Cell Phone Carriers and Exclusivity Agreements

Exclusivity Deals and Cell Phone Companies

Exclusivity deals are a hotly debated topic. They’re sure to heat up even more over the next year as the FCC looks into them. The FCC is looking into cell phone carrier exclusivity deals, largely in the wake over fallout of Apple’s rejection of Google’s Voice app. Apple denied the rejection was because of AT&T’s request, but it’s hard not to think it was. All the benefits from rejecting the app (which other cell phone carriers accepted) seemed directed towards AT&T. AT&T might have lost cell phone minutes and revenue if customers used Google Voice over other applications. Additionally, their 3g network struggles might have been worsened if the load were switched from the cell phone to 3g wireless connection.

What many experts expect the FCC will analyze is if exclusivity deals are good for consumers. Like most issues, this is neither black nor white. The same goes for business strategy.

Stifles Competition, Creativity

A primary argument against exclusivity deals is they stifle competition. A few years ago, certain video game publishers purchased the third-party rights to certain majors brands, primarily sports leagues such as the National Football League, Major League Baseball and the National Basketball Association. For instance, EA Sports purchased the exclusive license to make NFL games, eliminating Visual Concepts and 2k Sports from producing their popular and cheaper NFL 2k series. Since then, many consumers bemoaned that EA’s improvements have been incremental changes, lacking significant consequence. When 2k could make an NFL game, both companies were forced to step up their games to compete with each other. Additionally, 2k entered a price of $19.99 for their games as opposed to $49.99. Such a deal aimed to cut in at EA’s market share with a more affordable price. The price no doubt benefited consumers who consistently complain the price of video games is too high.

Similarly, people have argued that AT&T’s exclusive contract allows them to set high rates on iPhone plans and continue a sub-standard 3g network. While that may not be 100 percent true, it’s no doubt public perception. While the exclusivity deal does stifle competition, benefitting AT&T, it hurt their public perception some and probably costs consumer mores on monthly phone plans.

Benefits for Cellphone Consumers

In the instance of the NFL license, EA does not subsidize the price of the game in a way that benefits consumers. There is no pricing benefit for consumers. But for AT&T they do. AT&T pays to be the iPhone’s exclusive carrier in the United States. In turn, they subsidize the $500-600 costs of the actual iPhone, making it more affordable to contract. This is one of the benefits of cell phone contracts. A phone that costs too much money upfront suddenly becomes affordable over a two-year contract. The contracts works by spreading the costs to consumers out over time and allowing AT&T to make more money through the phone services it provides. In this sense, an exclusivity deal benefits consumers by keeping the price down. On the flip side, the exclusivity deal also keeps the price from being lowered by another carrier.

Are Exclusivity Contracts Good For You?

If you’re a business strategist looking at an exclusivity deal, the benefits for you are clear. If the product you’re exclusive with is a great product and you’re not paying too much upfront, then it’s a clear win for your business. Change one or two of those factors and add a little bit of bad publicity from unhappy consumers and then it may not be as worth it.

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