefit of wireless handset competition," Feld said in a statement. "Corporate charity as momentum builds for a policy that one company does not like is no substitute for legislation or regulation that treats all carriers, of whatever size, alike, and all consumers, of whatever size carrier, alike."