Several groups are petitioning several other organizations to put an end to exclusivity deals between handset manufacturers and carriers. The Consumers Union, the New America Foundation, and the Electronic Frontier Foundation, as well as software provider Mozilla and small wireless carriers MetroPCS (PCS) and Leap Wireless International (LEAP) are urging the Federal Communications Commission, the Copyright Office, the Federal Trade Commission and congressional leaders to outlaw exclusive handset and software deals. It’s not just the fact that if you use the iPhone you have to use AT&T (NYSE: T), but that if you use the iPhone you have to buy software from the Apple (NSDQ: AAPL) iTunes App Store reports BusinessWeek.

The Argument: The basic argument is that by linking software to handsets and handsets to carriers companies are restricting consumers freedom of choice, and that the practice is anti-competitive. “It is unthinkable that you could only use a Macintosh on an AT&T connection,” says Michael Calabrese, vice-president at the New America Foundation. The biggest victims seem to be the smaller telcos: “Exclusive handset practices “result in a very direct and negative effect on the competitive positions of smaller carriers,” wrote the Rural Cellular Association (RCA), which represents smaller carriers, in a Feb. 23 filing submitted in response to the FCC’s request. “The large carriers use it as a vehicle to drive customers away from the smaller carriers,” which end up getting popular phones years later”. All the big carriers have exclusive deals with manufacturers for high-end handsets.

The Counter-Argument: RIM (NSDQ: RIMM) argued that exclusive handset deals had “done nothing to restrict competition in the wireless marketplace. “There are at least 35 companies designing and manufacturing handsets today,” the maker of the BlackBerry wrote in its filing. “As of March 20, 2008, there were more than 620 unique models of wireless devices available to American consumers. New manufacturers continue to enter the U.S. market …” AT&T took the same tack, arguing that “exclusive arrangements are an important form of competition…The popularity of the iPhone and its innovative features and applications have provoked a strong competitive response, accelerating not only handset innovation but also the pace of wireless broadband investment and applications development”.

I’ll agree with the handset innovation—if innovation is defined as putting a touch-screen in a handset because the iPhone made it popular—but I don’t really agree with the argument that exclusive deals increase the pace of broadband investment and application development. As BusinessWeek notes, “without an exclusive device, all the carriers may have to compete on service or handset price after subsidies”, which would probably lead to at least as much investment in the wireless broadband network as carriers try to outrace their opponents. And application development would go a lot faster if developers didn’t have to make different versions for each handset and carrier, but that won’t go away if exclusivity is removed. The anti-competitiveness seems to affect mainly developers who get rejected from the App store and smaller telcos who can’t compete for those customers who choose a handset rather than a carrier. On that note, exclusive deals do seem like a bit of a concession by the carriers…it may help get customers in the short term, but the carriers are really saying “it’s the handset that’s important, not the service. Use this wonderful handset (which is on our network)”, which is likely to build manufacturers’ brands at the expense of carriers’ brands.

• Skype And Mozilla Petition For iPhone ‘Jailbreaking’ Exemption