Verizon Will Limit Handset Exclusives To Six Months—For Smaller Carriers Only
Verizon Wireless (NYSE: VZ) is beating regulators to the punch by saying that it will allow smaller wireless carriers—with fewer than 500,000 customers—access to exclusive handsets after Verizon has had them for six months. For context, the Rural Cellular Association is an organization of about 80 carriers that have less than 500,000, however, carriers such as MetroPCS and Leap, would not benefit from this offer.
And, really, this offer is only an extension to a deal made last February, in which Verizon promised smaller carriers that it would eliminate long-term exclusives with LG (SEO: 066570) and Samsung. This agreement extends it to all handset makers. The WSJ reports that Verizon made the peace offering in a letter sent to lawmakers, who have been pressuring the wireless industry to end exclusive handset arrangements—the most notable being AT&T’s three-year hold on Apple’s iPhone. In the letter, Verizon Wireless CEO Lowell McAdam defended the practice: “Exclusivity arrangements promote competition and innovation in device development and design. This new approach is fair to all sides.”
July 17, 2009
The Honorable Rick Boucher
Chairman
Subcommittee on Communications, Technology and the Internet
House Committee on Energy and Commerce
U.S. House of Representatives
2187 Rayburn House Office Building
Washington, D.C. 20515
Dear Chairman Boucher:
Last February, a group of 24 small wireless providers asked Verizon Wireless to eliminate long-term exclusive handset agreements with LG and Samsung. We agreed to do so for those small providers. Today I am writing to reaffirm that commitment and to let you know that Verizon Wireless is taking an even bolder step to transform exclusive handset arrangements. Effective immediately for small wireless carriers (those with 500,000 customers or less), any new exclusivity arrangement we enter with handset makers will last no longer than six months – for all manufacturers and all devices.
This new approach is fair to all sides. Exclusivity arrangements promote competition and innovation in device development and design. We work closely with our vendors to develop new and exciting devices that will attract customers. When we procure exclusive handsets from our vendors we typically buy hundreds of thousands or even millions of each device. Otherwise manufacturers may be reluctant to make the investments of time, money and production capacity to support a particular device. 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. 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.
Moreover, we have no objection to small carriers having full access to any manufacturer’s portfolio of prototypes and products in development, without being informed which may have been selected by Verizon Wireless. Obviously our pre-launch product selections are proprietary and must remain confidential between us and our vendors.
Our actions today are consistent with our long track record of leading the vibrant, highly competitive wireless industry in new and innovative directions that benefit consumers. We would be happy to meet with you or your staff to discuss this further.
Sincerely,
Lowell C. McAdam
cc: Chairman Waxman
Ranking Member Barton
Ranking Member Stearns
Posted In: Legal, Regulatory, FCC, Companies, Verizon
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