Out of Control Policy Blog

Is It Your Right to Own an iPhone?

My new column takes a look at the Senate calling on the FCC to investigate cell phone exclusivity deals like AT&T's iPhone arrangement. Excerpt:

The FCC will have a tough time proving that exclusive agreements are detrimental to the buying public.

For starters, the iPhone model that debuted 24 months ago at $599 now costs $99. Apple priced its latest, new and improved iPhone 3GS offerings at $199 and $299.  That's pricing from a company well-aware it is competing with others.

The iPhone certainly doesn't have a monopoly on the smartphone market. While it is exclusive to AT&T, it is just one of a number of smartphones that are available to consumers from other service providers. In addition to the new Palm Pre, there’s Research in Motion’s very popular BlackBerry line, and an assortment of highly functional devices from Samsung, LG, HTC, Motorola and Google, whose Android operating system, compatible with any wireless system, makes it something of an anti-iPhone.

Full Column

Reason's Telecom Research

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Comments to "Is It Your Right to Own an iPhone?":

Mike F. | June 30, 2009, 12:49pm | #

You are being unfair in your price history analysis for the iPhones and making apples-to-oranges comparisons.

When the iPhone ("2G") was released in 2007, its list price was $499 for a 4GB model and $599 for an 8GB model [1]. Less than four months after the release, Apple lowered the price so the 8GB model became $399 [2].

Now, the prices are very similar to the original prices: "For those who are not eligible for an early upgrade or who wish to buy iPhone as a gift, the prices are $499 (8GB), $599 (16GB), or $699 (32GB)." [3]

The $99, $199, and $299 prices you quote are based on a phone company subsidy (a subsidy that is not available to all customers). Your comparison of prices with other smartphones (which are subsidized) is fair, but it's not a fair comparison to the original iPhone (which was not subsidized).

It's not unreasonable to assume that if Apple did not have an exclusive arrangement with AT&T, other carriers would offer similar subsidies (with a mandatory two year phone service contract).

All that said, I agree with the main point regarding the government having no role intervening here. Apple required significant effort on the part of the wireless providers to offer previously unoffered features (such as Visual Voicemail) and had a low data plan price (for the initial iPhone; this changed from the consumer's advantage following the success when the "3G" iPhone was released in 2008). Apple was insistent that they be allowed to have a significant amount of creative control with the phone's user interface (UI).

Verizon was alleged to have been offered an exclusive deal but refused to meet Apple's requirements (for instance, Verizon typically enforces some UI standards to reduce support costs).

The market has done a great job of punishing Verizon for this choice: numerous Verizon customers left for AT&T.

I have not seen any articles discussing the possibility that any other US carriers would make the desired infrastructure/pricing changes Apple wanted, or that would Apple would be interested in using other carriers that did not meet their requirements (simply to sell handsets).

[1] http://gizmodo.com/227429/the-iphone-price-+-499-4gb-599-8gb-in-june

[2] http://gizmodo.com/gadgets/apple/8gb-iphone-price-cut-by-200-4gb-iphone-gone-296705.php

[3] http://store.apple.com/us/browse/home/shop_iphone/family/iphone?mco=MTE2NTQ

Rich | June 30, 2009, 4:45pm | #

They're going to investigate whether I should be able to take my iPhone apps to another phone, too... right?

Steven Titch | June 30, 2009, 6:40pm | #

You're right. I suspected this but couldn't find the documentation you did. The network optimization that AT&T did to support the iPhone gets a bit technical for a lay audience, but it is just the sort of thing the FCC is supposed to consider. Many of the companies who complained about the iPhone exclusivity do not have networks that can support the device. At the same time, AT&T took a substantial risk in making the upfront network investment, betting that the iPhone would be a hit. I've noted in the past blogs that if the iPhone had bombed, Congress and competitors would not be clamoring for end to exclusive handset deals. Indeed, this happened with the BlackBerry Storm (touchscreen problems). That's why no one is complaining about Verizon's "lock" on the model.

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