Verizon Says It Will Limit Handset Exclusivity to 6 Months

Verizon CEO Lowell McAdam sends a letter to the House of Representatives offering to limit Verizon's handset exclusivity contracts to six months, after which time the devices would be available to small wireless carriers as well. The big gorilla in the room is competitor AT&T's iPhone deal with Apple.

Verizon Wireless, the largest U.S. mobile carrier, sent a letter to major lawmakers on July 17 offering to limit the length of its exclusivity deals on mobile phones.
Reuters reports that the gesture comes after the Department of Justice began looking into whether U.S. carriers violated antitrust laws by obtaining exclusive deals to sell specific phones.
"Effective immediately for small wireless carriers (those with 500,000 customers or less), any new exclusivity arrangement we enter with handset makers will last no longer than six months-for all manufacturers and all devices," Lowell McAdam, Verizon's CEO, wrote in the letter.
McAdam went on, perhaps implying that a bit of industry gallantry exists in its exclusive investments:

"Exclusivity arrangements promote competition and innovation in device development and design. ... 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. This of course constitutes a major risk for us, because if the device is not popular in the marketplace we end up with excess inventory and potential competitive losses. On the other hand, if the device does well in the market, six months is a reasonable time for us to earn the benefit of our risk and investment."

Roger Kay, an analyst with Endpoint Technologies, remarked to eWEEK, "This gesture may seem half-hearted to us, but it represents a way to stave off further intervention by the regulatory authorities."
The iPhone, he added, "Is, of course, the big gorilla in the background."
AT&T has held exclusive U.S. rights to the iPhone since 2007 in what is the most prominent example of a single operator's hold on a device. Analysts have speculated that an iPhone on Verizon would be a good move for Apple, though the Wall Street Journal reported in April that AT&T was pushing to extend its exclusivity contract with Apple, which is said to expire in 2010.
"I don't think AT&T has any desire to end exclusivity on the iPhone, and that's the big one here that everyone will be talking about," said Ken Hyers, a senior analyst with Technology Business Research. "They've had it for a while now and would obviously like to continue that."
Could the letter suggest that Verizon intends to procure an iPhone of its own?
"I don't know about that," Hyers said, "but you can certainly see some gamesmanship here, where Verizon would love to put a little pressure on AT&T."
Carolina Milanesi, an analyst with Gartner Research, said the letter comes as no surprise.
"Verizon is usually very good at making changes before it is forced to by regulation requirements. It did the same on the 'opening the network' to non-Verizon devices a while back, you might remember," she told eWEEK in an e-mail. "It is interesting [because], at least here in Europe, exclusivity deals have always been limited in time: You used to go from a few weeks to a couple of months, tops. Then the iPhone came and the rules changed."
Milanesi added, "Regulations aside, I think that long exclusivity deals could not be sustained [in the] long term due to the high cost you can associate with them from advertising to subsidy (specifically for high-end devices)."
It remains to be seen what lawmakers will make of the letter and particularly Verizon's offer to eventually make handsets available to only small carriers. Reuters reported that Verizon spokesperson Jeffrey Nelson said-despite McAdam's indication that "small" indicated "500,000 customers or less"-that Cellular South, for example, which has 800,000 customers and has spoken loudly against exclusivity deals, would qualify.
TBR's Hyers reiterated that most exclusivity contracts last for a handful of months.
"The iPhone, though, has been a multiyear deal. The Pre could be a year or multiyear deal, potentially. So people could start to be concerned that this is becoming a trend," Hyers said. "If I were a legislator looking at this, my inclination would be to nip this in the bud."