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FCC to Review Exclusive Handset Deals

The FCC will take up the Senate Commerce Committee’s suggestion that it review wireless operators’ practice of signing exclusive handset contracts.

“I agree that we should open a proceeding to closely examine wireless handset exclusivity arrangements that have reportedly become more prevalent in recent years, and I have instructed the Bureau to begin crafting such an item,” said Michael Copps, acting FCC chairman, at a conference on Friday.

Julius Genachowski, on his way to being the next FCC chairman, said he’s planning on reviewing the practice as well.

The concern of the Senate and consumer advocacy groups is that exclusive deals, like AT&T Inc.’s arrangement with the iPhone, unfairly limits consumer access to such devices, and might throttle innovation by limiting free competition.

Also, many argue that the exclusive franchises mean that smaller operators in third-tier and rural markets—areas often not covered by the big national carriers—are blocked from giving their subscribers the latest innovation because the handsets are locked up elsewhere.

The top four—AT&T, Verizon Wireless, Sprint-Nextel Corp. and T-Mobile USA—have increasingly used exclusive handsets as differentiators (the iPhone and BlackBerry Bold, BlackBerry Storm, the Palm Pre and the G1, respectively). They argued vehemently for their case this week during a hearing before the Senate Commerce Committee.

AT&T said it often co-designs handsets with its manufacturing partners, subsidizes part of the handset’s cost, and assumes part of the risk for the phone’s introduction.

“Sometimes, you can lose your shirt on these exclusive deals] if you are wrong,” said Jim Cicconi, an executive vice-president at AT&T.

Also, were exclusive deals to be axed, carriers may not be willing to subsidize handsets as much, and consumers could end up paying more for devices, said Neil Strother, an analyst at Forrester Research.

It was an interesting week for wireless—the Senate also reviewed whether the hike in text messaging rates to 20 cents across the board amounts to price fixing and consumer gouging.


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