Verizon to Curb Handset Exclusivity

Posted by: Olga Kharif on July 17, 2009

On July 17, Verizon Wireless announced that it will voluntarily start limiting the terms of its exclusive deals for handsets to six months. Is this a big deal? Well, sort of.

Today, when consumers think of LG Chocolate, BlackBerry Storm and BlackBerry Tour, they think of Verizon Wireless. But in another six months, these phones could potentially become available from a slew of small regional carriers, which, otherwise, may not have received access to these phones until years later. But here’s the rub: These small carriers have to be really small, and service fewer than 500,000 customers to get access to Verizon’s gear. Cellular South, which has been among the most active regional carriers rallying against handset exclusivity agreements, has 800,000 customers, and won’t be able to benefit from Verizon’s offer at all.

Having new handsets exclusively for six months will still allow Verizon Wireless to differentiate its offerings and to grab new users. New phones typically sell the most units in their first few months of introduction anyway. And other industry players have been moving to six-month exclusive contracts as well, though they haven’t exactly announced that: Carrier Sprint Nextel will only offer the popular Palm Pre exclusively for six months, after which time the device will become available through Verizon.

Still, Verizon Wireless’s gesture is significant, as it puts more pressure on AT&T to move to shorter exclusive contracts. For the past two years, AT&T, of course, has been the exclusive U.S. service provider for the best-selling Apple iPhone. It was in large part AT&T’s success with the iPhone that prompted smaller carriers like Cellular South to ask the Federal Communications Commission, which regulates the wireless industry, to review legality of exclusive handset arrangements. The FCC recently announced it would review the issue, and a decision is expected in the next year.

Most analysts believe that carriers would rather shorten the duration of their exclusive contracts themselves to ward off regulation from the FCC. Verizon’s move “will put pressure on the other carriers, T-Mobile (part of DT), Sprint (S), and most notably AT&T (T) to follow suit and limit the duration of exclusives,” Stifel, Nicolaus & Co. analyst Rebecca Arbogast wrote in a July 17 note. That said, I wouldn’t bet on AT&T offering to voluntarily relinquish its exclusive iPhone contract any time soon.

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Reader Comments

Keith

July 17, 2009 08:13 PM

With its' locked down phone software and 'features' Verizon needs to give up the ghost. Hopefully this is the beginning of open access software and hardware functionality for the benefit of consumers. ATT, Sprint, TMobile... are you starting to get it yet?

peterpan

July 17, 2009 08:18 PM

They aren't being nice to do this they just want to stop getting kicked in the butt each quarter by the iPhone. And I say iPhone because AT&T isn't what is kicking their butt it is the iPhone. It is amazing that a company without one cell tower can change the industry like it has.

I. MissVerizon

July 17, 2009 09:11 PM

Well, although I found that AT&T didn't suck as much as I expected, I still anticipate a veritable tsunami when Verizon gets iPhone, as all the AT&T customers that were former Verizon customers switch back.

I believe AT&T expects one too.

unfair

July 18, 2009 10:37 AM

These exclusive contractors amount to nothing but Monopoly and Restrictive Trade Practices, FCC should penalize these big telecom companies for bullying smaller ones. irrespective of however small contracts they have 6 months or 6 days doesn't matter.

Murali

July 20, 2009 01:49 PM

Iphone being exclusive for AT&T was not only benefiting AT&T, it was a sweet deal for Apple too i.e for every new customer signing up, in addition to the revenue from sale of the device, AT&T was paying a part of service fee it would realize over 2yrs.

So in a way, deal was a win win for both Apple and AT&T but I agree its not the best arrangement for the customer.

However on the flip side, exclusive deals foster collaboration between service provider and handset maker there by you would see more models being released faster.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, 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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