Verizon changes tune on handset exclusivity. Will AT&T follow? Will it even matter?

updated: Verizon is planning to loosen the noose on exclusivity deals with phone manufacturers, reducing the time of those deals to just a few months - a gesture to the lawmakers in Washington who are scrutinizing these exclusivity deals and what appears to be a public calling out of AT&T to follow suit.The company announced the change in its policy in a letter written to Washington lawmakers, according to a report in the Wall Street Journal today.

updated: Verizon is planning to loosen the noose on exclusivity deals with phone manufacturers, reducing the time of those deals to just a few months - a gesture to the lawmakers in Washington who are scrutinizing these exclusivity deals and what appears to be a public calling out of AT&T to follow suit.

The company announced the change in its policy in a letter written to Washington lawmakers, according to a report in the Wall Street Journal today. In that letter, Verizon Wireless CEO Lowell McAdam said that "any new exclusively arrangement we enter with handset makers will last no longer than six months – for all manufacturers and all devices."

Also see: FCC reacts, starts looking into carrier-exclusive deal

Specifically, the company plans to modify the agreements so smaller carriers with 500,000 customers or less can offer the phone models after six months.

That's important to note because the asterisks behind that modification of the agreements isn't a full lifting of the exclusivity. What Verizon Wireless is really doing is giving the green light for cool new phones to go to the smaller carriers - but not the big guys who go head-to-head with Verizon Wireless, such as AT&T.

Also see: AT&T: The iPhone's anchor

As much as this is progress on ending the ties of exclusivity between carrier and phone manufacturer, it does little to solve the bigger issue of opening those popular devices - such as the iPhone - to a larger market and giving users freedom of choice over both carrier and handset.

While it's a nice idea, I'd hope that Washington lawmakers would recognize it for what it is - a gesture that really doesn't do much to change things.

update: I chatted with Verizon spokesman Jeffrey Nelson this morning about this letter and Verizon's intentions. He noted that this is more about a continued conversation that Verizon has been having with smaller carriers - some of whom are "fierce competitors" in some markets.

He states, for the record, that this is not about calling for Apple to open the iPhone to other providers, though he acknowledges that it's flattering to hear that so many people are willing to hold off on buying the most popular phone in the marketplace until it's available on the best wireless network in the market.

He also noted that, just because some customers aren't happy with the way the offers are structured doesn't mean that they're structured the wrong way. We all know that exclusivity agreements - as explained in the letter from McAdam that's posted below - help bring a device to market faster and cheaper.

In all honesty, it doesn't make me feel any better. Bottom line: I would love to have an iPhone but you couldn't pay me to be an AT&T customer (at least not with current network conditions in my area.) So, until the iPhone is offered under Verizon (my current carrier) or a carrier other than AT&T, I can't have one.

With this news today, that doesn't change.

Here is the text of the letter send from Verizon Wireless CEO Lowell McAdam to a House subcommittee chairman:

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 DC 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 sdo 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 arrangment 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

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