Verizon compromises on exclusivity deals

Verizon Wireless on Friday told lawmakers it would let small operators in on exclusive deals for handsets after six months, responding to pressure from the government.

After Verizon spends six months in an exclusive deal on any handset, wireless operators that have fewer than 500,000 customers will be able to sell the phones, the nationwide operator said in a letter sent to the House Committee on Energy and Commerce.

The arrangement could placate rural operators that have recently testified to Congress about how exclusivity deals hurt them. People who live in rural areas become second class citizens because in some cases they have no option to buy the latest and most popular phones, members of the Rural Cellular Association argue. That's because there are some areas that large operators don't cover and if those operators have exclusive deals for phones, people who live in those spots can't buy those handsets.

Rural and large operators testified on the matter in front of the U.S. Senate Committee on Commerce, Science and Transportation in June.

Verizon most notably currently has an exclusive deal for the first touchscreen BlackBerry, the Storm. Rural operators may be pleased to be able to sell that phone to their customers.

But Verizon's announcement does not address the exclusive deal that is at the center of the debate: the arrangement between AT&T and the popular iPhone. While AT&T has declined to say how long that arrangement will last, some onlookers suspect it's a five-year deal. AT&T has already been selling the iPhone exclusively for two years. At the recent hearing, Jack Rooney, president and CEO of rural operator U.S. Cellular said he could live with exclusivity deals that are counted in months, but not years.

In its letter to lawmakers, Verizon noted that it typically buys hundreds of thousands or sometimes millions of phones in order to negotiate exclusive deals with the handset makers. "This of course constitutes a major risk for us, because if the device is not popular in the marketplace we end up with excess inventory and potential competitive losses," Lowell McAdam, president and CEO of Verizon Wireless, wrote in the letter. "On the other hand, if the device does well in the market, six months is a reasonable time for us to earn the benefit of our risk and investment."

He wrote that Verizon's new arrangement is "fair to all sides."

Rural operators will now likely look to other operators to follow suit. AT&T did not immediately respond to a request for comment on Verizon's move.

Copyright © 2009 IDG Communications, Inc.

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