Build a Better Mousetrap

by on May 22, 2008 · 5 comments

The Rural Cellular Association wants the FCC to eliminate exclusivity arrangements between cellphone carriers and manufacturers of popular handsets.

For many consumers, the end result of these exclusive arrangements is being channeled to purchase wireless service from a carrier that has monopolistic control over the desired handset and having to pay a premium price for the handset because the market is devoid of any competition for the particular handset.

Exclusivity deals are common throughout the business world and often serve procompetitive purposes.  And there is no way to condemn AT&T-Apple iPhone, Verizon Wireless-LG Voyager or Sprint Nextel-Samsung Ace without condemning exclusivity generally.  For one thing, there are five major cellphone carriers and many smaller competitors.  AT&T (Mobility), the largest, has an approximate market share of only 26 percent.  You can’t argue this is a concentrated market.  The only thing unique about this market is the unnecessary presence of a legacy regulator.

The obvious course of action for the rural carriers is to partner with a handset manufacturer and develop something of their own which customers will want.  “If you build a better mousetrap…,” as they say.  Perhaps some rural carriers lack the imagination or the ingenuity.  But it’s really not the job of government to try to compensate for that. 

Who can argue it’s so much easier to go whining to a regulator?  Particularly for some small rural carriers who’ve perhaps been treated far too indulgently over the years and appear to have developed traces of an entitlement mentality.  Then again, the current FCC has acquired something of an unfortunate reputation lately as an easy target for anticompetitive populist appeals.

The rural carriers point out that for some rural consumers

these exclusivity arrangements prevent them from purchasing many of today’s most popular handsets because they reside in areas not served by the one carrier offering the desired handset.

Well, yes, there is a multiplicity of cellphone carriers and none is big enough to serve the entire market.  Both the markets for cellphone service and handsets are, to repeat, highly competitive.  This is exactly the opposite of a valid basis to regulate the sale of  handsets.

Note that if the rural carriers’ customers “reside in areas not served by the one carrier offering the desired handset” then, by definition, a Big 5 carrier offering an exclusive handset can’t be acting anticompetitively to crush a smaller rival.

What apparently is needed are better sales and marketing relationships between handset makers and rural carriers.  You wonder what these guys are up to?  Spending too much time in Washington, D.C. 

Perhaps the rural carriers ought to persuade the handset makers next time to offer exclusivity to a Big 5 carriers only throughout the territory in which the big carrier offers service.     


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