WSJ Editorial on Wireless Handset Exclusivity

[David Farber <dave () farber net>]

I endorse  Robs statement  Dave

ps why do we have to commit to a 1 or 2 year contract to get decent  
rates (or any service) if we suppley the phone is another good  
question  djf

Begin forwarded message:

From: Rob Frieden <rmf5 () psu edu>
Date: July 7, 2009 5:51:05 PM EDT
To: David Farber <dave () farber net>
Subject: WSJ Editorial on Wireless Handset Exclusivity

Hello Professor Farber:

       For IP if you'd like:

    The Wall Street Journal has extended its record for knee jerk  
corporate boosterism and extreme snarkiness, this time rejecting any  
need to scrutinize the wireless industry.  See

http://online.wsj.com/article/SB124692981354203419.html.  The Journal  
waxes poetic about the competitiveness and innovativeness of the  
industry, but surprisingly reports in its editorial that the top four  
wireless carriers in the U.S. control 87.4% of the market.

            Down here at the consumer level, we know that the Big  
Four engage mimic each other in prices, terms, conditions, and even in  
their advertisements.  As the wireless market reaches maturity, the  
carriers still pitch how reliable their service has become and the  
niftiness of their exclusive handsets.

Innovative?  The Big Four—and for that matter the entire industry,  
except for resellers-- apply a single business model that ties  
wireless service with subsidized wireless handset sales.  Consumers  
may think they are getting a great deal, but in reality they pay more  
for the handset through higher monthly rates than if they simply had  
bought the handset without the subsidy.  No carrier offers lower rates  
for new or existing subscribers who use unsubsidized handsets.   The  
handset tie-in reduces churn and guarantees the subsidy pay back and  
more thanks to the two year service lock in.

            What I do not understand is why consumers do not push  
back more strongly.  On the front page of the Journal was an article  
about how a teenage has hacked the iPhone 3GS to accept unauthorized  
software.  So some consumers can resort to self help.  For everyone  
else, the allure of 30,000—count ‘em—software applications appears  
plenty.  But if I asked most personal computer users if they would  
tolerate Dell or Comcast specifying the type and number of  
applications consumers could download, I think the response would be  
different.

            Smartphones have become handheld personal computers.   
Users of wireless handsets should have the same freedom to access  
software and services, limited only by a “harm to the network” and  
technical compatibility standard. Currently, wireless manufacturers,  
such as Nokia, only have two major sales outlets: 1) the wireless  
carriers, which sell 60+% of all handsets; and 2) Big Box stores such  
as Best Buy and Walmart, which sell about 25% of all handsets.  Think  
of the incentives to innovate and diversify if consumers could buy  
wireless devices through the many different channels available for  
wirebased devices. When the FCC forty years ago decoupled wireline  
services from handsets, a substantial boost in innovation and consumer  
choice arose.

    Regards,

    Rob Frieden

--
Pioneers Chair and Professor of Telecommunications and Law
Penn State University
102 Carnegie Building, University Park, PA  16802
Web page:                       http://www.personal.psu.edu/faculty/r/m/rmf5/
Faculty Profile:                 http://comm.psu.edu/people/rmf5
SSRN Papers Site:            http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=102928













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