Out of Control Policy Blog

This Is What Competition Is All About

Verizon Wireless is going to take another run at the iPhone. The wireless company announced today it is working with Microsoft to develop a touchscreen phone that can offer exclusively to Verizon customers. It will be Verizon’s second attempt to respond to the Apple iPhone, which is available exclusively from AT&T. Verizon’s first response was the BlackBerry Storm, which it developed under exclusive arrangement with Research in Motion, but that device met with ho-hum reviews (here’s one) and a poor response from the buying public. Verizon also carries a number of touchscreen phones made by LG and Samsung, all good quality, and priced less than iPhone or BlackBerry equivalents. But then again, they don't have the Apple or BlackBerry cachet.

So enter Microsoft. As the Wall Street Journal reports:

The Microsoft-Verizon relationship is evolving from a more limited search-and-advertising partnership the companies struck early this year. The two companies are looking for a response to the iPhone, which has boosted the fortunes of their rivals, Apple and AT&T Inc. AT&T’s exclusive rights to the iPhone in the U.S. expire next year, but the carrier is trying to get a one-year extension, people familiar with the matter say.

Curiously, these types of exclusive agreements are getting pushback from legislators, even those otherwise sympathetic to free-market ideas. Later this week at the American Legislative Exchange Council Spring Task Force Summit in Memphis, ALEC’s Telecom and IT Task Force is scheduled to debate a resolution opposing exclusive handset agreements of this type, describing them as anticompetitive and monopolistic. I couldn’t disagree more.

On the contrary, this is precisely the vigorous competition free-market advocates should want. We want AT&T to say to Apple, “Let’s combine our talents in telecom and personal computing to create a wireless device better than anything out there.” We want Verizon to respond by saying to RIM or Microsoft, “Shoot! Those guys are kickin’ our butts! Let’s build something better!”

By letting competition play out, the result has been a new and innovative slate of devices to delight consumers every six to twelve months. When consumers are delighted, they are more attracted to wireless and broadband. This creates more interest in converged wireless voice, data, media and entertainment applications, and fuels more innovation. That in turn leads to more investment, more jobs, greater broadband reach, and a healthy high-tech economy.

That’s what competition is supposed to do and why we worked so hard to extend it into telecommunications.

Conversely, what kind of market would it be every “competitor” was required by law to sell the same products with the same features? No one wireless company could stock a smartphone that was any different than another’s. That’s not competition, that’s a managed market where product innovation is regulated and controlled. Customer delight and enthusiasm wouldn’t fuel product and service evolution, like it does now. Instead, bureaucrats would decide what the public should have and when. Good-bye, market excitement. Farewell, innovation. So long, cool new gadgets.

What’s more, I don’t think we’d be having this discussion if the iPhone had bombed. Misguided consumer advocates are turning to state and federal lawmakers only because the iPhone turned out to be a coveted product. Note that Rep. Ed Markey, who decried the AT&T-Apple deal, did not feel compelled to call another hearing about the Verizon-BlackBerry deal after the Storm’s less than stellar debut. Nor did anyone else from the activist community, for that matter.

Finally, the monopoly argument doesn’t hold water either. As I’ve noted, there are plenty of other touchscreen phones with integrated browsers and music players. A claim the AT&T deal with Apple is monopolistic runs perilously close to the specious (and cyclical) argument that the branding of device defines it as a product category (i.e., Apple is the only manufacturer of iPhones therefore it has an illegal monopoly on iPhones), something the courts have been rightly reticent to do.

The legacy of telecom sometimes dogs legislative thinking. At one time, Western Electric made virtually all the equipment used in the phone network. That lends a perception of “fairness” to the idea that every single service provider must be allowed to sell every single device. But in a healthy market, everyone competes on differentiation. Exclusive cross-marketing is nothing new. Fast food outlets do deals with soft drink manufacturers. Retailers do deals with clothing designers. It’s another way for a merchant to lure you into his or her shop. So it should be in telecom.


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