(Short Term) Exclusive Phone Agreements Are NOT Anticompetitive

I’m breaking internet geek rules by making the statement above.  But hear me out and I’ll explain why I think Fred Wilson is wrong on some things but gets a few things right.

To begin with, exclusive phone agreements are generally short term in nature.  Generally they last a year or two.  However, AT&T is currently renegotiating with Apple to maintain exclusive rights to the iPhone in fear that losing will cause them to lose customers.  The initial deal for iPhone exclusivity was around 2 years.  They’re pushing for another 2.  This I do find issue with and feel that AT&T should have the deal looked into.  More on that later.

Secondly, cell providers have to take every advantage they can get now that number portability is the rule of thumb.  Keeping customers in a market where margins are low (at least on voice, getting lower on data every year) is key to staying in the black.  So to attract customers, phone exclusivity agreements work.  It brings in the customers and then once the customers are hooked, the carrier can let the exclusivity of a device go because they already got the customers the device would bring.

Lastly, I’m okay with locked subsidized phones.  If a carrier wants to offer a phone at a lower price if purchased locked to that carrier, I’m okay with that.  Most people don’t change cell providers that frequently and others just don’t care all that much.  They stay with a service because their family and friends are on it and thus they get to use that nice free “mobile to mobile” calling that most providers have.  So, if a carrier wants to sell locked phones at a lower price, I’m okay with that.

Now where I agree with Mr. Wilson is that a phone’s exclusivity should not hinder me from purchasing an unlocked version from either the manufacturer or the carrier.  If I walk into the AT&T (or Apple) store, I should be able to buy an unlocked iPhone.  Or at the very least, I should be able to have it unlocked without having to result to hacking the device and living in fear of the next software update.  I should have the option to choose if I want to purchase unlocked or subsidized.  If I’m on AT&T and have no plans to leave for a couple of years, then I should be able to get a cheaper phone because I’m going to be locked into a contract.  However, if I just want the latest device, I should be able to walk into the store and buy an unlocked phone and I should be charged more because I’m buying the device sans service.

The key here is choice.  The problem is, we have 2 different kinds of cell service here in the United States.  There is GSM (AT&T and T-Mobile) and CDMA (Verizon and Sprint).  I can’t buy a device from AT&T or T-Mobile and have it work on either Verizon’s or Sprint’s network, because they utilize different technologies.  Until all the cell providers use the same technology, we are locked into one set of providers.

Finally, I think that long term phone exclusivity agreements should be looked into.  Allowing AT&T to have four full years of iPhone exclusivity is what I would consider anti-competitive.  A year of two of phone exclusivity is okay, it’s a way to bring in new customers, so I understand the need for phone exclusivity.  But the agreements need to be limited to within a certain timeframe.

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