Reject RCA Handset Exclusivity Petition, Say Major Carriers, TIA
Sprint Nextel sided with AT&T and Verizon Wireless in urging the FCC not to regulate exclusivity arrangements between wireless carriers and handset makers. The Rural Cellular Association had petitioned the commission in May to investigate the “widespread use and anticompetitive effects” of the arrangements and to propose appropriate rules. Small carriers and small carrier groups, and the Public Interest Spectrum Coalition, filed in support of RCA’s petition.
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Industry officials said Tuesday that no decision is likely on the petition until the FCC has a permanent chairman. Reply comments aren’t due until Feb. 20.
“Sprint disagrees with the Rural Cellular Association that handset exclusivity has anticompetitive effects and is against the public interest,” said Sprint, often at odds with the two larger national carriers. “On the contrary, handset exclusivity promotes competition among carriers and manufacturers and results in innovative products.” Sprint cited the competition spawned by AT&T’s exclusive contract with Apple to offer the iPhone. Spurred by the challenge, “Sprint worked with Samsung to develop a dynamic new device -- the Samsung Instinct -- and Verizon Wireless introduced the Blackberry Storm,” Sprint said. Without an exclusivity agreement “Sprint could not have risked the investment necessary to develop and promote the Instinct,” it said.
Sprint also questioned whether the RCA had demonstrated a market failure that would necessitate FCC action. It noted that RCA members can buy handsets from more than 30 makers serving the U.S. market. “RCA’s objection appears to be that its members cannot obtain volume discounts or early access to particular devices,” the carrier said. “Rural carriers can explore a plethora of arrangements with handset manufacturers and nothing prevents these carriers from pooling resources to gain efficiencies and to obtain the latest, greatest handsets at discount prices.”
AT&T and Verizon Wireless filed similar comments. AT&T said the RCA’s petition is “remarkably devoid of evidentiary support or even a recognizable theory of harm.” Exclusivity arrangements are procompetitive, AT&T said: “When an exclusive handset gamble pays off for one carrier, that provokes competitive responses and further innovation from other carriers and manufacturers, benefitting all consumers.”
The TIA said the FCC should be hesitant to interfere with contracts between equipment makers and carriers. “As companies that manufacture innovative information and communications technology equipment, including wireless handsets, TIA members would be greatly impacted by regulation of private contracts in the wireless services market,” said Danielle Coffey, the group’s vice president for government affairs. “TIA is concerned that the prohibition of exclusive contracts between wireless carriers and handset manufacturers will lead to unintended consequences that will hamper provision of new wireless devices and services.”
Verizon Wireless said a review of the market reveals that Research in Motion sells its products through two dozen U.S. carriers, Nokia through at least 16, Kyocera 15, and Samsung 13. “Obviously, any exclusive handset arrangements that these manufacturers might have with service providers are not preventing them from selling equipment to multiple service providers, and such arrangements are not preventing service providers from offering communication services with multiple manufacturers’ handsets.” Historically, some handsets have always been exclusive, Verizon said. “The vendor for business reasons excludes certain carriers, for example, by technology choice (Motorola’s iDEN devices) or by business planning (Nokia’s focus on GSM technology).”
The Rural Telecommunications Group, the Organization for the Promotion and Advancement of Small Telecommunications Companies and the National Telecommunications Cooperative Association jointly supported the RCA’s petition for rulemaking. The groups’ members have had difficulty obtaining a wide variety of handsets, including “the iPhone; BlackBerry; Motorola Q; LG Voyager VX1000, Shine, Invision, Incite, CU515, CE110, Chocolate, Voyager, Rumor/Scoop, DARE and enV2; UTStarcom G'Zone Type-S; Motorola KRAVE; Palm Centro; and Samsung BlackJack, SideKick I, SideKick II, Beat, T429, T729, T439, Blast, Behold, Epix and 737,” they said.
Handset exclusivity agreements benefit large carriers over their smaller competitors, the rural groups said. “Many rural carriers face competition in their markets from larger carriers who are able to offer customers popular handsets with advanced features that rural carriers are unable to offer their own customers,” they said. “A direct result of such discriminatory access to handsets is the migration of customers from rural carriers to their larger in-market competitors.”
MetroPCS said the issues the RCA raised are growing in importance. “Accelerating consolidation in the wireless industry is increasing to an unhealthy extent the ability of the largest dominant national carriers to enter into and to dictate the terms of handset exclusivity arrangements,” the carrier said. “As exclusive arrangements proliferate, smaller carriers may be unable to procure handsets that comply with various Commission mandates, including hearing aid compatibility requirements and any additional E9ll requirements.”
The PISC, like smaller carriers, said exclusivity agreements are anticompetitive. “The market for wireless services in 2009 is concentrated and will continue to grow more concentrated as large carriers absorb competitors and acquire disproportionate shares of newly available spectrum,” the coalition said. “If the Commission does not act to prohibit handset exclusivity arrangements, more consumers will choose new devices over better service providers, and meaningful competition in the wireless market, along with quality and cost of wireless service, will suffer.”