iPhone's false bargain

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iPhone's false bargain

The Boston Globe June 22, 2008

JUDGING FROM the pre-release publicity, the $199 iPhone is a marvel of the age, but it's also a lure for people to sign with the AT&T mobile network. Despite its many charms, the iPhone continues the uncompetitive practice in which cellphone companies maintain tight controls over which phones can be used on their networks.

AT&T and Verizon, the two largest providers, say that they favor openness, but their business plans are based on control of the telephones as well as their wireless networks. That's not the case on their old-fashioned wired service, where a customer can connect any phone, fax, or answering machine. The new iPhone is a bargain only because AT&T subsidizes the prices in the expectation that it will recoup the money from a long-term service contract, minimum two years.

The cellphone companies say they sell phones below costs to attract regular customers, and perhaps this marketing technique was justified when they needed a reliable revenue stream as they built out their networks. But mobile phones have become almost as ubiquitous as their wired counterparts.

After failing to make a deal with Verizon on the first-generation iPhone, Apple turned to AT&T, where it got kid-glove treatment because of the success of the iPod music player. Apple received a monthly fee for every phone that AT&T sold. Apple, however, decided to give up the fee to help AT&T bring the cost of the new phone down to $199. Is Apple being kind-hearted? Of course not. It seeks to dominate the market for high-end cellphones and all the applications they are capable of performing.

AT&T and Verizon have become the dominant cellphone companies in the United States, and while Apple may muscle its way to an increasing share of cellular revenue, this battle of titans won't help the consumer. The big companies will divvy up the money and keep monthly wireless rates high. Since the signals move across the public airwaves, it's time the public had a greater say in how they operate.

The wired telephone monopoly only unlocked its network in the 1970s because of a federal antitrust suit. There's no need for such draconian action here. But promises of cellular openness are belied by the Apple deal.

The Federal Communications Commission should insist that the wireless telephone companies allow their customers to shop freely for their phones and let manufacturers compete for their business. Then perhaps the iPhone will be available, at a realistic price, to any consumer who wants one, and not just those willing to sign on AT&T's dotted line.

© Copyright 2008 Globe Newspaper Company.
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Monty Solomon
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The Globe carried a follow-up "letter to the editor" from the industry group "CTIA - The Wireless Association" (

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) stating the industry's side:

------------------------------------------------------ THE BOSTON SUNDAY GLOBE June 29, 2008


The fruits of wireless competition

YOUR JUNE 22 editorial "iPhone's false bargain" raises worries that "big companies will . . . keep monthly wireless rates high." In fact, Americans enjoy some of the lowest wireless rates in the world. This is because the American wireless industry is a model of competition, and provides choice and affordability.

In the past 20 years, wireless has evolved from a corner-office luxury to a cultural mainstay for more than 250 million subscribers. Users can choose among more than 600 handsets from more than 30 manufacturers.

Moreover, the cost of wireless voice service - by far the most popular use, available with and without a contract - is among the least expensive in the developed world.

The contract model has promoted wireless adoption and helped Americans access innovative services, while more than 40 million consumers have been able to choose contract-free service. In addition, wireless companies' open-network policies allow customers to use compatible devices whether bought from the carrier or not.

As the marketplace evolves, products and services are being introduced. Each seeks to undercut the others, or provide a unique experience for the user. This competition is the hallmark of the wireless industry.

STEVE LARGENT President and CEO CTIA - The Wireless Association Washington


It's an interesting business and the wireless carriers have learned something from the IXC "Long Distance wars" of the past decade: whatever you do, don't let your service become an undifferentiated commodity where all you can do is compete on price and race your competitors to the bottom. By offering exclusive hardware locked to their respective networks, the wireless carriers have found a way to avoid the carnage experienced by the LD companies.

There is a certain irony here, because if you look at the advertising platform of the major carriers, they stress their network (ATT: "More bars in more places"; Verizon: "It's the network." etc.) but their stores and web sites stress the specific phones on offer and provide little or no information about which phones perform better on their networks.

Meanwhile, the manufacturers of handsets may be competing on features and appearance, but they remain captive to the wireless providers as their major channel of distribution. (Imagine a manufacturer trying to sell its phone to the consumer at a profit when phones from its competitors are being offered for 1-cent by the wireless providers as sign-up incentives -- especially when the providers will not give the customer any lower rate, even if the customer buys his own phone.)

Just some random thoughts.

Regards, Will The Old Bear

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