WASHINGTON D.C. - Exclusive arrangements between wireless handset producers and carriers promote innovation in the marketplace and are not anticompetitive, argue PFF Senior Fellow Barbara Esbin and Visiting Fellow Berin Szoka in "Exclusive Handset Prohibitions: Should the FCC Kill the Goose that Laid the Golden iPhone?," released by The Progress & Freedom Foundation. The lack of immediate availability of certain handsets by consumers in rural areas does not warrant calls for FCC intervention in carrier and handset agreements, the authors state, because the U.S. wireless and handset markets are highly competitive.

In the paper, the authors counter claims in a recent petition filed by the Rural Cellular Association asking the FCC to investigate exclusive arrangements between wireless carriers and handset manufacturers as anticompetitive. Specifically, the petition claims large wireless companies have an unfair market advantage by giving their customers exclusive access to certain advanced smart phones, such as the Apple/AT&T iPhone. Because smaller network providers are unable to attract such exclusive deals, they claim the arrangements are unfairly discriminatory and anticompetitive.

Esbin and Szoka explain recent exclusive arrangements, such as the iPhone and AT&T deal, allow handset manufacturers to fund expensive development efforts for new mobile products because such deals can include revenue-sharing from new subscribers using the handset. Also, these partnerships allow companies to develop truly innovative devices by having the opportunity to ensure new services function properly on the provider's network. "If the FCC prohibits the exclusive partnerships between manufactures and carriers that make it possible to master the technical challenge of device innovation and to finance such projects," the authors state, "all Americans will miss out on the dramatic benefits of innovation and increased mobility of Internet access."

The authors also cite a recent FCC report that found the commercial mobile radio services market to be highly competitive, even in rural areas. Consumers also have hundreds of unique wireless devices to choose from, illustrating that the handset market is also highly competitive. Moreover, the market power has shifted in favor of handset manufacturers and away from carriers, challenging the claim that large wireless network providers have an unfair advantage over smaller carriers.

The authors urge smaller carriers to negotiate such exclusive deals for themselves, as opposed to seeking government involvement in the cellular market. They conclude, "For its part, the FCC should let the competitive forces of the wireless and handset markets continue produce devices like the iPhone unhindered by intrusive and unnecessary government intervention."

"Exclusive Handset Prohibitions: Should the FCC Kill the Goose that Laid the Golden iPhone?" is available on the PFF website.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.