AT&T Defends Exclusive Wireless Deals

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Apple iPhone 3GS

AT&T is defending itself as it is facing increased scrutiny from the government.

Sen. Herb Kohl, D-Wis., is urging the Department of Justice and the Federal Communication Commission to take a closer look at the pricing power that AT&T and Verizon Wireless have over the mobile phone market, as the companies have over 150 million subscribers between them. Additionally, Kohl wants the government to take a look at the competitive implications of exclusive handset agreements.

AT&T is the sole provider of Apple's iPhone, and it has been a major driver of new subscriber growth. The carrier reportedly is trying to extend this exclusivity a few years longer, although there are persistent rumors that Apple will eventually bring an iPhone to Verizon.

The second-largest U.S. carrier said the deal has brought "unprecedented competitive reaction," as other carriers have acquired their own exclusive smartphones such as Verizon's BlackBerry Storm, Sprint Nextel's Palm Pre, and T-Mobile's Android-powered G1.

"Exclusive handsets have provided U.S. consumers the most advanced devices in the world at distinctly affordable rates," said James Cicconi, AT&T's senior VP of legislative affairs, in a letter to Kohl. "By allowing a carrier and a manufacturer to share the enormous risks and costs of bringing an inventive but unproven new device to market, exclusive arrangements both quicken the pace of technological advancement and incentivize the carrier to offer even greater handset subsidies to its customers."

Additionally, AT&T said the mobile environment has been more competitive than ever and that's reflected in the prices. Cicconi said revenues per minute have fallen 89% since 1994, and handset prices have fallen quickly as well. For example, the original iPhone launched in 2007 at $599, but an iPhone 3G can now be had for $99.

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