AT&T Taking iPhone Flak

(MoneyWatch)  Senators asking the Federal Communications Commission (FCC) to investigate handset exclusivity plans may have consumers' best interests at heart, but it looks for all the world as though they're actually trying to punish AT&T for messing up their iPhone experiences.

Senators John Kerry (D-MA), Roger Wicker (R-MS), Byron Dorgan (D-ND), and Amy Klobuchar (D-MN) signed a letter asking the FCC to review the exclusivity agreements between wireless carriers and handset manufacturers, like the one tying Apple's iPhone to AT&T (including the G1 to T-Mobile, and the Palm Pre to Sprint).

The Senators asked the FCC to review whether the exclusivity agreements restrict consumer choice and place limitations on a consumer's ability to take full advantage of handset technologies -- "such as the ability to send multimedia messages [MMS] or the ability to 'tether' a device to a computer for internet use" -- which sounds like a direct shot at AT&T's failing with regards to the iPhone.

The letter asks the FCC to "act expeditiously" in the event that the Senators' suspicions that exclusivity arrangements "unfairly restrict consumer choice or adversely impact competition in the commercial wireless marketplace" are borne out.

They're not explicitly targeting it by name of course, but AT&T has the most to lose among the four major wireless carriers if the FCC were to decide that consumers are hurt by these arrangements. Businessweek notes that since July 2008 the company has seen some 6 million iPhone activations, "40 percent of which were new to AT&T." Moreover, wireless data service revenue was up 26.3 percent in the first quarter, and two-thirds of mobile Web browsing is done on an iPhone.

Given that income from voice service actually declined in the first quarter, it's clear that AT&T depends on the iPhone for a huge portion of its revenue growth, particularly from data plans. Worse for AT&T, many iPhone customers would prefer using another carrier. Businessweek's Arik Hesseldahl says many AT&T customers "carry a second phone primarily for voice calls, and more often than not that voice phone runs on the network of Verizon Wireless."

Apple is not being a particularly loyal partner either, as executives at the vendor's recent Worldwide Developer's Conference complained openly about AT&T's lack of support for MMS and tethering. The Rural Cellular Association complained about the exclusivity arrangements as well, writing to the FCC that

The exclusive handset arrangements insisted upon by the "Big 4" carriers that prohibit smaller carriers from offering desired handsets to the communities they serve are, in many circumstances, relegating rural consumers to "second class citizens" in the wireless marketplace.

Paul Roth, president of retail sales and services for AT&T, told Computerworld that "consumers benefit from exclusive deals in three ways: innovation, lower cost and more choice."

The favored refrain of carriers is that the market provides consumers with choice, but as one comment to a posting by Stacey Higginbotham noted, the market is not working exactly as free-market warriors would have us believe:

For example, we have 4 overlapping national cell networks, but ... every carrier offers the same 5GB cap, for the exact same $60/mo. This is not how competition is supposed to work.

[Image source: CNET]