Blog Post

Ending Handset Exclusivity Won't Mean a Phone That Can Roam

[qi:gigaom_icon_mobile] FCC acting chairman Michael Copps said yesterday afternoon that the agency would investigate exclusivity deals between carriers and handset makers, and “take action” if they were found to cause harm to consumers. While the largest cellular carriers are protesting the probe, consumer advocates are thrilled. However with two of the four largest U.S. carriers operating on a CDMA network and the other two operating on a GSM network, eliminating exclusivity would mean handset makers would have to build a minimum of two versions of each phone, not that the phones would be interchangeable on U.S. networks.

To have a phone that works on all four of the largest U.S. carrier networks would require a lot of radios tuned to operate in various different swaths of spectrum that carriers use to send data, as well as radios that work on both network types. It’s kind of like trying to get a cable modem to work with a DSL connection — they aren’t compatible. An open phone would need radios for the CDMA networks that Verizon (s vz) and Sprint (s s) run, as well as chips for the UMTS and HSPA networks that AT&T (s T) and T-Mobile operate. T-Mobile operates in the AWS spectrum band while other carriers are in the 1900Mhz, 850Mhz and other spectrum. That many radios would consume a lot of power and make for a more expensive phone.

So if exclusivity agreements do end up being eliminated, Apple (s aapl) could choose to make a version of the iPhone for a CDMA network, but it may choose not to if Verizon sets too many limits on how the iPhone uses the Verizon network. If it did choose to build out a CDMA-based iPhone, rather than be able to hop from carrier to carrier, that phone would only work on Verizon’s network. In that scenario, Verizon might regain some subscribers, Apple would have to take on the additional cost of building a CDMA phone and Qualcomm (s qcom) and Verizon customers who want iPhones would win.

16 Responses to “Ending Handset Exclusivity Won't Mean a Phone That Can Roam”

  1. iFun Lover

    Just because handset exclusivity goes out the door doesn’t mean cheap prices for phones would too, you know. Think about the purpose mail-in rebates serve. I understand how companies stiff you with two year contracts and draw in much more money from you this way, but let me put it in perspective:

    Presently: (AT&T) $299 for iPhone 32GB with two year contract (cheapest plan with Unlimited Text = at least $90 x 24 months = 2,160 dollars total.

    Apple iPhone 32GB costs 700 without contract.

    Possible Future: (AT&T) iPhone 32GB available for 500 dollars with 6 month contract, then after two months you receive 200 back through rebate. That means that if you were to cancel after the rebate, you would technically be paying the 700 for the iPhone because of the two months of the rate plan plus the cancellation fee. But if you complete the six months then you would still be getting the iPhone for 300. Sounds fair, I think.

  2. “Without exclusivity and long-term contracts carriers will no longer subsidize phones. So get used to paying $300+ for a phone… try $500 for the beloved iPhone.”

    Ah, but at least that would be a real price and not an extortion price. The carriers like the current business model. It is a credit model. The low price is a down payment and the monthly payments are an installment plan. You thought the monthly bill was to pay for service? How to explain the exorbitant rates for capped data and text messages? Look at it this way – if $20 covers basic data and text, like the lowest rate level of dsl and cable, then the rest is pure reward for lending you the phone. It depends on the specifics of carrier and phone, but you can look at the overcharge as simply a 10% per month interest rate. Not as good as the mafia, and perhaps not even as good as a Rent-A-Center deal, but it does beat the kinds of rates credit card companies would love to slap on you. It’s a great business to be in. And the carriers want to extend it to other devices. I believe the current summer of the subsidized netbook is just a start, a first stab in that direction. How about a wireless refrigerator that talks to the cloud? Or maybe eventually a car that drives itself and needs constant wireless communication for every function? It could happen.

  3. Stuart Friedman

    I was in Dubai with two US software consultants who could not believe “how expensive” the phones were. It took me the better part of an hour to convince them that comparing their locked contracted phones with the open phones wasn’t fair and that once they added in their termination fees and the lost features do to crippling, that they had the worse deal.

  4. bigsnake49

    I have no problem with short term (3 months) exclusive contracts. Apple would be stupid not to make a CDMA phone. It’s not just Verizon and Sprint in the US. Reliance in India, China Unicom in China, KDDI in Japan, SKT in Korea, and that’s just naaming the big ones. Ans since Verizon announced they will be keeping CDMA 1x voice going until 2018-2020, there is no danger of it going away after couple of years.

  5. If exclusivity is dropped that doesn’t necessarily mean that the option to sign a contract and have your device subsidized will change. If anything, the carriers will be forced to be more competitive in their subsidized pricing because each other carrier will have access to the same products.

    There also isn’t much of an issue having a phone that can work on both CDMA & GSM networks. My old Blackberry 8830 (world edition) was capable of working on CDMA in the US and using whatever GSM sim card that I felt like using through out the rest of the world, so it’s defiantly doable.

  6. Robert Welbourn

    Stacey, that’s a bogus argument. I already have a phone that works on Verizon Wireless’s CDMA network *and* on GSM networks — the Blackberry 8830 World Phone. (Annoyingly, Verizon locks it so that you can only use a Vodafone SIM when roaming abroad.) Sure, the US GSM networks use different frequencies, but there’s no inherent technical reason why multi-band phones couldn’t be made more available.

    John: LTE will only initially support data, so the roaming issue for voice does not go away.

  7. jagibson

    I don’t think exclusivity hurts the consumer as much as the subsidies offered by the carriers giving the false impression of free/or cheap phones being readily available when the reality is that manufacturers don’t have to really compete on price in the US because the operators are the primary means to push phones.

  8. Without exclusivity and long-term contracts carriers will no longer subsidize phones. So get used to paying $300+ for a phone… try $500 for the beloved iPhone.

    LTE likely wont make the issue of roaming completely moot because most carriers are still planning on running voice traffic on their 2.5G networks while running the data over LTE, at least for the foreseeable future.

    • There is nothing wrong with exclusivity. If you don’t want to sign with AT&T, there are plenty of competing handsets you can choose among for other carriers. No one has to have a iPhone.