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Democracy & Technology Blog Exclusive handsets aren’t killing rivals

FCC Chairman Julius Genachowski promised to investigate exclusivity arrangements between handset manufacturers and wireless carriers and “act accordingly to promote competition and consumer choice.”
But according to Nielsen, only 6.4 percent of 25,000 wireless users surveyed rated choice of handset as the most important factor in choosing wireless service.
Prohibiting exclusive handset deals doesn’t sound like a very good use of the FCC’s time if only 6.4 percent of consumers care enough about a particular handset that it would affect their choice of wireless service.
A representative of one of the smaller rivals who are seeking FCC intervention claims that exclusive handset deals have made it “significantly harder for smaller carriers to attract and retain subscribers, and to effectively compete in rural areas.”
If you were a wireless carrier, the prospect of losing 6.4 percent of your customers to a competitor who offers the coolest handset on an exclusive basis would be scary, but it wouldn’t kill you.
The solution would be redouble your efforts to exploit your own comparative advantage, if you have one (or if you don’t, perhaps that is the problem you need to solve?).
If you were a wireless carrier and you had the option to carry the coolest handset on an exclusive basis, you would consider the prospect of capturing 6.4 percent of the entire market (representing all consumers for whom handset matters most) a worthy reward justifying the effort.
For example, you might be willing to negotiate your customary profit margin, compromise the level of control you normally exercise over the product design, promise to make special efforts to promote the product and provide technical support, and even make fresh investments in your network or back office systems to fully exploit the product’s innovative features.
This is innovation, and it’s good for consumers.
Before the FCC prohibits exclusive handset deals it should assess whether, on balance, the burdens on rivals outweigh the incentives for innovation from a consumer perspective. The Nielsen survey suggests that the burdens aren’t as significant as some have assumed.
Related post: Exclusivity inspired Smart Phones

Hance Haney

Hance Haney served as Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute, in Washington, D.C. Haney spent ten years as an aide to former Senator Bob Packwood (OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee during the deliberations leading to the Telecommunications Act of 1996. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a B.A. in history from Willamette University and a J.D. from Lewis and Clark Law School in Portland, Oregon.