AT&T: Wireless Industry "A Model" of Competitiveness

Posted by: Olga Kharif on July 8, 2009

Today, AT&T fired back at allegations of anti-competitive conduct. As you’ll recall, in a July 6 letter sent to the Department of Justice and the Federal Communications Commission, Sen. Herb Kohl (D-Wis.) expressed his concerns over the state of competition in the telecom marketplace. “It is vitally important that the FCC and the Justice Dept. take action to enhance competition in this market and to remove barriers to competition preventing the emergence of new competitors,” he wrote.

In a July 8 response, AT&T’s executive vice president James Cicconi explains why Kohl’s allegations are off the mark. Many of his arguments are valid points; others, however, don’t quite add up. An example: Kohl alleges that exclusive handset arrangements between carriers and device manufacturers may be endangering competition. Cicconi notes that, in the U.S., where exclusive handset agreements are common, consumers have access to 630 different handsets and mobile devices. U.K. consumers only have access to 147 mobile gadgets. From that, he draws this conclusion: “Prohibiting exclusive handset arrangements, then, would not engender competition; it would degrade it,” the AT&T letter claims.

This argument has one flaw: U.K. carriers strike exclusive handset deals, also. The iPhone, for instance, is only available fromcarrier O2. It would have been much better to compare the U.S. to France or Germany, both of which, in effect, sidestep exclusive arrangements.

It seems to me that what's lacking is good data that would compare apples to apples and shed light on the handset exclusivity issue. Congress and the wireless industry need to order extensive studies of the deals' impact on consumers and market dynamics.

Reader Comments

Bob Jones

July 8, 2009 6:47 PM

All this talk is about the iPhone. Boo hoo! Yes, Apple and AT&T have an "exclusive" agreement. The same agreement that Apple and Verizon Wireless could have had, when Apple went to Verizon Wireless first. Problem is ... Verizon Wireless has and always will be an arrogant company.

So for all the Verizon Wireless customers complainng why they can't have the iPhone on their Verizon Wireless account ... blame Verizon Wireless!

Dan Hays (PRTM)

July 9, 2009 8:45 AM

Competition and innovation in the wireless industry is absolutely a fact and it would really appear that the Department of Justice and the Federal Communications Commission don't have a leg to stand on here. Carriers' competition to acquire and retain subscribers could actually be deemed more ruthless than it could be shown to be anticompetitive. The sheer number of promotions, price cuts, new devices offered, and unique features make the wireless communications industry in the U.S. one of the most competitive in the world.

Had they truly wanted to drice consumer flexibility and not innovation, the DOJ and FCC should have made some very different decisions well over a decade ago. First, they would have adopted a single standard for cellular communications in the united states. The fact that we still have two different, incompatible, prevailing standards (GSM and CDMA) in use limits interoperability, roaming, and consumers' ability to switch carriers. But that is a technical decision that has long since passed, and one that was endorsed by the government itself. Likewise, the goverment has allowed the use of a subsidy model, akin to a lease, to subsidize expensive mobile devices. This lowered the barriers to entry, thereby increasing adoption but limiting consumer flexibility (ability to churn). It increased competition and innovation, as those with the best devices and services stood to win more subscribers and revenue.

Having worked with wireless carriers around the world, I can say with certainty that the U.S. market is every bit as competitive, if ot more so, than any other. Yes, the dynamics are sometimes different so that carriers can meet the unique needs and demands of the U.S. market, but the choices are even greater. For the DOJ to say that exclusive carrier device deals are anticompetitive is no different than them saying that Wal-Mart can't have any house-brand items, Toyota must sell its cars through any dealers that want to do so, or McDonald's has to sell its burgers and fries to anyone else but its franchisees. It just doesn't make sense.

Denny Dunaway

July 9, 2009 2:19 PM

It is clear that Kohl has no comprehension of the mechanics of the wireless industry. If exclusive equipment arrangements and term contracts were eliminated, customer costs would skyrocket. It wouldn't take long for wireless carriers to stop subsidizing equipment and consumers would be spending hundreds of dollars on equipment alone. Can you imagine spending over a hundred dollars on a cheap entry level phone that would have been free otherwise? The customer base of smartphone owners would be significantly smaller due to device costs and carriers would have much less incentive to build out high speed wireless networks . . . especially in tough economic times because of a longer ROI. Finally, how much does "in-network" calling save customers on their monthly bills? Personally, my monthly bill would more than double if my in-network minutes were billed. It amazes me how ignorant our elected leaders are when it comes to the details . . . Kohl appears to be fishing for an issue to champion. Under Kohl's line of thinking, I wouldn't be surprised to see roaming charges return if we had a piecemeal owned network.

Carol

July 12, 2009 9:30 PM

Which do you like more:
1. AT&T pays 75% of the cost of your iPhone (but you have to use AT&T in order to get that amazing deal)

2. You pay $600 for your iPhone and you can choose between 2 carriers (in the US) and 1 of them will be AT&T anyway.

David Jones

July 14, 2009 3:51 PM

AT&T and Carol and others are missing the point. Yes, AT&T pay a large portion of the cost of the iPhone at present. Yes that part is fine. The part that is broken is that you can't UNLOCK the iPhone AFTER your subsidy has been repaid. Despite what the protestations of the wireless industry apologists, this is a NEW thing. AT&T regularly unlocked phones at LEAST after your subsidy had been repaid up until the iPhone.

After the subsidy has been repaid, the device is MINE.

J. Phelps

July 15, 2009 2:42 PM

The "Government" tore AT&T totally apart once before for those who remember.Are they trying for a repeat performance. I have had NO problems with AT&T and I will stay with them.
By the way, this Sen. Kohl from Wisconsin......he wouldn't happen to be a part of the Kohl's retail stores would he? No relation whatso ever?
Anyone know the answer to that question?

J. Phelps

July 15, 2009 2:42 PM

The "Government" tore AT&T totally apart once before for those who remember.Are they trying for a repeat performance. I have had NO problems with AT&T and I will stay with them.
By the way, this Sen. Kohl from Wisconsin......he wouldn't happen to be a part of the Kohl's retail stores would he? No relation whatso ever?
Anyone know the answer to that question?

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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