US Government May Shake Up Wireless Telcos

July 22, 2009
Eric Zeman

The US government has formed a group to explore the exclusive deals that exist between wireless network operators and handset manufacturers. The fear is that the massive power wielded by the wireless providers is hindering choice.

The US government has formed a group to explore the exclusive deals that exist between wireless network operators and handset manufacturers. The fear is that the massive power wielded by the wireless providers is hindering choice.

Let's say you're a Sprint customer. You like the Apple iPhone—okay, you're lusting after it, admit it—but you don't like the idea of switching to AT&T's wireless network. Too bad the iPhone is only available from AT&T. Nothing you can do, right? Well, maybe.

The reason the iPhone is only available from AT&T (in the US) is because Apple and AT&T have struck an exclusive distribution agreement. AT&T is the only company in the US that is authorized by Apple to provide wireless services for the iPhone. That means customers using Sprint, T-Mobile and Verizon's networks will never be able to get an iPhone from anyone other than AT&T.

Apple and AT&T are not alone here. Palm has done the same thing with the new Pre smartphone with Sprint. Research In Motion has done the same thing with the BlackBerry Storm and Verizon Wireless.

Because AT&T and Verizon Wireless, in particular, have grown so large, there are a number of people and organizations concerned over their power to influence the market. The Department of Justice, helmed by Senator Herb Kohl, is taking preliminary steps to see if AT&T and Verizon are indeed a negative influence. Words such as "antitrust" and "anti-competitive" have been tossed about. Groups such as the Rural Carriers Coalition have petitioned the government for change, stating that the exclusive handset deals such as the one between Apple and AT&T put them at a disadvantage compared to their larger competitors. More are beginning to agree with that viewpoint.

The new chairman of the Federal Communications Commission, Julius Genachowski, has agreed that the matter should be explored. This exploratory committee is going to see if the matter deserves a full-on investigation.

How will this impact you?

Well, there are a number of different ways it could play out. The simplest—and best—outcome would be to end or severely curtail the exclusivity agreements. This means you'd have more choice of phones next time you go shopping at your local wireless store. The downside is, those phones may cost you more. The carriers use these deals to lure in new customers. The iPhone is the perfect example. It has sold millions of units and brought vast new subscribers to the AT&T network.

Sen. Kohl's group is just starting its review, so keep your eyes peeled and ears open. More news on this is certainly on the way.