Like 2-year contracts, smartphone exclusives need to go away

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Were you looking forward to buying a new Nokia Lumia 920 with Microsoft Windows Phone 8? I hope you are or plan to be an AT&T customer because on Thursday, the carrier announced it will sell the smartphone exclusively in the U.S. AT&T is hardly the only one to work out these types of deals, which typically last from 3 to 6 months: All of the major U.S. carriers have had and continue to have such exclusives.

Sprint had one with the Palm Pre; Verizon with the Motorola Droid, and AT&T’s most famous one was surely the iPhone, for example. Frankly, in this day and age, where we applaud the word competition while hardware cycles are spinning faster and faster, there’s no justification for the “exclusive” handset deal any longer. It needs to go away because while it offers no benefit to consumers and may add some potential benefit to handset makers, most of the benefit goes to the network operator.

Let me break down those three points a little more. As a consumer, you likely want choice: Choice of phone and choice of network. Why? Because you have specific personal hardware needs that are unique to you and because network coverage varies completely on where you use your device. With a carrier exclusive phone, however, you can only choose to get the device from a single carrier that may or may offer the best coverage where you work, live and travel. I essentially see zero consumer benefit here.

Nokia Lumia 920 smartphonesNext is the handset maker. In this case, it’s Nokia, which I don’t likely need to remind has big challenges as it transitions from its old Symbian operating system to Microsoft’s Windows Phone platform. Simply put: Nokia needs to grow its Lumia user base as quickly as possible. Early information on the Lumia 920 tells me it has the right combination of hardware and software to do that. But with just a single U.S. carrier selling the phone, Nokia’s U.S. upside is limited to a large degree; at least for the duration of the exclusivity clause, likely 3 to 6 months.

Nokia does benefit from having AT&T tout this as an exclusive flagship phone and from AT&T’s expected marketing to help sell the device, but I don’t think that will add more benefit than the value lost from selling the Lumia 920 on multiple carriers simultaneously. Look at Samsung’s recent Galaxy Note 2 estimates as an example: It expects 3x the number of sales as the first Galaxy Note┬áin the short-term because of a widespread launch on multiple carriers. The device is expected to be on all four major U.S. carriers in the next several weeks and because of that, I wouldn’t be surprised to see Galaxy Note 2 sales in the U.S. rival those of the Lumia 920 by year-end.

The big winner here is the network operator because it keeps current customers happy — look what we offer that nobody else does! — and can add subscribers who absolutely must have the exclusive handset. It’s strictly a numbers game for the carriers: Build up the subscriber base because data usage is rising as is average revenue per user. It’s a win-win for the carrier yet reduces choice for consumers and leaves handset makers in the lurch, hoping that the negotiated exclusive deal works out better than a widespread launch.

It’s time to stop the practice if indeed we want a more competitive wireless market in the U.S. And don’t get me started on 2-year contracts that lock consumers in to service plans….

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