The iPhone. The BlackBerry Storm. The Android. The Palm Pre. When we think about these phones, we think AT&T, Verizon Wireless, T-Mobile and Sprint, respectively. Phone exclusivity is a major headache for consumers who want the latest and greatest smartphone. True, when consumers choose a phone and the associated mobile operator, they receive a subsidy on the cost of the handset. But they also must sign a contract with that operator for one or two years or more. When these consumers are ready to move on to a new device on another network, they face heavy fees when trying to get out of their contracts. Could change be coming? In June, The Federal Communications Commission said it will explore the issue of phone exclusivity, and a congressional committee held hearings on it.
“Today, when you sit down at a computer and you access a broadband connection, you’re not told by your broadband provider that you have to have a Dell or an HP or an Apple in order to access the network,” stated Sen. John Kerry (D – Mass.), at the June hearing. “And when you purchase a wireless phone in Asia or Europe, you typically don’t buy it through a wireless carrier. You purchase it separately from the manufacturer or from an outlet.”
Subsidies have limits
It is true that phone exclusivity is limited to the U.S. wireless telecommunications industry. A more open industry would benefit consumers, operators and manufacturers alike. Should consumers be able to select operators based on their quality of service, and devices for its features? Machine to machine (M2M) and netbooks are already showing the limitations of the current model based on device subsidies.
Subsidies are a powerful marketing tool, but the subsidies offered with these exclusive handsets to draw consumers in for subscriptions can easily be attached to the subscriptions themselves. In this scenario, consumers go out and buy the unlocked device of their choice for full retail price, and then, after choosing a mobile operator, are given a rebate by that operator to reduce the cost of the phone. This more open market model lets all consumers take advantage of new innovations with smartphones and creates a new market for unlocked devices.
Handset manufacturers would benefit as well: how long is a handset “hot” before consumers move on to the next great thing? A year? Eight months? Today, manufacturers spend half of that time customizing devices to the liking of the operators. They could instead spend their time developing a wider range of devices at a much faster pace, while letting the operators customize their look and feel in other ways.
Operators, on the other hand, would be able to build brand loyalty like never before. They can securely store the applications that bring their branded services to fruition—such as for roaming, device tracking and browsers—on microprocessor smart cards, known as Universal Integrated Circuit Cards (UICC). And because the UICC works with all 3G and soon 4G handsets, consumers are free to choose whatever handset they desire, insert their operator’s UICC, and be ready to go. A UICC provides portability, security, trust, and a clear separation between subscription and device.
When the FCC is done reviewing phone exclusivity in the U.S., it could impose new regulations on operators that will change the landscape radically. It is in the mobile operators’ best interest to employ strategies that allow them to accept new devices on their network quickly without delaying their introduction for the purpose of customization. Verizon has already made a step to this end by choosing the UICC for its 4G LTE network. Other operators can follow suit, and create a more open, free mobile telecommunications industry in the United States. The operators that embrace this change and offer the highest quality and most innovative services on the widest array of devices will thrive the most in coming years.
And, who knows, maybe phone exclusivity and subsidies can become a thing of the past.
