Feds Upsetting Apple Cart?

The Department of Justice has begun investigating certain practices in the wireless telecom industry, including exclusive deals between carriers and handset makers that limit competition, and violations of network neutrality rules, according to a report in the Wall Street Journal. The DoJ will certainly have the support of customers who’d like their iPhones on the Verizon network, but observers also point out that unsubsidized, dual-mode handsets would be prohibitively expensive.

AT&T, for instance, subsidizes the price of the iPhone, as well as a good deal of the marketing cost that Apple would have to otherwise spend on its own. Moreover, the cost of handsets to consumers would be a good deal higher if vendors had to ensure they worked on any U.S. network.

However, the focus on the DoJ’s investigation might not be about the impact on consumers, but rather the effect of these arrangements on smaller regional and mobile virtual network operators (MVNOs). Avi Greengart, who follows the wireless market at Current Analysis, told me that while the likes of AT&T, Verizon and Sprint can order handsets in large enough quantities to command special feature sets and the exclusivity that goes with that, smaller carriers like Cincinnati Bell or Metro PCS “are limited to a degree to the types of handset they can get.” They certainly can’t benefit from the next hot phone.

By the same token, Greengart said, the market is currently providing a wide variety of feature phones at affordable prices; many of the most egregious abuses by carriers towards consumers — like early termination fees that aren’t pro rated — have been put to an end. Moreover, exclusive arrangements aren’t unique to the telecom industry — you have to buy a Ford if you want Microsoft Sync in your car. Greengart also argued that subsidies make it easier for customers to afford feature phones, thereby stimulating innovation. Greengart believes the DoJ may upset a delicate balance by intervening in the market. “It’s hard to know what the consequences of reining in some features of the market would be,” he said.