USA: mobile carriers disputing over exclusivity agreements on handsets such as AT&T with Apple, VZ with LG and Blackberry

[telephony online] Verizon Wireless is fighting back against allegations made by Mississippi-based Cellular South, calling the rural telco out for flip-flopping on its approach to VZW’s exclusivity agreements and for wanting to “overturn the fundamental rationale of trade secrets” in the wireless industry.

VZW’s crusade against CellSouth comes one day before the Federal Communications Commission (FCC) is slated to review exclusive agreements between mobile handset manufacturers and wireless carriers in regards to how they affect competition and choice in the market. Among many exclusive agreements in the industry, tomorrow’s ruling could affect the relationship that AT&T and Apple have for the iPhone and that VZW has with LG Voyager and BlackBerry Storm.

According to a VZW spokesperson, CellSouth falsely represented facts to ‘serve up a more tasty and compelling story.’ CellSouth testified before the House Telecommunications Subcommittee on May 7 that the tier-one wireless carriers unfairly lock up handsets with exclusivity agreements. VZW is taking issue with the fact that CellSouth neglected to mention its responsiveness to prior requests from the rural carrier to eliminate long-term exclusive agreements with both LG and Samsung. According to VZW’s spokesman, VZW voluntarily agreed to limit exclusive agreements with both handset makers to no more than six months for CellSouth and 24 other rural wireless providers.

These 25 wireless providers make up the Associated Carrier Group (ACG), a consortium of rural telcos aimed at facilitating efficient production and marketing of mobile devices and increasing competition in the areas they serve. On March 10, CellSouth communicated VZW’s intention to its members, noting that as a result, “ACG should have access to a broader portfolio of products when reviewing options with equipment manufacturers.”

CellSouth could not be reached for comment on this article.

"Verizon's new position represents a positive development for both regional carriers and consumers,” CellSouth wrote in a memo to ACG members. “Their willingness to limit their device exclusivity period will give ACG members and wireless consumers more choice. ACG hopes that other major carriers will follow Verizon Wireless' lead and relax restrictions that prevent regional and rural carriers from offering consumers timely access to the latest and greatest devices."

VZW also pointed out that, in March, it told the Rural Cellular Association (RCA), which represents more than 80 rural wireless operators, that it was willing to extend this agreement to other smaller providers. The RCA, however, was also among those that recently filed a petition urging the FCC to explore exclusivity contracts.

“CellSouth’s House testimony indicates that what it wants is not simply a limit on contractual exclusivity terms, which by definition restrict the marketing of a device for some period of time after it launches in the market, but a government-granted right to barge into the device development process before devices are launched,” VZW’s spokesman wrote in an email. “It asserts that it ‘needs’ to gain access to devices in development in order to have competing devices. This request is breathtaking in its implications as well as totally unjustified. Cellular South would overturn the fundamental rationale of trade secrets – the right of manufacturers and carriers to work on new products without fear of competitors gaining access to their obviously proprietary work.”

For further damage control prior to tomorrow’s hearing, VZW also issued a press release today coinciding with Verizon’s general counsel Randy Milch’s appearance at the Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights. In his testimony, Milch expounded on the ways US consumers enjoy choice and competition in the wireless market as well as the lowest overall prices per minute of talk time out of the Organization for Economic Cooperation and Development’s 26 member countries.

Of particular note are text-messaging rates, which Milch said have decreased to an average of 1 cent per message for VZW customers, a reduction of almost two-thirds since 2006. Most customers, covering 99% of text messages sent, however, are opting for a bucket of minutes or texts instead of pay-per-use. He maintained that the lawsuits brought against VZW for allegedly raising text messaging fees by 20 cents per text are false and concluded that wireless companies do not need regulation to incentive them to protect their customers.

“An industry with little competition is an industry with glacial innovation, little investment and increasing prices,” Milch said in his testimony. “That’s not the wireless industry. To the contrary, wireless innovation is breathtaking, investment has been massive and prices have relentlessly decreased overall….The wireless industry is a great success story, and I urge Congress to let it remain one.”

Verizon fights back against anti-competitive claims