Setting the iPhone Free from AT&T Consumer groups, small wireless carriers, and even Mozilla say all such exclusive deals are anticompetitive, and they're taking the fight to Washington By Olga Kharif As the exclusive U.S. carrier for the Apple (AAPL) iPhone, AT&T has had a lot to celebrate. Rivals hope to crash the party. A growing number of public interest groups want an end to the partnership that forces buyers of Apple's iPhone to buy their mobile-phone service only from AT&T (T). And they're taking their case to the highest levels of government. Critics: Exclusivity Is Anticompetitive 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 lining up in opposition not only to the Apple-AT&T partnership, but to all manner of arrangements whereby mobile phones are tethered exclusively to a single wireless service provider. Consumer groups are reaching out to the Federal Communications Commission, the Copyright Office, the Federal Trade Commission, and congressional leaders, asking them to outlaw exclusive handset and software deals. Judging from the track record of Julius Genachowski, the newly nominated head of the FCC, petitioners may get a sympathetic hearing, at least at that agency. Opponents also take issue with Apple's insistence that iPhone users download software only from the Apple iTunes App Store. The argument is that these and other "exclusivity" pairings are anticompetitive and limit consumer choice. "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, which is chaired by Google Chief Executive Officer Eric Schmidt. Google (GOOG) has helped develop phone software that competes with Apple's. Apple and AT&T aren't the only tech companies under fire. Every major U.S. carrier including Verizon Wireless, Sprint Nextel (S), and T-Mobile USA has struck exclusive deals with cell-phone makers such as Samsung Electronics, HTC, and Research In Motion (RIMM). Companies such as RIM also have their own online application stores tied to particular devices. Lots at Stake for AT&T While any ruling would affect many industry players, AT&T and Apple may have the highest stakes in the battle. The iPhone is the No. 1 seller at AT&T, and the iPhone has been key to driving AT&T Mobility subscriber growth as it gets harder for carriers to add new customers. About 40% of the 4.3 million AT&T customers who activated the device in the second half of 2008 were new to AT&T, according to the company's latest quarterly filing. Apple also benefits by extracting key concessions from its partner. For instance, Apple can sell music and applications to iPhone users without sharing revenue with AT&T, an arrangement AT&T doesn't allow with other devices. AT&T wouuld stand to lose big. Without an exclusive device, all the carriers may have to compete on service or handset price after subsidies. For Apple, "the [iPhone's] price might not drop very quickly, if at all, because the device itself still has great value—it's iconic," says Neil Strother, an analyst at consultant Forrester Research (FORR). The impact from opening up the phone to all software could be muted as well, as App Store revenue is minimal. Friendly Ears at the FCC and FTC The consumer advocacy groups are pinning their highest hopes on the FCC, which last year asked for comments on the exclusivity issue. 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, says Eric Peterson, executive director of the association. The RCA hopes that as soon as a new, Democratic FCC chairman is in place, the agency will investigate the issue and rule on it. A former government official familiar with the FCC believes the new Democratic-majority commission will be sympathetic toward smaller carriers' interests. The FCC could prohibit exclusive handset deals outright, or it could impose limits on carriers' ability to restrict what networks a phone works on. The RCA is also lobbying Congress to get involved and expects a bill that prohibits exclusive carrier deals to be introduced soon, Peterson says. On Dec. 10, the New America Foundation met with law professor Phil Weiser and former FCC Commissioner Susan Ness from President Obama's transition team. The group asked that the Federal Trade Commission take up the issue of "wireless carrier anticompetitive practices"—namely, the practice of locking handsets to a particular network, and requiring users to buy software from a particular source, Calabrese says. A decision in the foundation's favor could make it illegal for AT&T and Apple to limit new iPhone users to AT&T's network or the App Store from the get-go. Former FTC Commissioner Jon Leibowitz, expected to be nominated for the FTC chairmanship position, is likely to be sympathetic to this view; in a February 2007 speech, he supported allowing any device to attach to any network. Legalizing "Jail-Breaking" The U.S. Copyright Office is getting involved as well. This year, it will review whether to extend a ruling that made unlocking cell phones—essentially, making them work on a network for which they are not intended—legal. Public interest groups and companies like Mozilla are trying to get that exemption renewed and get the Copyright Office to give a nod to a practice known as jail-breaking—essentially, allowing cell phones to run software of their owners' choosing vs. applications limited to offerings from, say, the Apple App Store. In comments filed in December, the Electronic Frontier Foundation claims that the current setups "disserve iPhone owners and suppress competition from independent iPhone application vendors." The Copyright Office will hold hearings on this issue on May 1 in Palo Alto, Calif., and the following week in Washington, D.C. It will issue final rules in October. "[The issue arose] in large part because of the iPhone, because the iPhone did not exist in 2006," says the Electronic Frontier Foundation's senior intellectual property attorney, Fred von Lohmann. Battles over these kinds of arrangements could be lengthy. But Apple could actually benefit from an end to exclusive carrier deals by dramatically increasing the iPhone's distribution. "They'd have sold five times more iPhones [without exclusive contracts]," estimates Trip Chowdhry, an analyst at Global Equities Research. Exclusivity as Driver of Innovation Apple declined to comment for this story, and has not submitted comments to the FCC. But on Feb. 20, RIM commented in a filing that exclusive handset deals have 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 …" In its December comments to the Copyright Office, Apple said that jail-breaking phone software "will destroy the technological protection of Apple's key copyrighted computer programs in the iPhone device itself and of copyrighted content owned by Apple that plays on the iPhone, resulting in copyright infringement, potential damage to the device, and other potential harmful physical effects, adverse effects on the functioning of the device, and breach of contract." AT&T believes that exclusive deals actually drive other carriers' innovation. "Exclusive arrangements are an important form of competition," AT&T said in a statement. "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." Indeed, most carriers nowadays offer iPhone look-alikes. If consumer advocates have their way, rivals may eventually offer the iPhone itself. Setting the iPhone Free from AT&T - BusinessWeek
This is great news. I have wanted to get the iphone for the longest time but couldn't because i have verizon wireless. I really didn't want to give up verizon. Does any one know how long it will be before finalized?
Probably not for a while. T-Mobile would be the first to benefit if AT&T lost its exclusivity on the iPhone as they're both GSM. Apple would need to announce a CDMA version before Verizon, Sprint, or any other CDMA carrier can get their hands on the phone.
I cannot image that the government is going to force Apple to make a Verizon CDMA version of the iPhone, anymore than the government would force Verizon to install a GSM network on all CMDA towers they erect. Whoever wrote this article is not clearly explaining that the phones are more than software 'locked' to an exclusive carrier. You can't force a company to make a universal phone; nor force carriers to use a universal frequency and carrier protocol. It is clear that the Apple went with ATT since they designed the phone to be used worldwide; and also sold worldwide. That is the biggest market shared for them, compared to going with Verizon. With T-mobile, Apple would have to have added another frequency. ATT is more currently in synch with the worldwide market than Verizon or Tmobile USA. When all the carriers go with LTE, then a better argument could be made.
dare i say it i think AT&T is right.......when one carrier has a really good phone......it encourages other companies to make something better.....while it does reduce consumer choice it actually does help competition a lot.....i mean look at the upsurge of interest in the touch screen market after the iPhone was introduced....something that prolli would not have been touched upon otherwise......also i think that with the whole manufacturer to APP Store thing......carriers abviously should have a copy of their own APP Store on phones but also phones should be open for any application to run on them regardless of how buggy......something that Verizon prohibits........but i also think with making all phones unlockable and portable to different carriers consumers shouold begin to expect a serious decrease in quality because the phones that a carrier has chosen for their lineup are ones that they feel will work best on their network or have been outfitted to work for them....... this whole ruling actually has the potential to truly decrease quality and competition.......however at the same time i don't think that's why carriers and manufacturers are upset.....all they care about is money........carriers will have a more difficult time with CS trying to get handsets from other networks to work on their service.....and at the same time manufacturers might actually make more money with handsets that are exclusive to certain carriers being used on other networks.....
I'm sorry to disagree. All the drive towards touch screen mobile interfaces has been brought because of Apple's mobile OS, not because the exclusivity agreement between Apple and AT&T. The same effect would've occurred just fine without the exclusivity agreement. This is demonstrated by the fact that a similar phenomena happened with the Motorola RAZR. Suddenly, all phone makers were interested in moving away from heavy and bulky phones to make thin devices. That time, it was Motorola that drove innovation and encouraged competition. Let's not forget that the RAZR was only exclusive to Cingular for 6 months after it launched, and it really took off after the exclusivity contract ended, which is when every other carrier started getting on the RAZR bandwagon. So, had Apple gone without an exclusivity contract, the iPhone would've caused even more pressure on other phone makers which would've created better iPhone competitors than the current breed of "iPhone wannabes" out there. Currently, the handful of products that are self-proclaimed as "iPhone killers" are nothing but failed attempts that will never get noticed (take note Samsung Instinct, BB Storm, etc.). Currently, the only serious contender to the Apple mobile OS that we can mention is the Android. My hats off to Google for pulling off what so many others have tried.
Geez what is this country turning into? As much as I dislike apple and their over priced (but pretty/shiney) "pc" and laptops. And I am no fan of At&t either. The government has no right to keep Apple from deciding to enter into an exclusive contract with At&t. Anti-competitive? What everyone needs an iphone for their survival? Folks.....the iphone while pretty, is not nearly the phone that say the htc touch diamond or pro is, there are other options....wake up people.....(i'm not talking to anyone on this thread just in general)
Here's another article on the same topic, from InfoWorld's Bill Snyder. It's long, so I have posted the highlights. Free the iPhone! Bill Snyder March 12, 2009 Apple's lock on the iPhone app market is bad for consumers, bad for developers, and bad for IT. It's time to change the rules. Suppose you booted up your computer one morning and found that none of your applications worked because you didn't buy them from the Dell app store. Or maybe you tried to start your car and found that the ignition was locked because you didn't buy your new starter from the Toyota parts store. You'd be mad as hell, of course. So why do we allow Apple, AT&T, Sprint, and the like to tell us whose apps we can run on our iPhones, and whose (overpriced) networks we can access with our devices and software? Enough already. The great irony is that a quarter of a century after the breakup of the AT&T monopoly and well into age of Web 2.0, the carriers and the equipment makers are acting just like the old analog Ma Bell. If you're a regular InfoWorld reader or a developer, you're probably savvy enough to know that unlocking or "jailbreaking" an iPhone to get past Apple's restrictions is not hard. So why should you care? Here's one big reason: Apple's stubborn refusal to open the platform and the implied threat of legal action against those who circumvent its rules make it difficult for developers -- who already have problems doing business with the App Store -- to attract the kind of capital they need to build and market better applications. For the first time in years, the United States is going to have an FCC chairman who isn't in thrall to the special interests and is thus likely to use his position to do more than protect monopolies. President Obama has nominated Julius Genachowski to the post, and by all accounts, he's likely to at least lend a sympathetic ear to the growing list of organization lining up against exclusive arrangements like the Apple/AT&T partnership and the locking of cell phones. The anti-monopoly forces include the Electronic Frontier Foundation (EFF), the New America Foundation, Consumers Union, Mozilla, and a few small carriers. The EFF, a group with a long history of standing up for consumers, has already approached the U.S. Copyright Office and asked it to suspend for three years provisions of the Digital Millennium Copyright Act, or DMCA, that Apple and others use to protect their monopolistic practices. Steve Jobs and company are no dummies, of course, and should the exemption be granted, it's likely that Apple will quickly shift grounds and rely on its license agreements to stop unsanctioned apps from legitimately finding their way onto the iPhone, says Fred von Lohmann, an EFF senior attorney. "The cat-and-mouse game will still continue, but Apple would be forced to rely on its engineers instead of its lawyers," he tells me. For those of you who came of age in the last couple of decades, it's hard to imagine how completely the old AT&T stifled innovation. Ma Bell argued that adding almost anything that anyone produced to its network could damage it. In one famous case, the company was able to ban a simple device that clipped onto a telephone mouthpiece to shield conversations from prying ears. That ridiculous policy was overturned in 1968 by the Carterphone decision, but the power of the monopoly was largely unchecked until the divestiture took effect in 1984. Until then, there was so little innovation that the debut of the Princess Phone (don't ask) was seen as a big deal. We don't know what Julius Genachowski will do once he wins Senate confirmation. And we don't know how the Copyright Office will treat EFF's petition. But we do know that the stars are coming into alignment for some 21st-century monopoly-busting. Do your part by supporting the groups that are on our side. They deserve it -- and so do we. More... SW
Another nutty, lame article, from writers who should know better. If Apple has some patented licensed hardware/software, why can't they chose an exclusive dealership? One can't buy a Mercedes from your nearer by Kia dealership. A famous chef serves his best creations only at his/her restaurants. Why can't I get a Wendy's burger at MacD's? Do designer clothes get distributed everywhere? Well, the knock offs do. Yeah you can get a cheap Rolex in NYC, but only a few authorized can sell them, not every watch shop can.Really. So you can buy a knock off iPhone, but not with a multitouch screen, to mention one feature. It's a far cry from the old ATT days when there was really only one network. We have 3 major ones now. And unfortunately, two of them didn't have enough brainpower and vision in management to chose a network standard that the rest of the world is on, so now they pay the price. You can't get all the get all the neat and cool international Nokia models in the ATT-USA stores in the USA, nor in Verizon or Tmo. Take a Verzion phone; is it available around the world? No. The reverse is true for the iPhone. Tmobile in Germany is the exclusive carrier (and I bet they love it, compared to TmobileUSA); Orange is the exclusive carrier in France. The iPhone is available 84 countries now, and an exclusive carrier chosen in each. The iPhone is hardly limited globally. Regarding the applications store. Well apparently placing 3rd party software is not impossible to do, you just can' t do it through iTunes. The jailbreaking development team has no problem installing good software. How does that limit developers from getting funds? If they seriously want to go that big in distribution, then they would love to get on the appl store list. But they have to play by the rules and standards! If Intel, Microsoft, or Cisco had new drivers for their hardware or software, would you install a third party's version instead? And expect them to keep your warranty? Give you help and service? Dell makes Inspirion laptops for consumers, sold in retail; but their best laptops, the Latitude models, is only sold to businesses. They are far better built overall. (btw, you can get around that...any college student can have access to the Latitude, or even a small business of one, but you don't see them in Costco, Best Buy, etc) A few years ago Apple didn't make phones. Nothing limited their creativity to come up with a, now much copied phone concept, and an application store business model that is now also being copied. Shame on the years old Moto, Nokia's etc for keeping us locked in the box when plain old phones and haphazard software distribution. Hey, I love that apple/att sends me txt messages when updates are available. With Nokia, I usually found out randomly. My soapbox on this silly whining. This IS competition! If the FCC guy takes this on, he is opening up Pandora's box.
In general, I'm in favor of rewarding companies for innovation. Apple can certainly choose an exclusive carrier/dealership, and I don't think any of the requested rule changes are challenging that. The real questions are, once I buy my iPhone at an AT&T store, what network can I use it on and what software can I run on it? One thing I think that the commentaries overlook is that AT&T primarily cares about the former, while Apple primarily cares about the latter. The articles I've read on the original Apple/AT&T deal have emphasized that Apple forced a lot of concessions from AT&T, including direct financial concessions, in exchange for the exclusivity. Exclusivity, and the handset lock in, is what AT&T got. Without that, the licensing deal is not worth what it was when they signed up for it. I don't like locked handsets, but that's a big part of the business model right now. And the reality of 3G networks in the US is that an unlocked 3G iPhone doesn't do me much good. I can't get 3G speeds on it with T-Mobile, which negates much of the value. Until handsets are made that have all 3G frequencies, similar to quad-band phones for voice, unlocking (carrier sanctioned or not) is a bit pointless. Well, I think we need to distinguish between the OS and applications. With the OS, I basically agree with viewfly, which is why I personally wouldn't jailbreak an iPhone or buy the unlocked G1 and install hacked versions of Android on it. But those who want to do this should be able to, without breaking the law or violating some license agreement. I chose the G1, partly because it promised to be more open in terms of 3rd party software while retaining the same type of constant, supported, OS upgrades that the iPhone enjoys. The fact is that the iPhone is already a lot more powerful, flexible and, yes, open than what came before (except, arguably, Windows Mobile). 15,000 applications and 500 million downloads isn't much to complain about. Right now, the vast majority of the 13+ million iPhone owners don't seem to care that they are in a highly regulated ecosystem. I'm not sure that government should force companies to provide what consumers are not asking for (unless something like the entire planetary environment is at stake). I'm certainly not an expert on the vagaries of the DMCA, although lots of people I respect (e.g. Larry Lessig) take a dim view of it. I think that the iPhone, G1, Palm Pre, et al., will over time, change consumers' expectations of what a smartphone should be, including how open it should be. And consumers will reward vendors who provide the level of functionality and openness they are looking for. SW
We basically say the same thing. What bothers me about the internet articles and discussion, is that, unless the government forces Apple to make new variants of the iPhone, one for Verizon, and one for Tmobile, etc), simply allowing people to use the phone on other networks is not the complete solution. And I don't think the government can do that, and in the past, they have not. What you say about 3G not being universal in the US, was also true for 2G phones, when the majority were not quad band. That wasn't too long ago, and in fact, is still true: Nokia is frustrating because they still play the 'musical chair' game with the quad frequencies, often only give 3 of the set. So even if the the action does not deal with exclusive dealership (and I have my doubts), it does imply that Apple could be forced to stuff more into the phone, to make it universal...and primarily only for the US market, since Apple is on the right 'wavelength' for most of the world. I would hate to seen the form factor change because of that. So far Apple is not penalizing anyone for jailbreaking, other than causing them a lot of work. Nothing new here. So a mute point, IMO. However, I always have been an advocate for the SIM card idea, and portability. It is too bad that even for a good customer there is no unlock to be used when carriers are switched. But, I do know of one case where a person moved from US to France and got their iPhone moved too. Probably they had to move to native exclusive carrier though. Yes, expectations will change, and so with Apple, pressured via competition. And when LTE comes along for voice and data, then we may finally have a universal standard. VF
As the iPhone has proven to be a runaway success, it's great news for AT&T. I don't believe the phone needs to be available to other carriers while AT&T and Apple have their exclusivity agreement. Why should the government get involved in determining whether a phone should be available to ALL carriers just because it's popular? Our government has much bigger and more important things to worry about. The iPhone isn't for everybody. I got the 1st gen version and grew to hate it. It wasn't the phone for me, no matter how "cool" it is. So AT&T's in the catbird seat enjoying the success of being THE carrier of the iPhone. Let them be. This is what free enterprise is about. Articles talking about what can be done to make the iPhone available to other carriers are just coming from a place of envy. If you want it, AT&T has it. If you want it really, really bad, pay the ETF with your current carrier and switch to AT&T and get the iPhone. If it's that important, people will find a way, even if it costs them.
Sorry Mike but I disagree. I want the G1 but there is scant to no T-Mobile coverage in my area. I want the Treo Pre, not only is the Sprint coverage less than stellar in my area, a CDMA phone is completely out for me due to my travels. I guess the point I am trying to make is that since all providers do not work out for everyone , a person is limited by what their carrier has to offer, or atleast an unbranded, unlocked GSM phone for those willing to pay non-subcidized prices, and GSM works where they need it
I hear you Charlyee. I was speaking more in generalities. Depending on what's available in a given area, you're right, people can't always just drop their carrier and go with one that has "the" phone when they're in an area where "the" carrier has poor or non-existent service. We can't always get what we want. Whether (in regards to mobile service/phones) it's because of poor coverage or none at all (including non-native service), it is what is. This is really my point. There are many factors going on here. I just don't see the reasoning of why the government would need to get involved in this situation, even for the sake of rural carriers. Life isn't fair, so why should the wireless world be either? This is an interesting topic where we can agree to disagree. There are valid points on both sides, but ultimately what's more important? That's the question I'd love to get the answer to.
I feel your pain here, Charlyee. I kept waiting for Nokia to bring some of their killer phones to the USA and to ATT. Never happened, except for the 6230 and the 6131. When Apple came along with all the frequencies that I needed, plus a smartphone with such a innovative design, at ATT 's prices, it was a no brainer I would prefer that Apple made the phone for all networks to use, but I don't think the government should force them to do so. Rather, I'd like to see the government force the carriers to have all the same network. That would go a long way to help things along. But they wont, and I doubt they will do anything to Apple, or any other phone mgfr.
Agreed viewfly, I do not want to see the government force it nor do I think they will. Btw, the two biggest GSM providers in India Airtel & Vodaphone, both carry the iPhone although technically Airtel is Apple's partner. There are Mobile shops that carry the iPhone legally unlocked also. Since phones are not subcisidized in India and number portability just got approved, the only reason for someone to choose a provider is coverage. Interestingly Nokia started advertising the N96 a week before the iPhone launch in India. The N96 came out 2-3 weeks later and has surpassed the iPhones sales from day 1 and still going strong.
Wow do I see a transformation here, Charlyee wants a slider? But I agree I would like the Palm Pre, But I will not venture over to Sprint if AT&T is serving me well here. I also agree with Mike, I grew to dislike the iPhone. While I loved it when I first got it, there were too many things that got to be annoying which turned into a deal breaker for me.
No worries Joe, I do not want a slider. I was more giving an example of innovative devices that are tied to a provider that I have no intention of switching to. Please allow me to correct you , it is the "Palm Pre" not the "Treo Pre". A Treo is Palm's designator for all of their front facing QWERTY keyboard devices. In fact that is a Treo trademark. Palm850/v0100 Mozilla/4.0 (compatible; MSIE 6.0; Windows CE; IEMobile 7.11)
Thanks Charlyee I fixed my post, and don't be scared sliders are a nice feature in a phone. And I thought it was the Palm Pre because you made the same mistake calling it the Treo Pre in a previous post. But I did not think Mrs. Mod could make a mistake.
Oops time to make a graceful retreat Lol, I am not infallible Joe. I could however go back & change my post & your quote of it & claim you are seeing things. Sorry for the OT post, let's get back on topic. Palm850/v0100 Mozilla/4.0 (compatible; MSIE 6.0; Windows CE; IEMobile 7.11)
A minor interruption on the road back on topic with that picture for an avatar, claiming somebody else is seeing things will just not fly
I know she has a mushroom for an avatar. Anyway I miss having the full features of a smartphone, and the iPhone did have a nice web browser. But it seems AT&T has not come out with anything that piques my interest.