The iPhone has been a wildly successful device for AT&T, helping the carrier rake in high-paying new subscribers by the hundreds of thousands.
The iPhone’s success also has been a sore spot for regional carriers, for whom it exemplifies the challenge of securing compelling handsets in a market locked out by exclusivity agreements.
Now that Google’s Android operating system has emerged as a significant challenger to the iPhone, it’s also become something of a leveling force on the issue of handset exclusivity as regional carriers add in-demand Android devices to their handset lineup. Still, regional carriers say it’s been difficult to get the devices and handset exclusivity remains a top issue for Tier 2 operators.
Cellular South, the largest privately held wireless operator in the United States, already carries three Android-based smartphones, with the HTC Desire and Samsung Galaxy S on their way.
Cincinnati Bell carries three Android devices; prepaid carrier Cricket Communications just got its first Android device; and U.S. Cellular will have its third Android device by October.
“It’s leveling the playing field,” says Alan Ferber, executive vice president of operations at U.S. Cellular.
For U.S. Cellular, getting its hands on Android devices is helping the company spruce up its device lineup after years of being overshadowed by the iPhone effect and the exclusive deals cut between other Tier 1 operators and OEMs.
“It’s a perfect fit for our overall business strategy,” Ferber says. “Android phones have really expanded our product lineup.”
Over at Cellular South, the HTC Hero made a big splash when it became the carrier’s first Android-based device last November. Less than a year later, Android-based devices have become the carrier’s top-selling smartphones, pulling ahead of the carrier’s popular BlackBerry models.
“Android is a big part of our future,” says Cellular South spokesman Jim Richmond. “I just wish we could get them quicker than we do.”
Exclusivity Deals Still Problematic
It hasn’t been easy for Cellular South and U.S. Cellular to get their hands on the devices despite their apparent success in doing so, a sentiment echoed by Cincinnati Bell. The carriers say handset exclusivity agreements continue to hamper their ability to get new Android devices in a timely manner. Cricket Communications did not reply to requests for comment by press time.
Jeff Cook, a product manager at Cellular South, says there’s hardly a level playing field when it comes to getting new devices.
“It’s very clear to us the relationships that exist between the exclusive phone manufacturers and carriers. It supersedes everything we get,” he says. “It always seems like they’re guaranteed to get one up on us in these situations… Everything is getting snapped up and everyone else is locked out.”
Regional carriers like Cellular South argue exclusivity deals are a detriment to consumer choice and competitiveness within the wireless industry and make it difficult to launch sought-after handsets in a timely manner.
Mike Vanderwoude, vice president and general manager of wireless for Cincinnati Bell, says getting the high-end devices sought after by consumers is “an enormous challenge” for the carrier.
“As a regional carrier, we don’t generate the volumes required for exclusive devices,” he says.
The carrier turned to Chicago-based OEM Commtiva for its first Android device, the Cincinnati Bell Blaze, because the smaller OEM was more willing to work with a regional operator.
CTIA, whose members include AT&T and Verizon Wireless, does not have an official position on the issue. AT&T declined to comment for this story, but said last year in a statement before the Senate Committee on Commerce, Science & Transportation that the deals promoted “innovation, product differentiation, consumer choice and competition” in the wireless market.
The Rural Cellular Association (RCA) estimates 43 of the top 50 handsets are caged behind exclusivity agreements, and the issue is still one of the RCA’s top lobbying efforts despite some recent successes with Android.
“We’re running twice as fast to get something that allows you to stand still in the marketplace,” says RCA President Steve Berry.
Even if regional carriers are able to get the devices, they often come out months after launching with Tier 1 providers, the RCA says. This reduces the devices’ appeal to customers who want to get the latest generation of a device instead of a handset that’s already been surpassed by a new version.
“It continues to be a huge impediment to our members’ ability to compete and go head-to-head in most markets with the large carriers,” Berry says.
The RCA continues to lobby the FCC on the issue and is in dialogue with both carriers and OEMs, but Berry describes it as an uphill battle. The FCC’s 2008 proposal to look into the matter has gone essentially nowhere and Verizon’s six-month limit on handset exclusivity deals has proved to be little more than a public relations exercise, according to the RCA, Cellular South and U.S. Cellular.
They say Verizon waits until the end of its six-month deadline to unlock device specifications to other carriers, which effectively turns its purported six-month limit into a 12-month wait for regional carriers because it takes another six months to get a device ready for their networks. “Lifecycles are so much shorter that by the time their exclusivity is over, you’re on to the next handset,” Ferber says.
Verizon did not reply to requests for comment about its handset exclusivity arrangements.
Samsung's Galaxy S Strategy
Despite all the difficulties faced by regional carriers confronting handset exclusivity agreements, recent steps by HTC and Samsung are a cause for hope. Samsung declined to comment on its dealings with carriers, but the OEM is taking its Galaxy S lineup to most of the country's top carriers, including Verizon, Cellular South, AT&T and U.S. Cellular.
Cellular South would like to see more manufacturers follow Samsung’s Galaxy S distribution strategy, which eschews exclusivity agreements in favor of dissemination with multiple carriers.
“We’re hopeful that we will see the pattern Samsung has started continue into 2011, but right now, we can’t say yet that we’ve seen that trend outside of the Galaxy S platform,” Cook says.
U.S. Cellular is also optimistic about Samsung’s stance on the Galaxy S. “Samsung has an innovative approach we think is good for the market,” Ferber says. “We’re optimistic that this is a trend for the future, but we have to keep pushing with handset manufacturers.”
HTC also appears to have strong relationships with both regional and national carriers. Recent device launches have ranged from the HTC Evo 4G with Sprint to the HTC Desire with U.S. Cellular. The OEM declined to give details on specific carrier relationships, but a spokesman said HTC “works to build a relationship and to deliver devices that meet the specific needs of the customer, regardless of their size or regional location.”
Gartner estimates global sales of Android devices outpaced sales of the iPhone in the second quarter of this year. It’s not exactly an even match since there are more than 20 Android-based devices on the market, but the statistic points to the undeniable popularity of the operating system with subscribers. Android isn’t going to solve the problem handset exclusivity agreements present to smaller carriers, but it’s a powerful step in the right direction.