Esbin Testifies on Wireless Issues Before U.S. Senate Commerce Committee
WASHINGTON D.C. - Exclusive handset arrangements have brought palpable benefits to consumers, spurring innovation and competition, stated Barbara Esbin in testimony presented today to the U.S. Senate Committee on Commerce, Science, and Transportation. Because both the wireless services markets and handset markets are robustly competitive and showing no evidence of market failure, Congress should not seek to prohibit such arrangements.
In her testimony, Esbin, Senior Fellow of The Progress & Freedom Foundation, referenced evidence in the FCC's Commercial Mobile Radio Services Report and industry data which illustrates there is healthy competition in the wireless services and handset markets. Exclusive handset arrangements, she explained, augment this competitive mobile environment by allowing manufacturers to quickly bring new product to market and creating incentives for the carrier to heavily promote and subsidize the cost of the handset. Such agreements also allow experimentation with new business models.
Prohibiting exclusive handset arrangements would likely only harm consumers, without significantly benefiting competition in the wireless market, Esbin explained. A prohibition on such arrangements would effectively require each handset manufacturer to develop versions of each phone that would operate with every network technology, thus increasing costs and decreasing product differentiation. Because handset differentiation is a key means of attracting customers in an almost completely saturated market, prohibiting exclusive agreements would force carriers to compete on price alone, making a return on network investment more difficult. Eventually, this could lead to one or more of the current providers exiting the market. In other words, it would likely lessen, rather than enhance, competition and consumer welfare. "Even setting limits on the terms for exclusive arrangements, while less disruptive than an outright prohibition, would entail difficult decisions over exactly what the permissible period of exclusivity should be," Esbin stated.
"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 risky ventures," Esbin concluded, "all Americans will miss out on the dramatic benefits of innovation and increased mobility of Internet access."
Esbin's written testimony for the U.S. Senate Committee on Commerce, Science, and Transportation's hearing, "The Consumer Wireless Experience," 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.