In his critique of the AT&T’s deal with Apple to exclusively market the iPhone in an article in the Business Section of Sunday’s New York Times (no link), author Randall Stross’s real complaint is that, in order to use this expensive personal communications and entertainment device that, at least until this week, he and the media thought everyone would want, he has to sign up with AT&T. This, he says, shows that customers are still powerless before an AT&T that has the same dictatorial control over the equipment they can attach to the network as it did when it was the national telephone monopoly. If wireless customers were truly captive, there would be no iPhone to begin with. AT&T wouldn’t have to pour investor dollars into snazzy new devices specifically designed to attract new customers (or retain existing ones). Similarly, Apple would have no reason to develop such a product because it would get no interest from the carrier community. Stross also overlooks the element of risk, which Apple and AT&T shoulder in return for the equity of an exclusive cachet. Now that Apple and AT&T are reporting disappointing iPhone sales, perhaps legislators like Rep. Edward Markey (D., Mass.), will realize he mistook a $500 gadget for tech geeks with high disposable incomes for an essential public good, and will pull back from demanding regulations that would prohibit AT&T, or any wireless service provider, from negotiating for exclusive rights to sell what are, in the end, expensive toys. When it comes to new products, true monopolies have no risk of failure–or ensuing investor blowback. A captive market means technology evolves in small increments, if at all. The uneven performance of iPhone illustrates Stross’s mistake in equating an exclusive value-added partnerships such as the AT&T-Apple iPhone with the Bell System’s vertically integrated supply chain monopoly that the Carterfone decision ended. On the contrary, the wireless industry is a successful, functional marketplace, supporting hundreds of hardware and software manufacturers all bidding and negotiating competitively for carrier business. The benefits of this competition are passed onto consumers. Agreements that allow one company “first dibs” on what it hopes will be the next trendy product are not barriers. Instead, they open the door to opportunities for innovation and differentiation.
Steven Titch served as a policy analyst at Reason Foundation from 2004 to 2013.