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Verizon plays handset exclusivity games with US Congress

Pares pacts to 6 months - if you're irrelevant

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In a predictable attempt to deflect government scrutiny with a near meaningless policy change, Verizon Wireless has announced that its handset-exclusively deals will expire after six months for all wireless carriers serving fewer than 500,000 users.

To wit, Verizon handset pacts will still prevent its three largest competitors - AT&T, Sprint, and T-Mobile - from using Verizon exclusives for years on end, and for six months the deals will continue to exclude the country's smallest carriers as well.

Nonetheless, Verizon Wireless chief Lowell McAdam seems to think the move will appease Congress, the Federal Communications Commission, and the Department of Justice. Following countless complaints over the AppleT&T iPhone and other carrier pacts, all three are mulling whether handset exclusively deals are a bad idea for John Q. Public.

In a letter to Congressman Rick Boucher - chairman of the House Subcommittee on Communications, Technology and the Internet - McAdam said that Verizon agreed to eliminate long-term exclusive handset agreements with LG and Samsung for a group of 24 small wireless providers who gave the company what-for last February. And he proudly told Bouncher that from here on out, Verizon would use such small carriers to protect its position against the competitors that actually matter.

"Today, I am writing to reaffirm that commitment [made to those 24 small carriers] and to let you know that Verizon Wireless is taking an even bolder step to transform exclusive handset arrangements," McAdam writes. "Effective immediately for small wireless carriers (those with 500,000 customers or less), any new exclusivity arrangement we enter with handset makers will last no longer than six months – for all manufacturers and all devices."

McAdam assures the Congressman that its new exclusivity arrangements are "fair on all sides." And he's convinced that "all sides" includes the everyday consumer:

Exclusivity arrangements promote competition and innovation in device development and design. We work closely with our vendors to develop new and exciting devices that will attract customers. 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.

This of course constitutes a major risk for us, because if the device is not popular in the marketplace we end up with excess inventory and potential competitive losses. On the other hand, if the device does well in the market, six months is a reasonable time for us to earn the benefit of our risk and investment.

But the Consumers Union - the well-known US consumer advocate behind Consumer Reports - sees things a bit differently. "This is virtually meaningless," says Consumers Union policy analyst John Kelsey. "It is a classic example of what a big wireless company often does when policymakers start asking tough questions about its anti-competitive practices.

"The company responds with a change in policy that, at best, helps the smallest number of consumers possible. This does nothing to correct the anti-competitive effects of exclusivity. Exclusives continue to blunt the force of consumer demand, and consumers continue to face limited choices in the marketplace."

Yes, McAdam's letter is close to meaningless. But it's worth reading if you're need a good chuckle. "Our actions today," McAdams says, "are consistent with our long track record of leading the vibrant, highly competitive wireless industry in new and innovative directions that benefit consumers." ®

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