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Rural operators petition FCC to end handset exclusives

RCA says handset deals such as AT&T’s iPhone exclusive are not only anti-competitive but discriminate against rural consumers

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Rural operators are challenging the exclusivity agreements that Tier 1 carriers sign with handset vendors, saying such deals unfairly limit consumer choice, decrease competition and violate federal law. Today 80 members of the Rural Cellular Association filed a petition with the FCC asking it to investigate exclusivity practices and adopt rules that would prohibit them.

“It is important that all Americans have equal access to the latest technology, including wireless devices, regardless of where they live or which carriers provide the service,” said RCA counsel David Nace said in a statement. “RCA is standing up for consumers’ rights and putting an end to exclusivity agreements that create another ‘digital divide’ between urban and rural America.”

While encompassing all exclusivity agreements, the petition is taking direct aim at the iPhone, the mother of all exclusive blockbuster deals. Since AT&T launched the iPhone in June, it has seen both subscriber adds and average data revenue per user jump as the iconic device sold to millions of US consumers. Unlike other exclusive deals, which often last a matter of months or a year, AT&T’s deal with Apple is apparently much longer term. In fact, both Apple and AT&T appear to have much more invested in the relationship than just a promotional strategy. Apple has integrated AT&T’s activation and service provisioning into iTunes, and the two are reportedly in a revenue-sharing agreement.

In Europe, carriers have challenged exclusivity deals for the iPhone, resulting in Orange and T-Mobile selling unlocked phones, but at stiff mark-ups. RCA in this case, though, isn’t so much asking for unlocked phones but the opportunity to enter its standard vendor-distributor agreements with suppliers without having to wait for an exclusivity deal to expire. The iPhone is only one such example. Dozens of phone exclusives have emerged from nationwide operators, ranging from smartphones to sleek music phones to the prepaid handsets. The RCA even fingered Alltel, which, though primarily rural, has the size and clout to snag its own occasional exclusive on a Nokia or Motorola handset.

The petition, however, isn’t just arguing against the anti-competiveness of exclusivity agreements. It also argues that these types of deals discriminate against rural users. While the nationwide operators offer nationwide roaming, they don’t sell in many small, rural markets, which are often the domain of smaller independent providers. The iPhone, for instance, is not available to most rural residents of 16 states because AT&T simply doesn’t sell its service in those rural areas, the petition states.

“Almost one year after launch, residents of Vermont still cannot use an iPhone without violating the terms of AT&T’s standard service contract,” the petition said. “Why? AT&T provides only roaming service in Vermont and does not allow its subscribers to spend more than 40% of their airtime roaming.”

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© 2008 Penton Media Inc.

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