According to a post on The Register, four U.S. Senators have asked the acting FCC chairman to review whether mobile phone makers should be allowed to enter into exclusive contracts with wireless service providers. The senators’ thinking is that exclusivity agreements may “unfairly restrict consumer choice or adversely impact competition in the commercial wireless marketplace.”
Even though The Register reports that this is “a direct shot across Apple and AT&T’s shared bow”, I have to wonder if Apple itself isn’t behind this. At the recent Apple Worldwide Developer Conference (WWDC), Apple indicated that it was AT&T’s fault that they wouldn’t have MMS support in the iPhone until late in the summer, and that tethering support was not likely to be coming from AT&T soon. It’s even said that “AT&T’s network has been commonly regarded as the iPhone’s weakest link for as long as there have been iPhones (especially 3G ones).”
There was talk a couple of months ago about Apple inking a deal in the U.S. with Verizon to distribute the iPhone. The problem with those rumors is that it would imply that Apple had a way out of its deal with AT&T. But sources in the USA Today article linked above indicate that the Apple/AT&T agreement is good until some time in 2010. To get out of that deal early, it’s likely that Apple would have to pay through the proverbial nose to get AT&T to let go.
But let’s imagine a completely hypothetical scenario. Let’s assume that Apple really is fed up with AT&T, and wants out of its agreement now. And let’s assume AT&T is unwilling to play along. At the same time, Apple would really like to hurt the Palm Pre and Sprint, arguably its closest iPhone competitor right now. How might it do that? In this entirely hypothetical scenario, Apple could approach some lobbyists to pressure the FCC into ruling that handset exclusivity deals are anti-competitive. How does this accomplish all of Apple’s goals?
If such deals were ruled illegal, suddenly the Apple/AT&T agreement is null and void. Apple wins. It can start selling iPhones to any carrier whose networks its device supports. AT&T might be hopping mad about this, but Apple would be free to sell the iPhone through any carrier, just like it theoretically wants to do. Not entirely coincidentally (I suspect) that DOESN’T include Sprint with its CDMA based network. Having dealt with carriers on multiple continents, Apple already has experience adjusting the iPhone to work with carriers other than AT&T, so adapting it for other U.S. carriers would probably be relatively trivial.
At the same time, killing handset exclusivity deals in general also kills the deal between Palm and Sprint. Instead of focusing its development resources on improving the Pre and making it more competitive with the iPhone, Palm will have to expend effort adjusting the Pre to work with other carriers (something it would have done eventually, but is now being forced to do sooner). This would be an unplanned change to Palm’s Pre business plan. This sudden shift in focus would likely set the development of new features for the Pre back by several months, giving Apple even more time to improve the iPhone (relative to itself and the Palm Pre) and market the iPhone to other carriers. Given that many feel the Palm Pre is what will save Sprint as a company, the timing of this senatorial interest in handset exclusivity certainly seems very suspicious. It would potentially leave Sprint with a handset stuck at today’s functionality level (which, while quite good, is not yet superior to the iPhone in many areas) and a handset which is no longer exclusively a Sprint offering.
Outside the U.S., the proposed FCC ruling would not affect Apple (since the FCC has no control outside the U.S.). Apple can continue having exclusive deals with foreign carriers as long as it likes, at least where such deals are legal. Again, Apple wins.
There really isn’t a down-side for Apple in this scenario… at least none that I can see. If the agreements stand, Apple keeps selling iPhones through AT&T until the agreement runs out next year. If they’re struck down, Apple can sell iPhones through any carrier it wants to work with, and the Palm Pre (and Sprint – who couldn’t sell the iPhone anyway) takes a hit in the process.
Remember, the scenario I’m describing above is entirely fictional as far as I know. I have absolutely no knowledge or evidence that Apple has anything to do with this sudden interest by the U.S. Senate in cellphone handset exclusivity. This is entirely speculation on my part… it just happens to be speculation that meshes well with known facts and observations.
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