Today, I received the following letter from my US Senator, Joe Lieberman (D-CT). I don’t have a lot good to say about Joe on many issues, but this letter does summarize nicely a lot of the important reasons we should all be on the side of an open mobile phone environment, in addition to keeping the Internet free and open. I’m hoping Sen. Lieberman is on the side of the consumer along with President Obama on this one.

July 29, 2009

Dear Mr. Cascio:

Thank you for contacting me regarding exclusive cell phone sales and distribution contracts that limit the services consumers can access on their wireless devices, a practice commonly referred to as “handset exclusivity.” I understand that this is a difficult issue, and I welcome the opportunity to respond.

As you mention, many wireless device manufacturers have reached agreements with large wireless companies, such as AT&T and Verizon, in which they agree to sell a certain phone exclusively through a particular carrier’s network. For example, those who purchase Apple’s iPhone can only use it to access AT&T’s phone and Internet service. Currently, nine out of the ten highest selling phones are locked into such exclusive deals. In addition, there have been allegations that service providers have prevented subscribers from accessing web content and downloading applications that directly compete with their own services. For example, many users have complained that they have a difficult time using the Internet phone service Skype because it competes directly with their carrier’s phone service.

Critics of exclusive device agreements argue that they adversely affect consumers by limiting choice and increasing prices. They point out that because many phones are sold through only one network, many consumers have to forego purchasing the device that best fits their needs so that they can sign up for a service plan they can more easily afford. In addition, critics contend that exclusivity allows carriers to charge more for popular devices than they would if the same device was being sold by multiple providers. Furthermore, many rural phone carriers assert that such arrangements unfairly prevent consumers living in rural areas that are not served by one of the major carriers from being able to use some of the more advanced phones on the market.

On the other hand, wireless service providers contend that exclusivity agreements result in lower prices for consumers because it allows providers to offer package deals in which customers can purchase a handset device at a reduced price in return for agreeing to subscribe to a carrier’s service. For example, they cite that the average price of the iPhone has declined by almost $300 since Apple first agreed to sell it solely through AT&T almost two years ago. Industry officials also suggest that exclusivity deals help to spur innovation because carriers will continuously request that manufacturers develop new features in order to stand out from their competitors.

You may be interested to learn that the Senate Committee on Commerce, Science, and Technology held a hearing on this topic entitled the “the Consumer Wireless Experience.” For more information on this hearing, I suggest you visit the committee’s website at: http://commerce.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=03b81ffd-ba9f-42e6-8331-7c28f6d112b0.

Recently, Michael Copps, the Acting Chairman of the Federal Communications Commission (FCC), announced that FCC would take steps to examine handset exclusivity agreements to determine whether they “adversely restrict consumer choice or harm the development of innovative devices.” Julius Genachowski, President Obama’s nominee for FCC Chairman, has also indicated that he believes FCC should investigate this matter. In addition, there have been reports that the U.S. Department of Justice has opened an initial review into whether large service providers are abusing their market power, including the use of exclusive agreements with handset makers. Please be assured that I will keep your thoughts in mind as I continue to monitor this issue.

Thank you again for sharing your views and concerns with me. I hope you will continue to visit my website at http://lieberman.senate.gov for updated news about my work on behalf of Connecticut and the nation. Please contact me if you have any additional questions or comments about our work in Congress.

Sincerely,

Joseph I. Lieberman

UNITED STATES SENATOR

JIL:gjz