Monday, July 20, 2009

Verizon Backs Off Exclusivity Deals

After see mounting pressure from Congress, the DOJ and the FCC Verizon Wireless CEO Lowell McAdam sent a letter to the House of Representatives last week indicating that the company would back off of their exclusivity contacts after a six month period. Verizon said following the initial six months the company will share access to exclusive phones with small wireless companies with fewer than 500,000 customers.

According to the Wall Street Journal, Congress and the DOJ has begun questioning whether wireless carriers are hurting competition by shutting out rivals from offering popular new phones like the Apple iPhone, the Palm Pre and the BlackBerry Storm. And the Federal Communications Commission has said it is looking into the issue.

"At the heart of this issue is this question: Is it better or worse for competition, for innovation and for the American consumer if the carrier controls the decision over what devices can and cannot operate on their network?" Sen. John Kerry (D-Mass.) said in his opening remarks at the hearing. "I think the Commerce Committee should consider how the wireless industry is functioning and whether current practices are in the best interest of competition and the consumer."

Verizon appears to be making a preemptive move trying to avoid a full blown investigation while still addressing the concerns of the smaller carriers. McAdam's letter was sent to Representative Rick Boucher, the Virginia Democrat who is chairman of a major telecommunications subcommittee. While Verizon isn't completely backing of their exclusivity deals by appeasing smaller carriers they may preserve the right of big carriers to offer handsets their rivals cannot.

“Exclusivity arrangements promote competition and innovation in device development and design,” Verizon wrote.

“When we procure exclusive handsets from our vendors, we typically buy hundreds of thousands or even millions of each device. Otherwise manufacturers may be reluctant to make the investments of time, money and production capacity to support a particular device.”

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