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.