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THE CONSUMER WIRELESS EXPERIENCE 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JUNE 17, 2009 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JOHN D. ROCKEFELLER IV, West Virginia, Chairman 

DANIEL K. INOUYE, Hawaii 

JOHN F. KERRY, Massachusetts 

BYRON L. DORGAN, North Dakota 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

TOM UDALL, New Mexico 

MARK WARNER, Virginia 

MARK BEGICH, Alaska 

KAY BAILEY HUTCHISON, Texas, Ranking 

OLYMPIA J. SNOWE, Maine 

JOHN ENSIGN, Nevada 

JIM DEMINT, South Carolina 

JOHN THUNE, South Dakota 

ROGER F. WICKER, Mississippi 

JOHNNY ISAKSON, Georgia 

DAVID VITTER, Louisiana 

SAM BROWNBACK, Kansas 

MEL MARTINEZ, Florida 

MIKE JOHANNS, Nebraska 

ELLEN L. DONESKI, Chief of Staff 

JAMES REID, Deputy Chief of Staff 

BRUCE H. ANDREWS, General Counsel 

CHRISTINE D. KURTH, Republican Staff Director and General Counsel 

BRIAN M. HENDRICKS, Republican Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on June 17, 2009 ............................................................................... 1 

Statement of Senator Rockefeller ........................................................................... 1 

Prepared statement of Hon. Kay Bailey Hutchison submitted by Hon. 

John D. Rockefeller IV .................................................................................. 3 

Statement of Senator Begich .................................................................................. 14 

Statement of Senator Warner ................................................................................. 16 

Statement of Senator Klobuchar ............................................................................ 19 

Statement of Senator Kerry .................................................................................... 22 

Statement of Senator Wicker .................................................................................. 66 

WITNESSES

Mark Goldstein, Director, Physical Infrastructure Issues, U.S. Government 

Accountability Office ............................................................................................ 3 

Prepared statement .......................................................................................... 5 

Paul Roth, President—Retail Sales and Service, AT&T Inc. ............................... 25 

Prepared statement .......................................................................................... 26 

John E. Rooney, President and CEO, United States Cellular Corporation ........ 29 

Prepared statement .......................................................................................... 31 

Robert M. Frieden, Pioneers Chair and Professor of Telecommunications and 

Law, Penn State University ................................................................................ 36 

Prepared statement .......................................................................................... 38 

Barbara S. Esbin, Senior Fellow and Director of the Center for Communications and Competition Policy, The Progress & Freedom Foundation .............. 43 

Prepared statement .......................................................................................... 45 

Victor H. ‘‘Hu’’ Meena, President and CEO, Cellular South, Inc. ....................... 53 

Prepared statement .......................................................................................... 55 

APPENDIX

Response to written question submitted by Hon. Mark Warner to Mark Goldstein ....................................................................................................................... 77

Response to written questions submitted by Hon. Tom Udall to Paul Roth ...... 78 

Response to written question submitted to John E. Rooney by: 

Hon. Mark Warner ........................................................................................... 79 

Hon. Tom Udall ................................................................................................ 80 

Response to written questions submitted by Hon. Tom Udall to: 

Robert M. Frieden ............................................................................................ 82 

Barbara S. Esbin .............................................................................................. 84 

Victor H. ‘‘Hu’’ Meena ...................................................................................... 86 

(1) 

THE CONSUMER WIRELESS EXPERIENCE 

WEDNESDAY, JUNE 17, 2009 

U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. 

The Committee met, pursuant to notice, at 2:32 p.m. in room 

SR–253, Russell Senate Office Building. Hon. John D. Rockefeller 

IV, Chairman of the Committee, presiding. 

OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 

U.S. SENATOR FROM WEST VIRGINIA 

The CHAIRMAN. I’d just like to start off with a kind of mood setter. I’ve never used—I’ve been in the Senate for 24 years and I’ve 

never used a chart on the floor of the U.S. Senate, so my record 

is intact. However, this is special. 

This is wireless broadband, and the—if you can see, and if you 

can’t, I will make it clear—this is, as you know, not the whole of 

the United States. It’s the Eastern part of the United States. This 

is called Appalachia; this is called Northeast. This is called Maine; 

it is white. White means: nothing there. This is called West Virginia; that means: nothing there. And then a little bit in Ohio, 

that’s here. This was the—that would be Kentucky. 

But it makes—it makes a very powerful point to me, and it 

makes a point that resonates emotionally, very, very deeply with 

me. And that is, we may have hills, Vermont may have some hills 

and great beauty, as we do. But they also have people, and they 

have—they count just as much as anybody living at the most fancy 

address in New York City. So, that picture—white Maine, white 

West Virginia, me here, Olympia over there, that’s just something 

to think about. It’s just a mood setter, that’s all it was, it was a 

mood setter, nothing more than that. 

So, throughout the last decade, consumers have grown to rely on 

the mobility, convenience, and safety that wireless service can and 

does provide. Ten years ago, less than 100 million consumers had 

wireless phones. Today, the wireless industry counts more than 

270 million Americans who have that, evidently not all of them, 

however, in at least two states. 

However, in light of this success, we have a serious responsibility 

to ask what the consequences are for an industry that has grown 

up so fast and in such a short period of time. Usually things don’t 

emerge that quickly without having problems. And so, we’re going 

to discuss some of them. 

Have our regulatory models kept up? Yesterday, I had the Chairman of the FCC, for a nomination hearing, and I said if he didn’t 

2 

fix his shop, we were going to do it for him. It was a stupid thing 

for me to say, because the guy is so good he’ll have it fixed in 3 

months; he’s brilliant. But, this I’m saying to an industry. Our regulatory models or methods are, I think, wholly insufficient if they 

exist at all. 

If consumers choose to make their wireless phone their only 

phone, then do they get the service quality they need for such an 

essential service? Is the phone as good? Does it work as well? Is 

it as clear? That’s important to them. I, for one, have concerns 

about all of this and more. I have concerns that too many consumers are bound to confusing contracts, I mean brilliantly constructed, but not funny and not amusing to people who don’t necessarily spend all their time reading the fine print on prescription 

drugs or on what you may put out with your product. 

So, I have concerns that too many consumers are confounded by 

the charges on their wireless bills and the way that those charges 

are delineated, explained, or not explained. I have concerns that 

the Federal Communications Commission gets so many consumer 

complaints about wireless service, but then does so little about 

those complaints. And I’m extremely concerned, as I’ve indicated, 

I think six or seven times, for my great State of West Virginia, that 

we have second-class wireless service in too many rural communities throughout America; I broadened it to include the entire 

country. So, all of this is very unacceptable to me. And I look forward to making it better, with you. 

Let me illustrate. The map I’ve shown you and the gap in coverage is extraordinarily difficult—I know you have a witness that 

you can’t stay for, but you want to be able to say something about 

them, and—but you can’t—— 

Senator WICKER. Thank you, no, Mr. Chairman, you go right 

ahead. I—— 

The CHAIRMAN. No, I’m not going to interrupt myself. 

Senator WICKER. OK. 

The CHAIRMAN. But when the moment comes, you’re welcome to 

do that. 

Senator WICKER. OK, very good. Well, you proceed in your own 

fashion, and I’ll be fine. 

The CHAIRMAN. In my own fashion. 

So, when people tell me their wireless service is ubiquitous, I 

have my doubts, and that’s what this hearing is about. I will—I 

didn’t even see what Alaska looked like. 

Senator BEGICH. I have a map I’ll share with you later. 

The CHAIRMAN. I worry that rural States like West Virginia will 

be left behind, and I simply will not stand for that. We can remedy 

that on this committee. They can remedy that at the FCC or you 

can remedy it, but one of the three is going to happen. We’re a fair 

country, we don’t treat people unequally, and particularly in something which is growing so fast. 

I mean, if you were—if you were a diminishing industry, and you 

had all kinds of problems, then, you know, I still wouldn’t have 

that much sympathy, but you aren’t. You are growing faster than 

any industry on the face of the Earth. 

With that said, I’m grateful to all of our witnesses for being here 

today. John Kerry is going to take the second part of this hearing, 

3 

as he’s very deeply and expertly into this area. I thank you for your 

willingness to participate in what I hope will be a frank and fair 

conversation about the consumer benefits of wireless service, the 

viability of our existing regulatory models, and the pros and cons 

of handset exclusivity, which will be part of the second panel. I 

look forward to your testimony. 

I do not have a Ranking Member, and I’m sorry about that because she’s very good. 

[The prepared statement of Senator Hutchison follows:] 

PREPARED STATEMENT OF HON. KAY BAILEY HUTCHISON, U.S. SENATOR FROM TEXAS

It is critically important that this Committee listen and be responsive to the concerns expressed by consumers. Likewise, it is imperative that we avoid regulating 

where the marketplace is actively responding to consumers’ concerns. In the context 

of the wireless industry, over the last 10 years the Nation has witnessed unparalleled innovation and growth. Americans have access to more device options than 

anywhere else in the world, and the sophistication of the applications available to 

consumers continues to advance rapidly due to significant investment by manufacturers and the wireless providers. 

With regard to exclusive handset arrangements, I understand the concerns expressed by some of my colleagues; however, it is important to note that these arrangements are largely responsible for many of the exciting products in the marketplace today. The marketplace is competitive, and the introduction of a breakthrough 

new technology by one company, spurred by a competitive desire to offer consumers 

something new and exciting, in turn drives other providers to invest heavily in research and development of similar devices. That creative force provides direct benefits to consumers through rapid advances in technology. I hope we will be mindful 

of this and tread lightly when it comes to considering new regulations or restrictions 

on this industry. 

I am concerned that unnecessary regulatory intervention here could risk stifling 

the remarkable levels of private investment and job creation that the wireless industry—both service providers and equipment manufacturers—bring to our economy. Despite the financial challenges that permeate our economy, this industry continues to flourish and, as our economy rebounds, we must work to ensure that investment and job growth continues. 

This Committee has previously examined many of the issues to be discussed here 

today, and I ask my colleagues to take note of the progress that has been made, 

in the absence of regulatory intervention, in addressing these concerns expressed by 

consumers. Providers are already responding to many of these issues, and I note 

that many providers are using their responsiveness in this respect to promote their 

competitive advantages. 

No other segment of the communications industry over the last 15 years has 

shown the continual growth and innovation of the wireless industry. To date, we 

have refrained from micro-managing the business practices of this industry, and as 

we stand on the verge of the next generation of innovative wireless broadband products, the government should proceed with great caution so as to ensure the best outcome for consumers. 

So, Mr. Goldstein, the floor is yours. 

STATEMENT OF MARK GOLDSTEIN, DIRECTOR, 

PHYSICAL INFRASTRUCTURE ISSUES, 

U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. GOLDSTEIN. Thank you, Mr. Chairman, and members of the 

Committee. I’m pleased to be here today to discuss wireless consumer issues. The results I will share with you come from GAO’s 

ongoing work to examine the quality of wireless phone service and 

related FCC and State oversight efforts. Some of the findings I will 

discuss are based on our recent nationwide survey of wireless 

phone service users. 

The use of wireless phone service in the United States has risen 

dramatically during the past 20 years. Industry data show the 

4 

number of wireless phone service subscribers has grown from 3.5 

million subscribers in 1989, to about 270 million subscribers today. 

Americans increasingly rely on wireless phones as their primary or 

sole means of communication. Over one-third of households now 

use only or mostly wireless phones instead of landlines. Concerns 

have been raised in recent years about the quality of this service. 

My statement today will focus on consumers’ satisfaction and 

problems with their wireless phone service, and FCC’s efforts to assist wireless consumers with complaints. First, according to the 

preliminary results of our national survey, most consumers are satisfied with their wireless phone service, but some have experienced 

problems. Specifically, we estimate that about 84 percent of wireless users are very or somewhat satisfied with their service. However, we also estimate that 10 percent, roughly 20 million people, 

are very or somewhat dissatisfied. 

Looking beyond the overall numbers, we asked users about their 

satisfaction with five key aspects of wireless service, which were: 

billing, the terms of service contracts, the carrier’s explanation of 

their service at the point of sale, call quality, and customer service. 

Similar to our overall results, we estimate that user satisfaction 

with each of these aspects ranged from about 70 to 85 percent. 

However, we also found that the percentage of those users were 

very or somewhat dissatisfied with these specific aspects, ranged 

from about 9 to 14 percent. 

When examining specific problem areas, our survey results indicate that some users have recently experienced problems with billing, contract terms, and customer service. For example, we estimate that about one-third of those users who are responsible for 

paying for their service experience problems, at least some of the 

time, understanding their bills or had unexpected charges. Additionally, among those users who wanted to switch carriers within 

the last year, about 42 percent did not do so because of the early 

termination fee they would have to pay. Finally, among those users 

who contacted their carrier’s customer service about a problem, 21 

percent were dissatisfied with how their carrier tried to address 

their concern. 

In response to these types of consumer problems noted above, 

wireless carriers have taken a number of actions. For example, the 

major carriers now prorate their early termination fees, so that 

such costs decrease over time. Carriers also offer service options 

that do not require contracts, and the industry spends billions of 

dollars each year on infrastructure to improve call quality and coverage. 

Second, FCC assists wireless consumers by handling thousands 

of their complaints about carrier service every year, but consumers 

may lack awareness of this process and its intended outcomes. Consumers can complain to the FCC through various means, including 

contacting FCC by phone or using the agency’s website to submit 

complaints. FCC reviews these complaints, forwards them to a carrier for a response, and reviews whether the carrier responded to 

the concerns the consumers raised. 

When considering that, as our survey suggests, some consumers 

are dissatisfied even after contacting their carrier for help, the 

FCC’s efforts to handle complaints are an important means by 

5 

1For the purposes of this report, the term wireless phone service includes the provision of 

wireless phone service by cellular, broadband personal communications service, and digital specialized mobile radio carriers. Federal law and FCC regulations refer to wireless phone service 

as ‘‘commercial mobile service’’ or ‘‘commercial mobile radio service.’’ This service may generally 

be referred to as wireless phone service, mobile phone service, or cellular (or cell) phone service 

interchangeably. 2 CTIA—The Wireless Association (CTIA), a nonprofit membership organization representing 

all sectors of wireless communications, estimated there were 270.3 million wireless phone service subscribers in the United States as of December 2008. CTIA, since 1985, has surveyed its 

members semi-annually about their subscriber numbers. Industry data count a subscriber as 

any person using a wireless phone under a paid subscription. Because an individual could have 

more than one wireless phone, and thus more than one subscription, the number of wireless 

phone service users would be smaller than the number of subscribers. 

which consumers may be able to seek relief. However, our survey 

results suggest that most consumers do not know they can complain to the FCC. Specifically, when asked where they would complain if they had a problem their carrier couldn’t resolve, only 

about 13 percent of wireless users said they would complain to the 

FCC. Further, we estimated that about 34 percent do not know 

where they would complain, that is roughly translatable to about 

66 million people. 

Third, the FCC lacks goals that clearly identify the intended outcomes of its consumer complaint efforts. For example, it is not clear 

if the intended outcome of the FCC’s complaint process is resolving 

consumer problems or fostering communication between consumers 

and carriers. The agency also lacks measures to demonstrate how 

well it is achieving its intended outcomes. 

For example, the FCC has a goal to improve the customer experience with its call centers and websites, but it lacks measures of 

customer service. Consequently, consumers may not understand 

what to expect from the FCC’s complaint process, and the effectiveness of the FCC’s efforts appears unclear. They do not, for instance, 

measure the effectiveness of their own complaint process and how 

consumers are responding. 

We intend to complete our work on this engagement for the Committee this fall, which will include examination of the FCC’s oversight of wireless phone service, and the extent to which State Utility Commissions provide oversight and assist customers. We expect 

to have recommendations for the FCC when we complete our work. 

Mr. Chairman, this concludes my remarks and I’d be happy to 

answer questions you or members of the Committee have. 

[The prepared statement of Mr. Goldstein follows:] 

PREPARED STATEMENT OF MARK GOLDSTEIN, DIRECTOR, 

PHYSICAL INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

Chairman Rockefeller and Members of the Committee: 

We appreciate the opportunity to participate in this hearing to discuss wireless 

phone service consumer issues. My statement today is based on our ongoing work 

on consumers’ experience with wireless phone service and efforts by the Federal 

Communications Commission (FCC) to assist wireless phone service consumers with 

complaints.1 The use of wireless phone service in the United States has risen dramatically over the last 20 years, and Americans increasingly rely on wireless phones 

as their primary or sole means of telephone communication. According to industry 

data, wireless subscribership has grown from about 3.5 million subscribers in the 

United States in 1989 to about 270 million today (see fig. 1).2 About 82 percent of 

6 

3The Centers for Disease Control’s National Center for Health Statistics estimated that as 

of December 2008, about 20 percent of American households had only wireless phones and another 15 percent that also had landlines received all or most calls on wireless phones. 4 47 U.S.C. § 332(c). FCC was given the authority to refrain from applying certain provisions 

of the Communications Act of 1934 to wireless carriers that it found to be unnecessary under 

specific statutory criteria. For example, FCC did not apply provisions that restricted market 

entry or exit. 5 47 C.F.R. § 20.15(a). Section 201(b) of the Communications Act of 1934 requires just and reasonable rates and 202(a) prohibits rates that are unreasonably discriminatory. 47 U.S.C. §§ 201, 

202. A common carrier, such as a telephone company, provides communications services for hire 

to the public. 6 47 C.F.R. §§ 1.711–1.736. 7See 47 U.S.C. § 332(c)(3)(A). The House Committee Report on the Omnibus Budget Reconciliation Act of 1993, in reference to section 332(c)(3)(A), explained that ‘‘other terms and conditions’’ of wireless service, which are regulated by the states, ‘‘include such matters as customer 

billing information and practices and billing disputes and other consumer protection matters.’’ 

H.R. Rep. No. 103–111 (1993). Under § 332(c)(3)(A) states are preempted from regulating rates 

and market entry but are not precluded from regulating the other terms and conditions of service. 

adults now live in households with wireless phone service, and 35 percent of households use wireless phones as their primary or only means of telephone service.3

Source: CTIA—The Wireless Association, used by permission. 

Note: Industry data count a subscriber as any person using a wireless phone under a paid 

subscription. Because an individual could have more than one wireless phone, and thus more 

than one subscription, the number of wireless phone service users would be smaller than the 

number of subscribers. 

Concerns have been raised in recent years about the quality of wireless phone 

service, including specific concerns about billing, customer service, and carriers’ contract terms, such as fees carriers charge customers for terminating their service before the end of the contract period (known as early termination fees). Under Federal 

law, FCC is directed to foster a competitive wireless marketplace and the agency 

has the flexibility to exempt wireless carriers from regulation if it determines that 

doing so promotes competition and is in the public interest.4 FCC’s rules require 

that wireless carriers, like other common carriers, provide their services to consumers at a reasonable rate and in a manner that is not discriminatory.5 Its rules 

also establish procedures for FCC to work with carriers to address consumer complaints.6 States, which have traditionally regulated local telephone service, also retain some authority under Federal law to regulate the terms and conditions of wireless phone service, and many address consumer complaints.7

My testimony today discusses: (1) consumers’ satisfaction with wireless phone 

service and problems they have experienced with this service and (2) FCC’s efforts 

to address consumers’ complaints about this service. This testimony presents preliminary observations based on ongoing work we expect to complete this Fall for this 

committee and the House Subcommittee on Communications, Technology, and the 

Internet. This ongoing work will also examine FCC’s wireless phone service oversight efforts and the extent to which state utility commissions oversee wireless 

phone service and assist consumers. 

To determine consumers’ satisfaction with their wireless phone service and identify problems consumers have experienced with this service, we surveyed a nationally representative, randomly selected sample of adult wireless phone users aged 18 

or older who had cell phone service in 2008, from which we completed 1,143 interVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00010 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE

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7 

8The response rate was calculated as 32 percent using a survey research industry accepted 

method; however, since response rates can be calculated in other ways, the response rate could 

be different. We use the terms ‘‘user’’ and ‘‘consumer’’ in our report. ‘‘User’’ refers specifically 

to the population sampled for our survey, while ‘‘consumer’’ is used more generally. 9We selected these states based on their various geography, populations, and regions, and 

their varying approaches to providing wireless phone service oversight based on information obtained from national organizations representing state agency officials. 10 Estimates we present based on our survey results have a margin of error of less than 5 

percent unless otherwise noted. 11The stakeholders we interviewed represent consumer organizations, state agencies in selected states, national organizations that represent state officials, wireless carriers, industry associations, and FCC. 

views; 8 interviewed stakeholders from various organizations, including national consumer and state agency organizations, state agencies in three selected states (California, Nebraska, and West Virginia),9 wireless industry associations, the four major 

wireless carriers and two selected smaller carriers, and FCC; and reviewed documents obtained from these sources. To determine how FCC addresses consumers’ 

complaints, we interviewed FCC officials about these activities and reviewed related 

documentation obtained from the agency. We also reviewed relevant laws, regulations, and procedures and FCC’s quarterly complaint reports, strategic plan, and 

budget, including the agency’s performance goals and measures (additional information about our scope and methodology appears in app. I). We are conducting this 

performance audit, which began in September 2008, in accordance with generally 

accepted government auditing standards. Those standards require that we plan and 

perform the audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings based on our audit objectives. We believe that the evidence 

obtained provides a reasonable basis for our findings based on our audit objectives. 

According to Our National Survey, Most Consumers Are Satisfied with 

Their Wireless Phone Service, but Some Have Experienced Problems 

According to our survey results, overall, wireless phone service consumers are satisfied with the service they receive. Specifically, we estimate that 84 percent of 

adult wireless phone users are very or somewhat satisfied with their wireless phone 

service, and that approximately 10 percent are very or somewhat dissatisfied with 

their service (see fig. 2).10

Source: GAO survey. 

Note: GAO conducted its survey of adult wireless phone users from February 23, 2009, 

through April 5, 2009. All estimates presented in this figure have a margin of error of less than 

plus or minus 5 percentage points. The percentage of users very or somewhat dissatisfied with 

wireless phone service is 10 percent but does not add up to such in the figure due to rounding. 

‘‘Neither’’ refers to respondents who indicated they were neither satisfied nor dissatisfied. Additionally, we estimate that less than 1 percent of users had no opinion or did not know about 

their overall satisfaction. Numbers may not sum to 100 because of rounding. 

Stakeholders we interviewed identified a number of areas in which consumers 

have reported problems with their wireless phone service in recent years.11 On the 


617GAO2.eps
8 

12 Unsolicited telemarketing on wireless phones was also cited as a key area of consumer concern by the stakeholders we interviewed. Congress passed the Telecommunications Consumer 

Protection Act (TCPA), as well as the Controlling the Assault of Non-Solicited Pornography and 

Marketing Act (CANSPAM), to protect consumers against unsolicited telemarketing. Because 

such problems generally deal with telemarketers, not the services provided by wireless carriers, 

we did not examine this issue within the scope of our review. However, from our survey, we 

estimate that unsolicited calls or text messages to users’ wireless phones are not a problem at 

all for 48 percent of wireless phone users, a little problem for 24 percent, somewhat of a problem 

for 10 percent, and a moderate or major problem for 17 percent. 

basis of these interviews and related documents, we identified five key areas of concern (see table 1).12

Table 1.—Key Areas of Consumer Concern Identified by Stakeholders 

Key area of concern Nature of concern 

Billing • Complexity of billing statements leads to lack of consumer understanding. 

• Bills contain unexpected charges and errors. 

Terms of service contract • Consumers are subject to fees for canceling their service before the end of their 

contract term (early termination fees), regardless of their reason for wanting to 

terminate service, effectively locking consumers into their contracts. 

• Consumers are not given enough time to try out their service before having to 

commit to the contract. 

• Carriers extend contracts when consumers request service changes. 

Explanation of service • Key aspects of service, such as rates and coverage, are not clearly explained to 

consumers at the point of sale (when they sign up for the service). 

Call quality • Consumers experience dropped or blocked calls as well as noise on calls that 

makes hearing calls difficult. 

• Consumers experience poor coverage, which in rural areas may be the result of 

lack of infrastructure and in urban areas stems from lack of capacity to manage the volume of calls at peak times. 

Customer service • Consumers experience problems such as long waits, ineffective assistance, and 

insufficient resolution to problems. 

Source: GAO analysis. 

Based on our survey results, we estimate that most wireless phone users are satisfied with these five specific aspects of service; however, the percentages of those 

very or somewhat dissatisfied range from about 9 to 14 percent, depending on the 

specific aspect of service (see table 2). For example, we estimate that 14 percent of 

wireless phone users are dissatisfied with the terms of their service contract. We 

also estimate that 85 percent of wireless phone users are very or somewhat satisfied 

with call quality, while the percentages of those very or somewhat satisfied with 

billing, contract terms, carrier’s explanation of key aspects of service at the point 

of sale, and customer service range from about 70 to 76 percent. Additionally, we 

estimate that most wireless phone users are satisfied with specific dimensions of 

call quality. For example, we estimate that 86 to 89 percent of wireless phone users 

are satisfied with their coverage when using their wireless phones at home, at work, 

or in their vehicle. 

Table 2.—Estimated Levels of Satisfaction with Specific Aspects of Wireless Phone Service, by Percentage 

Aspect of service 

Level of satisfaction 

Satisfied (very 

or somewhat) 

Dissatisfied (very or somewhat) Neither satisfied or 

dissatisfied 

No opinion/no 

basis to judge 

Billing 76 12 4 8 

Terms of service contract 72 14 6 8 

Explanation of service 76 9 5 10 

Call quality 85 11 4 <1 

Customer service 70 12 6 12 

Source: GAO survey. 

Note: GAO conducted its survey of adult wireless phone users from February 23, 2009, through April 5, 2009. All estimates presented in this table have a margin of error of less than plus or minus 5 percentage points. All respondents were asked about their level of satisfaction with each of these five aspects of wireless phone service. Respondents were also asked not to indicate a level of satisfaction if they had no basis to judge a particular aspect of service. For example, a respondent may have no basis to judge satis- faction with the contract terms if he or she did not sign the contract under which they have service. Percentages may not sum to 100 due to rounding. 

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13We estimate that about 83 percent of wireless users are responsible for paying for their 

wireless phone service. Respondents were asked about the extent of such billing problems since 

the beginning of 2008. 14We estimate that about 44 percent of wireless users contacted customer service about a 

problem since the beginning of 2008. 15We estimate that about 19 percent of wireless users wanted to switch carriers since the beginning of 2008 but did not do so. The 42 percent of these wireless phone users who wanted 

to switch but did not because of the early termination fee has a margin of error of 7.4 percent. 

Additionally, among the wireless users who did not indicate they were satisfied with the terms 

of their wireless phone service, we estimate that 25 percent were not satisfied because of early 

termination fees. Wireless users were asked about their satisfaction with the terms of their service in general, not specifically since the beginning of 2008. The margin of error for the estimate 

of wireless phone users that were not satisfied with the terms of their service because of early 

termination fees is 6.7 percent. 16 In addition, in 2003, the industry adopted a voluntary code that includes a number of requirements carriers that sign the code agree to abide by. These requirements include disclosing 

to consumers at the point of sale and on their websites certain service terms and rates, providing a 14-day trial period before customers must commit to contracts, providing access to customer service, and separately identifying certain fees and charges on customers’ bills, among 

other requirements. Carriers submit information annually to CTIA for review to demonstrate 

compliance with the code. 17 In addition to addressing informal complaints, FCC also assists wireless consumers through 

other outreach and education efforts, such as answering consumer inquiries and publishing fact 

sheets about wireless phone service issues and complaints. The information presented here represents a description of FCC’s process for handling informal consumer complaints. The agency 

also has a formal complaint process, and consumers may file formal complaints if they are not 

satisfied with the results of filing an informal complaint. However, there is a cost for filing a 

formal complaint, the process for doing so is similar to a court proceeding, and it is governed 

by specific rules about what information must be submitted. According to FCC, the formal complaint process is typically used by corporations, not consumers, and FCC has held only one proceeding in response to a consumer’s formal wireless complaint within the past 5 years. 

ice since the beginning of 2008. For example, we estimate that during this time 

about 34 percent of wireless phone users responsible for paying for their service received unexpected charges, and about 31 percent had difficulty understanding their 

bill at least some of the time.13 Also during this time, almost one-third of wireless 

users who contacted customer service about a problem did so because of problems 

related to billing.14 Further, among wireless users who wanted to switch carriers 

during this time but did not do so, we estimate that 42 percent did not switch because they did not want to pay an early termination fee.15 Finally, among those 

users who contacted customer service, we estimate that 21 percent were very or 

somewhat dissatisfied with how the carrier handled the problem. 

In response to the areas of consumer concern noted above, wireless carriers have 

taken a number of actions in recent years. For example, officials from the four major 

carriers, Verizon Wireless, AT&T, Sprint Nextel, and T-Mobile, reported taking actions such as prorating their early termination fees, offering service options without 

contracts, and providing web-based tools consumers can use to research a carrier’s 

coverage area, among other efforts.16 In addition, according to CTIA—The Wireless 

Association, the wireless industry spent an average of $24 billion annually between 

2001 and 2007 on infrastructure and equipment to improve call quality and coverage. Also, carriers told us they use information from third-party tests and customer feedback to determine their network and service performance and identify 

needed improvements. 

FCC Assists Consumers with Wireless Complaints but Lacks Clear Goals 

and Outcome Measures for These Efforts 

FCC assists wireless consumers by handling thousands of their informal complaints each year,17 but consumers may lack awareness of this process and its intended outcomes. FCC has a process to receive consumers’ complaints and forward 

them to carriers for a response. However, the results of our consumer survey suggest that most consumers are not aware of FCC’s complaint process. Furthermore, 

FCC has not articulated goals that clearly identify the intended outcomes of its efforts to address wireless consumer complaints and lacks related measures. As a consequence, FCC’s effectiveness in assisting wireless consumers with complaints is unclear and consumers may not understand what to expect from FCC’s complaint process. 

FCC Assists Consumers with Wireless Complaints 

Each year, FCC receives thousands of complaints submitted by consumers about 

problems with telecommunications services, including wireless service, via its 

10 

18 In addition to wireless complaints, FCC reported receiving complaints about wireline services, cable and satellite services, and television and radio broadcasting. To be considered a complaint by FCC, a consumer’s contact must identify a particular entity under FCC’s jurisdiction, 

allege harm or injury, and seek relief. Other consumer contacts seeking information about matters under FCC’s jurisdiction are inquiries. 19FCC reports quarterly on the number and types of consumer complaints it receives. Although the agency includes complaint totals in these reports, FCC officials explained that the 

figures do not represent the total number of complaints received—only the totals of the top categories reported. We are conducting an analysis of FCC’s complaint data that we intend to report on at a later date. FCC also reported receiving over 42,000 wireless complaints in 2008 

about unsolicited telemarketing. 20Service-related issues could include problems related to call quality, coverage, and roaming. 21 In addition to addressing complaints, FCC also assists wireless consumers through other 

outreach and education efforts, such as answering consumer inquiries and publishing fact sheets 

about wireless phone service issues and complaints. 22 According to FCC officials, if the response is not sufficient, FCC contacts the carrier again. 

FCC may also close a complaint for other reasons and not serve it to a carrier, such as if a 

consumer does not submit complete information with the complaint, if the complaint is not related to an issue within FCC’s jurisdiction, if the consumer withdraws the complaint, or if FCC 

rejects the complaint because it is invalid, incomplete, a duplicate, a false submission, or submitted on the wrong form, among other reasons. According to FCC officials, a valid complaint 

that can be served to a carrier must identify a particular carrier, allege harm, and seek relief. 23The mediation process described here is informal and conducted by FCC’s Consumer and 

Governmental Affairs Bureau. FCC officials told us that the agency’s Enforcement Bureau has 

a separate formal mediation process that handles resolving complaints by market participants, 

entities, or organizations against common carriers. 24This Act is the centerpiece of a statutory framework that Congress put in place during the 

1990s to help resolve the long-standing management problems that have undermined the Federal Government’s efficiency and effectiveness and to provide greater accountability for results. 

See GAO, Results-Oriented Government: GPRA Has Established a Solid Foundation for Achieving Greater Results, GAO–04–38 (Washington, D.C.: Mar. 10, 2004). 

website, telephone, e-mail, mail, or fax.18 In 2008, the agency received over 430,000 

informal complaints from consumers, including over 19,000 complaints related to 

services provided by wireless carriers.19 The top categories of wireless complaints 

FCC reported receiving were for problems related to billing and rates, service-related issues, and contract early termination fees.20 According to FCC officials, the 

agency informs consumers they may complain to FCC about problems with their 

wireless service or other telecommunications services by providing information on 

how to complain to the agency on its website and in fact sheets that are distributed 

to consumers through its website and other methods.21

After reviewing a complaint received, FCC responds by sending the consumer a 

letter about the complaint’s status. If FCC determines that the complaint should be 

forwarded to the carrier for a response, the agency sends the complaint to the carrier and asks the carrier to respond to FCC and the consumer within 30 days. Once 

FCC receives a response from the carrier, the agency reviews the response, and if 

FCC determines the response has addressed the consumer’s complaint, marks the 

complaint as closed.22 FCC officials told us they consider a carrier’s response to be 

sufficient if it responds to the issue raised in the consumer’s complaint; however, 

such a response may not address the problem to the consumer’s satisfaction. When 

FCC considers a complaint to be closed, it sends another letter to the consumer, 

which states that the consumer can call FCC with further questions or, if not satisfied with the carrier’s response, can file a formal complaint. FCC officials also told 

us that if a consumer is not satisfied, the consumer can request that FCC mediate 

with the carrier on his or her behalf; however, the letter FCC sends to a consumer 

whose complaint has been closed does not indicate this is an option.23

Since, based on our survey results, we estimate that about 21 percent of wireless 

phone users who contacted their carriers’ customer service were dissatisfied with 

how their carriers addressed their concerns, FCC’s efforts to handle complaints are 

an important means by which consumers may be able to get assistance in resolving 

their problems. However, the results of our consumer survey suggest that most consumers would not complain to FCC if they have a problem that their carrier did 

not resolve. Specifically, we estimate that 13 percent of wireless phone users would 

complain to FCC if they had such a problem and that 34 percent do not know where 

they could complain. 

FCC Lacks Clear Goals and Measures for Its Complaint Handling Efforts 

FCC has not articulated goals that clearly identify intended outcomes for its efforts to address wireless consumer complaints and lacks measures to demonstrate 

how well it is achieving intended outcomes. The Government Performance and Results Act of 1993 (GPRA) requires an agency to establish outcome-related performance goals for the major functions of the agency.24 GPRA also requires an agency 

11 

25 31 U.S.C. § 1115. 26This goal has a separate measure for responding to TCPA-related complaints (junk fax and 

do-not-call list complaints) within 20 days. 27For this subgoal, FCC does have a measure to inform consumers with TCPA-related complaints about the status of their complaints within 20 days and to refer all such eligible complaints to the Enforcement Bureau. 28FCC officials told us they do take steps to review the quality of their complaint handling 

efforts internally, such as having supervisors review complaints and monitor staff performance. 29 An agency’s complaint-handling effort may lead to various resolution outcomes for the consumer. For example, we reported that the Office of the Comptroller of the Currency’s process 

for resolving consumers’ complaints about banks could lead to the agency providing the consumer with additional information, a complaint being withdrawn or tabled because of litigation, 

or the agency determining that the bank did, or did not, make an error. See GAO, OCC Consumer Assistance: Process Is Similar to That of Other Regulators but Could Be Improved by Enhanced Outreach, GAO–06–93 (Washington, D.C.: Feb. 23, 2006). 30FCC does track its closures of consumer complaints and the amount of money that is refunded to consumers as a result of its complaint handling efforts. 31We have identified inadequate performance management practices as a recurring problem 

in our recent reviews of FCC programs. Specifically, we reported in March 2009 that FCC’s Erate program for universal service lacked performance goals and adequate performance measures; in June 2008 that the high-cost universal service program also lacked performance goals 

Continued 

to develop performance indicators for measuring the relevant outcomes of each program activity in order for the agency to demonstrate how well it is achieving its 

goals.25

FCC’s key goal related to its consumer complaint efforts is to ‘‘work to inform 

American consumers about their rights and responsibilities in the competitive marketplace.’’ Under this key goal, one of FCC’s subgoals is to ‘‘facilitate informed 

choice in the competitive telecommunications marketplace.’’ According to FCC officials, ‘‘informed choice’’ means consumers are informed about how a particular telecommunications market works, what general services are offered, and what to expect when they buy a service. FCC’s measure pertaining to its efforts to address 

wireless consumer complaints under this subgoal is to respond to consumers’ general complaints within 30 days.26 According to FCC officials, this measure reflects 

the time it takes FCC to initially respond to the consumer about the status of a 

complaint. This measure does not clearly or fully demonstrate FCC’s achievement 

of its goal to facilitate informed consumer choice. Additionally, this is a measure of 

a program output, or activity, rather than of the outcome the agency is trying to 

achieve. Another subgoal is to ‘‘improve customer experience with FCC’s call centers 

and website.’’ While this subgoal does identify an intended outcome, FCC does not 

have a measure related to this outcome that pertains to consumers who complain 

about services provided by their wireless carrier.27 FCC officials told us that they 

do not measure customer experience with the agency’s call centers and websites, but 

sometimes receive anecdotal information from customers about their experiences.28

We have previously reported that to better articulate results, agencies should create a set of performance goals and measures that address important dimensions of 

program performance. FCC’s goals may not represent all of the important dimensions of FCC’s performance in addressing consumer complaints. A logical outcome 

of handling complaints is resolving problems, or, if a problem cannot be resolved, 

helping the consumer understand why that is the case.29 However, it is not clear 

whether resolving problems is an intended outcome of FCC’s consumer complaint 

efforts. While FCC’s goals in this area indicate that informing consumers is a goal 

of the agency, some information from FCC implies that another intended outcome 

of these efforts is to resolve consumers’ problems. For example, FCC’s fact sheets 

state that consumers can file a complaint with FCC if they are unable to resolve 

a problem directly with their carrier. This may lead consumers to believe that FCC 

will assist them in obtaining a resolution. However, FCC officials told us that the 

agency’s role in addressing complaints, as outlined in the law, is to facilitate communication between the consumer and the carrier and that FCC lacks the authority 

to compel a carrier to take action to satisfy many consumer concerns. Thus, it is 

not clear if the intended outcome of FCC’s complaint handling efforts is resolving 

consumer problems, fostering communication between consumers and carriers, or 

both. Furthermore, FCC has not established measures of its effectiveness in either 

resolving consumer problems or fostering communication between consumers and 

carriers.30 For example, FCC does not measure consumer satisfaction with its complaint-handling efforts. Without clear outcome-related goals and measures linked to 

those goals, the purpose and effectiveness of these efforts are unclear and the agency’s accountability for its performance is limited.31 Moreover, consumers may not 

understand what to expect from FCC’s complaint process. 

12 

and measures; in February 2008 that FCC’s enforcement efforts lacked measurable goals and 

related performance measures, as well as management tools to fully measure outcomes; and in 

April 2006 that FCC’s efforts to address junk fax complaints lacked long-term and annual goals 

for monitoring and enforcement, as well as analysis needed to demonstrate the effectiveness of 

current enforcement measures. See GAO, Telecommunications: Long-Term Strategic Vision 

Would Help Ensure Targeting of E-rate Funds to Highest-Priority Uses, GAO–09–253 (Washington, D.C.: Mar. 27, 2009); Telecommunications: FCC Needs to Improve Performance Management and Strengthen Oversight of the High-Cost Program, GAO–08–633 (Washington, D.C.: June 

13, 2008); Telecommunications: FCC Has Made Some Progress in the Management of its Enforcement Program but Faces Limitations, and Additional Actions Are Needed, GAO–08–125 (Washington, D.C.: Feb. 15, 2008); and Telecommunications: Weaknesses in Procedures and Performance Management Hinder Junk Fax Enforcement, GAO–06–425 (Washington, D.C.: Apr. 5, 

2006). 1 U.S. Census Bureau, Current Population Survey: March 2008 Annual Social and Economic 

Supplement (Washington, D.C.: Feb. 5, 2009); S.J. Blumberg and J.V. Luke, Wireless substitution: Early release of estimates from the National Health Interview Survey, January–June 

2008, Centers for Disease Control, National Center for Health Statistics (Available from: http:// 

www.cdc.gov/nchs/nhis.htm.: Dec. 17, 2008). 

Chairman Rockefeller and members of the Committee, this concludes my prepared 

statement. Our future work, which we expect to complete this Fall, will provide 

more definitive information about many of the matters covered in my statement 

today, including detailed information about oversight of wireless phone service carried out by FCC and state utility commissions. We also expect to make recommendations at that time. I would be pleased to respond to any questions that you 

or other members of the Committee might have. 

APPENDIX I: SCOPE AND METHODOLOGY

To obtain information about consumers’ satisfaction and problems with their wireless phone service, we commissioned a telephone survey of the U.S. adult population 

of wireless phone service users. Our aim was to produce nationally representative 

estimates of adult wireless phone service users’: (1) satisfaction with wireless service 

overall and with specific aspects of service, including billing, terms of service, carriers’ explanation of key aspects of service, call quality and coverage, and customer 

service; (2) frequency of problems with call quality and billing; (3) desire to switch 

carriers and barriers to switching; and (4) knowledge of where to complain about 

problems. Percentage estimates have a margin of error of less than 5 percentage 

points unless otherwise noted. We conducted this survey of the American public 

from February 23, 2009, through April 5, 2009. A total of 1,143 completed interviews were collected, and calls were made to all 50 states. Our sampling approach 

included randomly contacting potential respondents using both landline and cell 

phone telephone numbers. Using these two sampling frames provided us with a 

more comprehensive coverage of adult cell phone users. 

Because we followed a probability procedure based on random selections, our sample is only one of a large number of samples that we might have drawn. Since each 

sample could have provided different estimates, we express our confidence in the 

precision of our particular sample’s results as a 95 percent confidence interval. This 

is the interval that would contain the actual population value for 95 percent of the 

samples we could have drawn. As a result, we are 95 percent confident that each 

of the confidence intervals in this report will include the true values in the study 

population. Each sampled adult was subsequently weighted in the analysis to account statistically for all the adult cell phone users of the population. The final 

weight applied to each responding adult cell phone user included an adjustment for 

the overlap in the two sampling frames, a raking adjustment to align the weighted 

sample to the known population distributions from the 2009 supplement of the U.S. 

Census Bureau’s Current Population Survey and the Centers for Disease Control’s 

2008 National Health Interview Survey, and an expansion weight to ensure the 

total number of weighted adults represent an estimated adult population eligible for 

this study.1

Telephone surveys require assumptions about the disposition of noncontacted 

sample households that meet certain standards. These assumptions affect the response rate calculation. For this survey the response rate was calculated using the 

American Association of Public Opinion Research (AAPOR) Response Rate 3. Based 

on these assumptions, the response rate for the survey was 32 percent; however, the 

response rate could be lower if different assumptions had been made and might also 

be different if calculated using a different method. We used random digit dial (RDD) 

sampling frames that include both listed and unlisted landline numbers from working blocks of numbers in the United States. The RDD sampling frame approach cannot provide any coverage of the increasing number of cell-phone-only households and 

13 

2We met with the national organizations AARP, Consumers Union, and the Council of Better 

Business Bureaus. We also met with The Utility Reform Network and Consumer Action in California. 3The National Association of Attorneys General, the National Association of Regulatory Utility Commissioners, and the National Association of State Utility Consumer Advocates. 4 AT&T, Sprint Nextel, T-Mobile, and Verizon Wireless. 

5The two rural carriers, nTelos and Viaero, were selected because they operated in two of the 

states from which we interviewed state officials based on referrals from those officials. 6 CTIA—The Wireless Association and the Rural Cellular Association. 

limited coverage of cell-phone-mostly households (i.e., households that receive most 

of their calls on cell phones in spite of having a landline). Because of the importance 

of reaching such households for this survey about wireless phone service, we also 

used an RDD cell phone sampling frame. The RDD cell phone sampling frame was 

randomly generated from blocks of phone numbers that are dedicated to cellular 

service. About 43 percent of the completed interviews were from the RDD cell phone 

sample. 

Because many households contain more than one potential respondent, obtaining 

an unbiased sample from an RDD frame of landline numbers requires interviewing 

a randomly selected respondent from among all potential respondents within the 

sampled household (as opposed to always interviewing the individual who initially 

answers the phone). We obtained an unbiased sample by using the most recent 

birthday method, in which the interviewer asks to speak to the household member 

aged 18 or older with a wireless phone who had the most recent birthday. If the 

respondent who was identified as the member of the household with the most recent 

birthday was unavailable to talk and asked to schedule a callback, the call representative recorded the person’s name and preferred telephone number for the callback. There were also cases when a respondent from the cell phone sample asked 

to be called back on his or her landline. These respondents, if they completed the 

survey, were considered a completed interview from the cell phone sample. There 

were no respondent selection criteria for the cell phone sample; each number dialed 

from the cell phone sample was assumed to be a cell phone number, and each cell 

phone was assumed to have only one possible respondent to contact. 

The results of this survey reflect wireless phone users’ experience with their current or most recent wireless phone service from the beginning of 2008 through the 

time they were surveyed. Not all questions were asked of all respondents. For example, questions about the prevalence of billing problems were asked only of respondents who indicated they were solely or jointly responsible for paying for their service. Additionally, satisfaction with wireless coverage for particular locations (i.e., at 

home, at work, and in a vehicle) was calculated only among respondents who indicated they used their wireless phone service in those locations. 

To identify the type and nature of problems consumers have experienced in recent 

years with their wireless phone service, we interviewed officials from the Federal 

Communications Commission (FCC), consumer organizations,2 national organizations that represent state agency officials,3 and state agency officials from three selected states—California, Nebraska, and West Virginia—representing utility commissions, offices of consumer advocates, and offices of attorneys general. We selected 

these states based on their various geography, populations, and region, and their 

varying approaches to providing wireless phone service oversight based on information obtained from national organizations representing state agency officials. We 

also interviewed officials from the four major wireless carriers,4 two selected smaller 

carriers that serve mostly rural areas,5 and wireless industry associations.6 In addition, we reviewed documents obtained from some of these sources and FCC’s recent 

quarterly reports about consumer complaints. We also used the information obtained from these stakeholders to develop some of the questions in the consumer 

survey. 

To determine how FCC addresses consumer complaints, we interviewed FCC officials about these activities and reviewed related documentation obtained from these 

officials. We also reviewed relevant laws, regulations, and procedures, as well as 

FCC’s quarterly complaint reports, strategic plan, and budget with performance 

goals and measures. In addition, we reviewed the Government Performance and Results Act of 1993 requirements and our prior recommendations on performance goals 

and measures and determined whether FCC’s efforts to measure the performance 

of its consumer assistance efforts are consistent with these requirements and recommendations. 

The CHAIRMAN. Thank you, Mr. Goldstein. You are right on time. 

Mr. GOLDSTEIN. Thank you, sir. 

14 

The CHAIRMAN. We don’t know how to adjust to that around 

here. 

[Laughter.] 

Mr. GOLDSTEIN. I have done this before. 

The CHAIRMAN. I want to beg my two colleagues, Senator Begich 

and Senator Warner, that Senator Wicker has to go to an important meeting, but he has somebody who is in the second panel, 

from his State, that he wishes to introduce, and I wanted to give 

him the chance to do so. 

Senator WICKER. Actually, I’m—I think what I’ll do—I appreciate 

that, Mr. Chairman—is I’ll attend a very brief meeting and come 

back, and I think I’ll be able to mention my constituent from Mississippi at that point. Thank you, sir. 

The CHAIRMAN. Well, at least everybody knows how gracious I 

am. 

[Laughter.] 

Senator WICKER. We’ve known that for quite a number of years, 

Mr. Chairman. 

The CHAIRMAN. Senator Begich? 

STATEMENT OF HON. MARK BEGICH, 

U.S. SENATOR FROM ALASKA 

Senator BEGICH. Thank you, Mr. Chairman, and I will be leaving 

in just a few minutes because I have to preside on the floor. 

But let me, if I can, I have a couple of questions about this, and 

thank you for doing this work on behalf of the Committee. You had 

indicated in October, you’ll be completed and final with recommendations. 

Mr. GOLDSTEIN. We expect by November, sir. 

Senator BEGICH. By November, I’m sorry, but with recommendations? 

Mr. GOLDSTEIN. That’s correct. 

Senator BEGICH. Will that be—you had mentioned recommendations, I think to FCC, but also will you have any legislative recommendations, or is it really just focused on regulatory changes 

within the FCC? 

Mr. GOLDSTEIN. It’s too early to really tell the nature of the 

changes. We will clearly have recommendations, I suspect, for FCC, 

but depending on the nature of our findings and results, we might 

have legislative recommendations, as well. We sometimes do. 

Senator BEGICH. And, can you tell me, just remind me from the 

report, the universe of survey that you used and what size of group 

and how did you do that, just very quickly. 

Mr. GOLDSTEIN. The survey was based on a national sample of 

1,143 randomly chosen Americans, all adults who use cell phones. 

Senator BEGICH. OK. Did you—in your process, did you identify 

within the survey sample, I’m trying to figure out how to say this, 

you know, when you do a survey sample—a political one—you’re 

trying to get the demographics. In this case, the demographics are 

users—or types of companies that they use. Did you have any of 

that demographic data that you could use in this 1,100-plus sample? In other words, could you tell, you know, it’s predominantly 

one company—or was it smaller companies, or anything of that nature? 

15 

Mr. GOLDSTEIN. We did not include in our survey any questions 

about specific companies that the consumers used. It was more to 

get at the quality experience they’ve had in dealing with calls and 

locations and billing and things like that. But we did not specifically discuss companies. 

Senator BEGICH. Would you, through your process so far, do you 

think there—and I guess this is what I’m trying to get to—the second panel will have more of this discussion I think, because you 

have smaller carriers—or smaller companies and then large nationals. Will your survey show or have some discussion of any variance 

in how people feel about, you know, a national company versus a 

smaller company, that they get service from? 

Is that—do you see where I’m going? I’m trying to—because if 

you don’t have that differential—if 1,100 folks have been surveyed, 

1,100-plus, but it’s all from predominantly one company or two 

companies, they might have one view versus a larger spectrum. 

Mr. GOLDSTEIN. I understand, sir. Since it was random across 

the United States, they had an equal opportunity really of getting 

picked up with any particular carrier. I recognize that some carriers are larger and have more dominant positions, but we did not 

account for that in the survey itself. 

Senator BEGICH. Is that something, as you get the analysis, you 

kind of put in the back of your mind as you’re seeing the final analysis, if anything pops out of that nature? You know, even though 

you did it by geographic location, but in case something pops out, 

for example, in the Western States or—you know, I use Alaska, 

and the map is very interesting, it’s very empty—share that with 

you. 

But I’d just be curious if you kind of keep that in the back of 

your mind as you’re completing, if there are any regional differentials, based on customer response to your questions that you asked. 

Mr. GOLDSTEIN. Certainly, we will. We will probably be able to 

determine differences between urban and rural. The sample size 

population will not allow us to disaggregate to the State level, unfortunately. 

Senator BEGICH. No, but I mean like, Western States, South, and 

so forth. 

Mr. GOLDSTEIN. We will—we’ll go back and see what we can do 

about that. 

Senator BEGICH. OK, just—and if it can be done. 

The other—you made me think of a thought here—in the—and 

you may not know this—but when the bills are sent out, is there 

a notification somewhere that’s visible—I can’t even remember on 

my bill—that if you have a concern or a complaint, that you can 

go to the FCC? Is that a requirement? It’s not a requirement, is 

it? 

Mr. GOLDSTEIN. I don’t believe it is, sir. 

Senator BEGICH. OK. Because your point was an interesting 

point, that so few don’t—they don’t know where to go, but if we’re 

not telling them where to go, then they won’t know where to go. 

Mr. GOLDSTEIN. Right, the—— 

Senator BEGICH. If that’s my simplistic way to say it. 

Mr. GOLDSTEIN. That’s right. As we indicated, roughly 34 percent 

of the sample, about 60 million people or so, did not know where 

16 

to go. They did not know that they could go to anyone other than 

their carriers. And interestingly enough, we determined that 44 

percent of the sample, which is roughly 90 million people, contacted 

their carrier with a problem last year. 

Senator BEGICH. Wow. So, again, in your recommendations, those 

are the kinds of things you’ll look for, to say what do we do to inform the customer better, how do we deal with early termination 

fees, which seem to be a big complaint by people, even though 

you’ve mentioned some things they are doing, some pro rata, and 

some other things. But, those are the efforts you’ll lay out in your 

recommendations? 

Mr. GOLDSTEIN. That’s correct, sir. 

Senator BEGICH. Very good. Well, thank you very much, and I 

appreciate the time and—it is very interesting reading the data 

points that you’ve laid out in your testimony, and your report also, 

at this point. 

Mr. GOLDSTEIN. Thank you. 

Senator BEGICH. Thank you. 

The CHAIRMAN. Senator Warner? 

STATEMENT OF HON. MARK WARNER, 

U.S. SENATOR FROM VIRGINIA 

Senator WARNER. Thank you, Mr. Chairman. 

And thank you, Mr. Goldstein, for your report. I used to know 

a little something about cell phones and wireless industry. 

I have just a couple of follow-up questions following along Senator Begich. Did your sample size allow you to determine—a respondent, whether there were other competitors—other wireless 

competitors? So, you know, were the incidents of complaints, in 

terms of quality of service or billing, higher in an area where there 

may only be a single—single provider, as opposed to a variety of 

competitive providers? 

Mr. GOLDSTEIN. I don’t think we determined it, based on how 

many competitors. We didn’t to a level that would allow us to determine how many specific competitors there were. 

Senator WARNER. Mr. Chairman, I think that would be, you 

know—as we look at those areas, I know you’ve got quite a few unfortunate, kind of, blind spots in your State, and we’ve got some 

in my State, in South West Virginia where we don’t have coverage. 

And, as I think we’ve often shown, where you don’t have competition, the ability of a single provider to provide, perhaps, spotty 

service and spotty coverage is pretty high. 

I’d be very interested in knowing, one, if—if there was any way— 

and I guess you’ve already completed your survey, but I would 

have loved to have been in there on the drafting and say—one of 

the questions being to anybody who takes the survey—did you have 

any other competitive option in your marketplace, number one. 

Mr. GOLDSTEIN. We are doing a companion job, Senator, that 

we’re starting shortly, looking at competition among cell phone providers, which may get into that specific area. But, we tried to focus 

this particular work solely looking at the experience that customers 

had. 

Senator WARNER. But, my point being—my point being, that I— 

I would probably wager you a bet, having been in the business for 

17 

20 years, around wireless industry, that if you only had a single 

provider, the incidents of customer complaints would probably be 

higher than if there was some competitor that you could go to. So, 

I just—I think that would be a relevant fact. 

Mr. GOLDSTEIN. I think that’s—— 

Senator WARNER. Second is, you know, one of the things that— 

when I used to be in the business, there was a big move toward 

bundling—bundling your charges in a single billing instrument 

and, you know, kind of offering an all-you-can-eat package or, a 

combined level of services that might be—your wireless services 

and other communications or entertainment services in a single 

bill. Were you able to determine whether the more bundled packages of—bundled billing packages had higher levels of complaints 

or was there any kind of analysis done of what type of billing package they got? 

Mr. GOLDSTEIN. We didn’t, again, didn’t get into that level of 

specificity, just because we had quite a number of questions and 

wanted to—had to obviously limit the amount of time we could 

spend with any one consumer. So, there were constraints to the 

number of questions that we could ask. 

Senator WARNER. I know—and I know this is off subject, but I 

see that—since you’re the Director of Physical Infrastructure, as we 

look at the development of the 700 megahertz bandwidth, you 

know, which has—as we’ve seen since—a lot of that has been traditional television broadcast, whether that might help us, in terms 

of some of the underserved areas, in terms of better coverage patterns. 

And I know Senator Rockefeller has got in his, again, his State, 

and coverage gaps, as we’ve got in ours, but how we—I’m—I don’t 

know about the Chairman, but one of my goals is to make sure 

that we get 100 percent wireless coverage in most of our communities. And I just wondered if you had any, kind of, comments or 

thoughts about—— 

Mr. GOLDSTEIN. It’s obviously a very important issue. I think it’s 

something we will cover in this next part of work on competition, 

to try and understand just how this map—I think the map that the 

Chairman put up is very telling, and I think it would be a useful 

issue to focus on further, and I think we will. 

Senator WARNER. Right, because there is, clearly within the existing wireless spectrum, you know, areas that are mountainous, 

areas with a lot of foliage, have a higher coverage or higher coverage constraints, whereas I think some of this new spectrum that 

has been allocated actually does a better job of penetration, and we 

might want to—we might want to address that. 

And thank you, Mr. Chairman, for bringing this hearing together. 

The CHAIRMAN. Thank you, Senator Warner. 

I’m going to take advantage of asking my questions, which I’ve 

not asked yet. 

I’m fascinated that you took a random survey in the first place. 

It would—it seems to me that almost, on its face, a random survey 

of the United States—let me call it the United States of America— 

without differentiation between peoples, places, densities, all the 

rest of it, is almost worthless. 

18 

When you are trying to figure out what doctors should be reimbursed for Medicare, you study it very closely, you break the country down very closely. There is no such thing as a random survey 

and there will not be in the future. 

But a random survey on something which has grown so fast, 

which is so important to so many people, it may be that you were 

just caught, when you did your survey, by the fact that it was 

going right past you and you couldn’t see it or you didn’t have a 

chance to see it. Otherwise, it seems to me, there wasn’t very good 

judgment, because you can’t tell anything from a random survey, 

you can only tell from the specifics, which Senator Warner was referring to. 

Mr. GOLDSTEIN. I understand your concern, Mr. Chairman. 

Our goal in doing this was—it was our understanding, and I believe this is accurate, that there has never even been a random 

survey of Americans about the quality of their cell phone service 

and experience, that the information collected by FCC is insufficient to do that, and that industry data is pretty much proprietary, 

and that no one even attempted the effort that we did here today. 

And so, from that perspective, we felt that it was useful to at 

least get a benchmark for how Americans felt overall. There certainly can be additional efforts, but to achieve a random sample 

survey, we followed standard procedure that is done, and they typically are not broken out at this level, for the purposes that you are 

suggesting, which I believe are obviously worthwhile, and I think 

could be done. But, just to say, that wasn’t initially the purpose of 

this work. 

The CHAIRMAN. You indicate you’re going—you’re undertaking 

another survey. Will that be—— 

Mr. GOLDSTEIN. We’re undertaking additional work. We have not 

determined yet, and I think we will in discussing with your staff 

and committees in the House that we’re also doing this work for, 

exactly what the methodology we would use to do that. It may be 

that we do a survey, yes sir. 

The CHAIRMAN. But you said you were going to do a survey. You 

said you were going—in your testimony, you said you were going 

to do another survey. 

Mr. GOLDSTEIN. Sir, we have not made that decision. I don’t 

think we—— 

The CHAIRMAN. Well, then I think you should make that decision, and you should make that decision that it should not be a 

random survey, but a very specified survey—— 

Mr. GOLDSTEIN. OK. 

The CHAIRMAN.—based upon very obvious factors, that is people, 

their ages, their incomes, their locations, their, you know, all the 

rest of it. It’s not—it’s not rocket science, but the results of it are 

incredibly important to telling the industry and the American people—should they be interested, if they want to complain, if they 

know where to complain—what they need to know. 

For example, it’s statistically sound, on a national basis, to do 

that, take a random survey. But are the results of the GAO, representative of the experiences and opinions of residents of rural 

communities? You don’t know the answer to that. 

19 

Mr. GOLDSTEIN. That is correct, we do not know that. As I said, 

this particular survey was not designed to attain that information. 

The CHAIRMAN. Well, if by chance there is a next one, which I 

hope there will be, please make it that way. 

Mr. GOLDSTEIN. Certainly. 

The CHAIRMAN. Or else we won’t know what to do. 

Just to finish up, according to your testimony, only 13 percent of 

wireless phone users would complain to the FCC if they had a 

problem their carrier could not resolve. And 34 percent of people 

do not know where they would complain. Now that’s a bit gloomy, 

so my question to you is, to whom would the remaining 53 percent 

of the consumers turn, where would they turn? 

Mr. GOLDSTEIN. We do have a short list of where they would 

turn. We did ask. Thirty-eight percent would complain only to their 

wireless carrier, 34 percent did not know, 13 percent said they 

would complain to the FCC, 4 percent to the FTC, the Federal 

Trade Commission, 3 named another Federal agency or—without 

actually saying what it would be—13 percent said they would complain to their State, 20 percent said the Better Business Bureau, 

and 4 percent said some other consumer organization. 

The CHAIRMAN. But on the other hand—I mean, I have read 

where people call up their—their radio stations and they call up 

their fire departments, or their police departments, trying to get 

help. Obviously they—they’re not going to find any help there. 

Mr. GOLDSTEIN. Sure. 

The CHAIRMAN. So, they have to be the—they have to be the 

right kind of places and only the right kind of places that can give 

them help, because if they don’t get help from the first place, 

they’re not going to try again. And where you have people with relatively low incomes and relatively hard to reach places, that’s a 

very serious matter. 

Well, I’m going to leave it there, but I think we have a lot of 

work to do. Again, I assume I’m right in saying this is the fastest 

growing industry in the United States. Am I right? 

Mr. GOLDSTEIN. It’s among the fastest, I could not say if it’s the 

fastest, but it’s certainly rapidly growing, because the numbers 

we’ve talked about indicate that. 

The CHAIRMAN. So—so it would seem to me that logically, therefore, we would be at, particularly at this point and hopefully before, 

have been putting every single bit of focus onto how we can break 

this down to see if it’s being done fairly, where we have to do more 

work, where we may have to cut out special efforts, or whatever, 

don’t you think? 

Mr. GOLDSTEIN. I think that’s absolutely useful. 

The CHAIRMAN. Thank you, sir. 

Mr. GOLDSTEIN. Thank you. 

The CHAIRMAN. Senator Klobuchar or Senator Warner? No, you 

already spoke. 

Senator Klobuchar? 

STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM MINNESOTA 

Senator KLOBUCHAR. Thank you very much. Thank you, Mr. 

Chairman, for holding this hearing. 

20 

Mr. Goldstein, as you’re running through a people complaint to 

Senator Kerry, you just said, and the rest complain to Amy Klobuchar. I do think, as members of the Senate, we do get some of 

these stories and we’re well aware of some of the issues that come 

up. They can go beyond your survey results. 

And personal experiences, as Senator Warner was relating, in 

dropped calls, just this weekend I must have had, probably five 

times when I was on the cell phone on major interstates where it 

dropped off. So, when we had our original hearing on this, we actually had one of the CEOs of one of the companies, and I showed 

a billboard from their company showing that they would have service to connect people around the world, and we showed a cell phone 

with no bars. So, there are problems still, and I think that lack of 

competition, as Senator Warner was pointing out, can lead to 

issues, that people don’t really even realize they could get better 

rates or better service. 

Following up on what the Chairman said, this industry has 

changed so greatly back from the time that, you know, Gordon 

Gecko in the movie ‘‘Wall Street’’ had a cell phone the size of a 

briefcase. And now, there are 270 million subscribers, nearly 20 

percent of the people in this country only have cell phones, yet the 

rules really haven’t changed. 

And that’s why Senator Rockefeller and I introduced our bill last 

year on this—on cell phones. We are very happy that some of the 

changes were made. I think one carrier changed their early termination policies on the eve of the hearing that we had on the bill, 

which we greatly appreciated. And there has clearly been some improvements since that time, but as the Chairman noted, I think 

there is a lot of work to be done. And we were always aware of this 

issue with consumers not knowing where to complain to or what 

to do, and I think that was a helpful fact coming out of your survey. 

The complaints that I continue to hear, as I said, is that—this 

issue of early termination fees, I still hear it. I do note that according to your preliminary results, 42 percent of those surveyed, who 

wanted to, but ultimately did not switch services, found ETFs to 

be a problem. Were you surprised by that number, that it’s that 

high? 

Mr. GOLDSTEIN. I was a little surprised by it. I’d thought that it 

would not be so. But, you know, it was indicated—19 percent of 

phone users wanted to switch their service, and among the reasons 

they did not was the ETFs, and that represents about, almost 16 

million people. 

Senator KLOBUCHAR. Exactly, and I think what happens sometimes—again, it ties into that other issue of when you buy a phone 

and you’re not quite sure whether the service is going to work or 

not, which is why part of our bill is to try to improve the information that consumers get when they can—when they buy service. 

But the second thing is, people move, they move jobs, and then 

suddenly their service doesn’t work in that area, and it’s very burdensome for them to—to try to change. And now we know that both 

Verizon and AT&T prorate new and renewed contracts by $5 a 

month, and this would mean that with a 2-year contract and a 

$200 ETF, a consumer would still have to pay $140 to get out of 

21 

that contract, after the first year. And I think if you wonder why 

people are concerned about it, it’s still not really evenly prorated 

as we would have liked to have done. 

And in fact, when you compare it to some local service, which for 

increasingly number of people it’s their only phone, it’s much more 

burdensome. So, that might be why you found that in your survey. 

The other thing I wanted to ask you about was the—the filing 

of the complaint. Now, 21 percent of the phone users who contacted 

their carriers’ customer service were dissatisfied with how the carriers addressed their concerns, is that right? 

Mr. GOLDSTEIN. That’s correct. 

Senator KLOBUCHAR. How do you think we should let consumers 

know that the FCC is an avenue open to them? Do you have ideas 

for that? 

Mr. GOLDSTEIN. At this point we haven’t completed the work, so 

I’m hesitant to talk about specific recommendations, but it’s clear 

that, as my statement indicated, the FCC is not tracking their own 

performance in this area, there are no measures that they use to 

determine how satisfied cell phone users are with their actions in 

trying to help with carriers. It’s also quite unclear exactly what it 

is FCC is trying to do, when you look at how they’ve established 

their process, and what they’ve told consumers. There are mixed 

messages on their website and in other venues about what it is 

consumers can expect from the FCC. 

And then, again, when combined with the fact that they don’t 

know how that process is working and how they’re helping consumers, it’s difficult to really get a handle on it. 

I would also add, that one of the actions the FCC has said that 

they will do is act as mediators between cell phone users and carriers, however, this doesn’t appear in the letters that users get or 

in any other place. So, it’s a process that isn’t working terribly 

well, it’s inadequate still. 

Senator KLOBUCHAR. That must be why our staff’s been doing 

that a lot. 

Mr. GOLDSTEIN. I think you’re doing that work for them, yes 

ma’am. 

Senator KLOBUCHAR. We had a hearing yesterday with Julius 

Genachowski and a talk—he talked about the fact that he wants 

to make the website more accessible, and I think we will add that 

to his list of things to do, which is to make this piece of it more 

accessible. It’s clearly an issue and I hope that that will be part 

of your recommendations as we go forward. 

I also think you identified—and I’m running out of time, here— 

but the fact that they weren’t tracking which type of complaints, 

which would, again, be much more helpful as we shape policy on 

things like the dropped calls and the information. Because right 

now, it’s very difficult to track what exactly the problems are. It’s 

just more our own problems that we have and what we hear from 

our constituents. 

Mr. GOLDSTEIN. Thank you. 

Senator KLOBUCHAR. Thank you very much. 

The CHAIRMAN. Thank you Senator Klobuchar. I really am fascinated by this FCC thing. I mean, you were asked, what are you 

doing to let people know where they should call? That’s not your 

22 

job, that’s not your job. You put out reports, you study things, you 

don’t say—take out TV ads, the rest of it. 

FCC has quite a lot of money and that is their job. It was like 

with the DTV thing, it was divided between them and NTIA, and 

between them they didn’t do a horrible job. They didn’t do a great 

job, but it could have been worse. 

Why do you think this is? I mean, it’s going to change under Julius, I just know it is—I just know it is. 

Mr. GOLDSTEIN. Mr. Chairman, I would offer two points. We’ve 

done a lot of work on FCC over the years, and almost every single 

report we do—and I don’t think I’m exaggerating—we end up taking FCC to task for their planning and their performance measures 

and their data collection, whether it’s the enforcement program, 

whether it’s junk fax, whether it’s DTV, or whether it’s cell phone 

usage. FCC has not seemed, in the years we’ve been following 

them, to do a good job in collecting data and determining how to 

focus their mission and to plan. 

I know under previous Chairs, including the most recent Chair, 

there was ambivalence out of that office as to what their role was, 

with respect to consumers. And so, I think they don’t, and have not 

in the recent years, set themselves up to see data collection and 

strong performance measures and management and understanding 

their mission and the transparency of that role, vis-a`-vis the public 

to be terribly important, at least it certainly isn’t exhibited in the 

programs we’ve looked at. 

The CHAIRMAN. Well, that certainly has to change. I believe 

there’s one point where—if somebody wants to write their carrier, 

and the question is not spot on, in other words it doesn’t locate exactly on something which the carriers is prepared—they simply 

don’t respond, they just don’t respond. I mean, this whole thing has 

to be—in this vast growing industry, with people communicating, 

industries depending upon it, the country depending upon it, the 

world depending upon it, we’re just going to have to do a lot better 

job. 

With that, I’m going to yield the floor to Senator John Kerry, 

who will continue this hearing. 

STATEMENT OF HON. JOHN F. KERRY, 

U.S. SENATOR FROM MASSACHUSETTS 

Senator KERRY [presiding]. Mr. Chairman, thank you very much. 

I appreciate it. 

I think we’re going to call the second panel up at this point in 

time, and I appreciate, Mr. Chairman, your holding this hearing 

and the opportunity to focus on this particular aspect of the industry, the exclusive agreements in the wireless industry. 

So, if we could have the second panel just seamlessly seat themselves at the table. I’d like to ask each member of the panel if you’d 

summarize comments in about 5 minutes, and your full testimony 

will be placed in the record, as if read in full. 

While you take your seats, let me introduce this topic, if I can 

for a moment. First of all, we have a very distinguished panel here 

to give testimony on an issue that grows in relevance as wireless 

services become a much bigger part of everyday American life. 

Needless to say, amazing things are happening with wireless techVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00026 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
23 

nology. My colleague on this committee, Senator Warner, who 

knows something about this field, tells a story about how when he 

was getting into the cellular business all the big money and smart 

money was saying it was going to take 30 years to build a wireless 

network, and how at the end of that period, only 3 percent of the 

country was going to have wireless phones. 

Well, obviously, that is not quite what happened. Today, there 

are about 270 million cell phone subscribers in America. Eighteen 

percent of all households rely solely on a wireless phone to communicate. And wireless phones are fast becoming the primary and preferred method of communicating, and they are also becoming indispensable to American life and business. 

The market share for smartphones, devices like the iPhone and 

the Blackberry, has grown from 12 to 23 percent of all handset 

sales over just the last year alone. And these phones are, as we 

know, far more like computers in our pockets than, like traditional 

telephones. And as this revolution continues, and as I listen to people in the field, it’s clear that, you know, even further extraordinary things could happen, ranging from just being able to come 

home and take your Blackberry or iPhone, or whatever it is, and 

plunk it down in a port, and that port is going to manage a whole 

lot of things for you at home—conceivably, from the temperature 

of your home, to the lighting of the fire, to your bank accounts, and 

a whole bunch of other things. 

With that in mind, this panel is going to examine the growing 

trend of exclusive agreements that are being struck between the 

four largest wireless carriers and the manufactures of wireless 

handsets. These carriers account for roughly 90 percent of all wireless subscriptions. And as a result of these exclusive agreements, 

their customers enjoy access to the latest and the greatest 

smartphones. 

Now, I assure you that what brings us to a hearing, is a genuine 

desire to have legitimate questions answered. My staff came to me, 

and a number of folks from different sectors of our economy came 

to me, raising questions about this. Some suggesting that some 

kind of legislative fix might be necessary. Frankly, I really am not 

sure; I don’t know the answers to some of the questions that are 

linked to these issues. And so, this is really the best rationale for 

why we have hearings. It’s to try to get those answers and to get 

them in a very public way. 

At the heart of this are a whole bunch of questions. Is it better 

or worse for competition? Is it better or worse for innovation? Is it 

better or worse for the American consumer if the carrier controls 

the decision over what devices can and can’t operate on their network? 

More than 40 years ago, the FCC decided, in its seminal 

Carterfone case, that AT&T should not have that kind of control. 

For those of you in the room who are as old as I am and can remember it, before the Carterfone you were stuck with the old black 

Western Electric rotary phone that you rented or bought from 

AT&T. And the Carterfone ruling opened the wireline network, and 

in the years following that, we saw an explosion of innovation that 

included the fax machine, the computer modem, and the cordless 

telephone. The Carterfone decision, in the end, was good for conVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00027 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
24 

sumers, it was good for the country, and it was good for business. 

It separated the network from end-use technologies. 

Similarly today, when you sit down at a computer and you access 

a broadband connection, you’re not told by your broadband provider 

that you have to have a Dell or you have to have an HP or an 

Apple in order to access the network. And when you purchase a 

wireless phone in Asia or in Europe, you typically don’t buy it 

through a wireless carrier, you purchase it separately from the 

manufacturer or from an outlet. 

So, the panel today is going to explore the issue of exclusive 

agreements in the U.S. market from both sides of the argument. 

And I want to thank our witnesses for their willingness to testify 

on this issue. 

I have to tell you, it was not easy to find witnesses willing to testify to the benefits of these exclusive arrangements. And so I greatly appreciate Mr. Roth’s willingness to provide his perspective from 

AT&T, which has famously offered the iPhone exclusively on its 

network for several years now. 

I will tell you that we extended an invitation to every major 

handset manufacturer, and we were unfortunately turned down in 

every case. That actually raises more questions than it answers. 

And I must say, not a smart way to send a signal, frankly, but it 

does send a signal and I have read it the way I’ve read it. 

On Monday, I sent a letter to the FCC to Acting Chairman 

Copps, expressing concern over the issue, joined by Senators 

Wicker, Dorgan, and Klobuchar, all of whom serve on this Committee. And so, we will take the testimony today, with a view of 

really trying to learn about the impact on our economy and on competitiveness and innovation, regarding these practices. 

And we look forward to your testimony. 

Senator WARNER. Mr. Chairman? 

Senator KERRY. Senator Warner. 

Senator WARNER. Just a—I’m not going to be able to stay 

through the whole balance, so I just want to thank you for doing 

this hearing, because, you know, as we think about the next round 

of spectrum allocations and as we—and I think you accurately laid 

out the point that, you know, the benefits that the country had by 

having a common set of standards, which everyone could work off 

of. And this Balkanization that I think we’re starting to see in this 

area, you know, I think you appropriately raise a great concern. 

If we would have had the same kind of forethought, for example, 

on another related area, in healthcare IT, we wouldn’t have had 

the kind of Balkanized systems that now is requiring us to kind of 

come in after the fact and try to create common standards for 

healthcare IT. And I would really hate to see us, a few years from 

now, end up with a Balkanized, system-driven set of wireless communication systems that I think would actually put us at a competitive disadvantage against folks across the world. 

So, I’m going to listen to as much of the hearing as I can, but 

I really appreciate—— 

Senator KERRY. Well, I appreciate that, particularly coming from 

you, Senator Warner, because you’ve got a lot of background in this 

and knowledge about it, so I would appreciate your participation 

and your comments. 

25 

If we could begin. Mr. Roth, if you’d begin, and we’ll just run 

down the table here. And again, we’re very grateful to you being 

here. There really—this is inquisitive and I look forward to a good, 

healthy discussion. Mr. Roth? 

STATEMENT OF PAUL ROTH, 

PRESIDENT—RETAIL SALES AND SERVICE, AT&T INC. 

Mr. ROTH. Thank you, Senator Kerry. 

Senator KERRY. You just pop it on there. 

Mr. ROTH. And I’m a technical person. 

Senator KERRY. Let me just say, also, I apologize, but I have a 

previous commitment that’s going to require me to leave around 4 

o’clock and Senator Klobuchar has graciously accepted to chair at 

that point in time. So, we’ll try and get as much in as we can prior 

to that. 

Thanks. 

Mr. ROTH. Yes, sir. Thank you, Senator Kerry. 

My name is Paul Roth, and I’m the President of Retail Sales and 

Service for AT&T, and I do thank you for the opportunity to testify 

here today. I’ve been in the wireless industry for about 23 years, 

and that experience is the basis for my belief that exclusive device 

deals are really good for consumers. Although much of the interest 

of my testimonies can be related to the iPhone, I will direct most 

of my comments in that area. 

I believe that consumers benefit from exclusive device deals in 

three specific ways. They benefit from innovation, lower cost, and 

more choice. And in my 5 minutes, I’ll expand on those and I’d be 

happy to answer your questions. 

First, exclusive deals lead to innovation of both devices and applications. In 2005, then-FCC Chairman Martin, challenged the 

U.S. industry, it challenged the industry saying that it lagged European and Asian nations in bringing innovation to the United 

States. And since, we’ve introduced more exclusive deals. What 

we’ve seen is the U.S. has become the leader in producing innovative devices like the iPhone and others. The iPhone is now sold in 

more than 70 countries worldwide, but it launched first in the 

United States in June of 2007, more than a year before it showed 

up in other countries. 

And innovation has been more than just devices. Apple’s App 

Store on iTunes, has allowed consumers to personalize their devices and their lifestyle with more than 30,000 applications created, and more than a billion of them downloaded in less than a 

year. And people quickly went from, ‘‘Is that an iPhone?’’ to, 

‘‘What’s on your iPhone?’’ as it reflected the consumers ability to 

personalize the device for their own use. 

And other innovative high-speed touch screen devices entered the 

market in response to the iPhone. I don’t believe this competitive 

response would have occurred, had it not been an exclusive device 

deal. 

Second, exclusive device deals lead to lower prices. Consumers 

pay well under what AT&T pays Apple for the iPhone. It’s a standard U.S. industry practice, where the device is sold below its cost 

in return for a two-year agreement, for the subsidy that made the 

initial price possible is recovered over the term of the agreement. 

26 

In the past 2 years that the iPhone has been exclusive to AT&T, 

the price of the iPhone has gone from $399 to $299—to $199, and 

just last week to $99, all while exclusive to AT&T. And with the 

iPhone at $99, prices of other devices, including other exclusive devices will drop and will continue—have dropped and will continue 

to drop in response to that. 

And exclusive device deals create competition and choice. I want 

to be clear, AT&T has an open network. You can bring any GSMbased device to the AT&T network today, we’ll sell you a SIM card 

for $25, and you can work that device on our network. 

But, we also travel the world seeking partners who will create 

innovative devices and bring those to the U.S. We often ask for innovative features or design, which requires the manufacturer to 

create an entirely new product. And our requirements are often the 

catalyst for innovation. 

To build really new and innovative devices creates risk for manufacturers, and the manufacturers are seeking a partner to share 

that risk with them. They ask us to commit both technical and financial resources, and make volume commitments, all without the 

assurance that the device will be a success. AT&T competes with 

foreign carriers like Deutsche Telecom and Vodaphone for the attention of these manufacturers, to bring innovative devices first to 

consumers in the United States. It’s not an accident that the 

iPhone launched first in the United States. 

We took a risk with Apple on the iPhone, that it would be a big 

success for consumers, and consumers were the ones who benefited 

from that. Because these innovative devices are exclusive, competitors are forced to innovate or risk losing customers. It’s a cycle 

where consumers reap the benefits, and carriers and manufacturers carry the risk. 

There have been over 30 new smartphones that have hit the 

market to challenge the original iPhone since it debuted in 2007. 

Let me repeat that again, there are more than 30 new 

smartphones, some dubbed iPhone killers, in direct response to the 

iPhone. And Apple, who started it all with the original 2G iPhone 

in June of 2007, followed in 2008 with an iPhone 3G, and just followed in—just this last week with the iPhone 3GS, each version 

better, faster, and less expensive than its predecessor, all while exclusive deals with AT&T. 

So, some will frame this issue as—whether it’s fair to have exclusive deals or for how long they should be exclusive, as if these 

iPhone or other innovative devices would have occurred any way. 

Without exclusive deals, the iPhone and whatever follows next, 

may not have occurred. And I think consumers are the ones, ultimately, who would suffer from such a policy that would put those 

restrictions in place. 

Thank you for the opportunity to listen to my comments, and I 

welcome your questions. 

[The prepared statement of Mr. Roth follows:] 

PREPARED STATEMENT OF PAUL ROTH, 

PRESIDENT—RETAIL SALES AND SERVICE, AT&T INC. 

AT&T appreciates the opportunity to discuss the competitive dynamics of today’s 

vibrant wireless industry and, in particular, the pro-innovation, pro-consumer model 

27 

1Thirteenth Report, Implementation of Section 6002(b) of the Omnibus Budget Reconciliation 

Act of 1993; Annual Report and Analysis of Competitive Market Conditions With Respect to Commercial Mobile Services, WT Docket No. 08–27, ¶ 2 (January 15, 2009) (‘‘Thirteenth Report’’). 2Thirteenth Report, ¶ 2. 3See The United States and World Wireless Markets: Competition and Innovation are Driving 

Wireless Value in the U.S., Presentation by CTIA—The Wireless Association at 6–7 (submitted 

in FCC WC Docket Nos. 09–51, May 12, 2009) (‘‘CTIA Study’’). 4 CTIA Study at 4, 9. 5 CTIA Study at 3, 9; Thirteenth Report, ¶ 192. 

for bringing next-generation devices to the marketplace. My name is Paul Roth. I 

am AT&T’s President for Retail Sales and Service. In that capacity, I am responsible, among other things, for ensuring that we provide the highest-quality experience possible to our wireless customers. I look forward to discussing these important 

matters with you. 

The wireless business has been one of the great success stories in all of American 

business, and the wireless industry of today represents a true bright spot in a weakened economy. Now, the industry is on the brink of another huge leap forward, as 

wireless carriers prepare to invest in even faster networks designed to take advantage of the next round of revolutionary devices and applications. Those multi-billion 

dollar investments would be put at risk and discouraged, however, if, as some have 

urged, the government were suddenly to reverse its pro-investment, pro-competition 

policies and impose intrusive restrictions on these services or the way that service 

providers and manufacturers collaborate on next-generation devices. 

Wireless Competition and Consumer Benefits 

Few businesses are more intensely competitive than today’s wireless industry. According to the FCC’s latest statistics, more than 95 percent of the U.S. population 

lives in census blocks with at least three competing wireless carriers, and more than 

half of the population lives in census blocks with at least five competing carriers.1

The FCC continues to make additional spectrum available, and major new providers, such as Clearwire and the cable companies, continue to enter. As the FCC’s 

detailed annual reports to Congress time-and-again confirm, the wireless marketplace is and will remain effectively competitive.2 In fact, as a recent study shows, 

the U.S. enjoys the least concentrated wireless industry of any major industrial 

country.3

Because of this intense facilities-based competition, output continues to soar and 

prices continue to fall. There are now 270 million wireless subscribers in the United 

States, and in 2008 they used more than 2.2 trillion minutes—a tenfold increase 

since 2000.4 At the same time, prices have declined precipitously. Revenue per 

minute has fallen 89 percent since 1994, and U.S. wireless prices are much lower 

than in any other major industrialized country in the world.5

Consumers are also getting far more value for their wireless dollars than they did 

even a few years ago. Carriers, device manufacturers, and operating system and applications developers compete fiercely to provide consumers with an increasingly 

broad array of new features, functions and capabilities. This is especially true of 

wireless broadband services. Carriers have invested tens of billions of dollars in recent years to upgrade their networks to increase speeds and to support a wave of 

revolutionary new broadband devices and applications. Americans today do not just 

talk on their wireless ‘‘phones’’—they surf the Internet, listen to music, send emails, edit documents, use GPS-enabled features, watch TV, play games, and much 

more. The wireless industry is just beginning to tap these possibilities. Seemingly every 

month a new and innovative wireless device bursts onto the scene, from the Amazon 

Kindle—a wireless e-reading device that does not even support voice calls—to wireless mini-laptop computers, medical monitoring devices, and specialized devices tailored to the needs of particular businesses. AT&T alone currently supports specialty 

devices from more than 100 manufacturers. Because of this intense competition and 

furious pace of innovation, wireless services are transforming American life. 

For its part, AT&T has responded to and, indeed, helped shape these industry dynamics by investing in its networks and offering its customers a broad array of 

high-quality services and options. AT&T has invested $38 billion in its wireless and 

wireline networks in the past 2 years; AT&T’s capital expenditures this year alone 

will exceed $17 billion—more than any other company in America in any industry. 

AT&T has deployed 3G technology in almost 350 markets, and now has the fastest 

3G network in the Nation. AT&T has established thousands of Wi-Fi hot-spots 

across the country that provide free broadband connectivity to AT&T customers. In 

addition, AT&T offers an extraordinary variety of wireless devices, which give consumers a choice of capabilities and operating systems and thousands upon thouVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
28 

6See www.att.com/choice. iPhone users alone have downloaded over 1 billion applications 

from the iTunes applications store in its first year of its existence. 

sands of applications.6 And, AT&T has introduced a multitude of consumer-centric 

policies and product options, including, just to name a few, unlimited calling plans; 

pro-rated early termination fees; and the freedom and capability to download virtually any application without restriction from the Internet, including the more than 

4,000 applications that have been created by third-party developers who have 

worked with AT&T to optimize those applications for the AT&T network. In fact, 

it is AT&T policy that customers may use their own compatible wireless devices on 

the AT&T network. 

This multitude of consumer benefits is due to a single factor: competition in the 

wireless marketplace is white hot. If government continues its thoughtful policies 

that allow the vibrant marketplace to work, wireless carriers will compete even 

harder in the coming years to build the wireless broadband networks of the future 

and to find ways to increase value for their customers. If, on the other hand, government were to impose a new set of restrictions on these services, carriers would be 

able to undertake fewer of those risky, multi-billion dollar investments—which, in 

turn, could well stymie any economic recovery. Neither Congress nor the FCC 

should try to ‘‘fix’’ one of the few things in the American economy that is not broken. 

Exclusive Handset Distribution Arrangements 

Calls for the government to dictate the terms of contracts for handset distribution 

between device manufacturers and carriers should be rejected. The reasons for this 

are simple and compelling: the current business and regulatory framework—which 

allows service providers and device manufactures to partner and share risks to develop the most compelling devices—ensures innovation, lower prices, and choice. 

Regulations that would prohibit or nullify these critical partnerships would serve 

only to harm consumers, as devices would devolve into the lowest common technological denominator and the key pillars of wireless competition would evaporate. 

Wireless carriers battle fiercely to attract and retain customers. Each carrier 

strives to differentiate its offerings from those of its rivals by offering more attractive service plans, improved coverage and service quality, innovative features and 

content, and a mix of handsets that it believes will best meet consumers’ widely 

varying needs. And, as is common in highly competitive industries, wireless competitors sometimes seek to set themselves apart through exclusive offerings—i.e., a 

wireless carrier may ink a deal with a like-minded manufacturer to be the exclusive 

distributor of a new handset in the hope that it will prove popular. 

It is widely recognized in economics and the law that such exclusive distribution 

arrangements, which have been a feature of the U.S. wireless marketplace since its 

inception, promote innovation, product differentiation, consumer choice and competition. Exclusive handset distribution arrangements encourage the necessary collaboration that optimizes handset performance and accelerates the delivery of next-generation features. They increase a carrier’s incentives to make purchase commitments and to invest in promotions, network improvements and special training of 

sales staff. They lower manufacturer entry barriers and serve as a key tool to maintain brand value. And, as an important form of competition, they encourage other 

carriers and manufacturers to do better, by improving their own handset portfolios 

or the prices, features and other characteristics of their existing offerings. 

Against this backdrop, it should be obvious that consumers would be the ultimate 

victims of any prohibition on exclusive handset arrangements; indeed, there is no 

clearer proof of this than the iPhone arrangement, the success of which is exactly 

what has spawned calls for bans on exclusive arrangements. There is, quite simply, 

no more dramatic example of an exclusive arrangement creating enormous benefits 

for all consumers. The popularity of the iPhone and its innovative features and applications has provoked an unprecedented competitive frenzy, palpably accelerating 

not only handset innovation, but also the pace of wireless broadband investment 

and applications development. Before the iPhone, mobile handheld ‘‘computers’’ 

tended to be clunky, expensive devices with traditional applications; now, the marketplace is awash with innovative devices that allow consumers to do things that 

no one even imagined only a year earlier and that cost consumers less than their 

more limited predecessors. 

Indeed, not 2 weeks ago Palm deployed just the newest potential ‘‘iPhone killer,’’ 

called the ‘‘Pre,’’ which is provided exclusively by Sprint. Early reviews of the device 

are positive. Since the Pre’s entry into the market, not only has Apple announced 

the introduction of an upgraded iPhone—the iPhone S—that will go on sale this 

week, but also AT&T has reduced the price of the currently available iPhone 3G 

29 

7Should there be any doubt about the importance of this price move, one need only consider 

its impact in Detroit, arguably the city hardest hit by the current recession. Not surprisingly, 

sales of all devices, including the iPhone, have been relatively harder to come by in Detroit. 

Once we reduced the price of the iPhone 3G to $99.00, however, we rapidly sold out our inventory in Detroit. The point: innovations of all kinds matter, even pricing innovations. Now, the 

best device is a realistic option for the mass market even in economically hard hit Detroit. 

to just $99.00.7 It is the ability of carriers to partner with device manufacturers to 

bring to market new devices that allow for competitive differentiation that sparks 

the virtuous cycle of innovation and response. 

With the benefit of hindsight it is easy to view the iPhone as only a great boon 

for AT&T and Apple. In truth, both companies risked a great deal and success surely was not guaranteed. Put differently, the success of the iPhone was not an accident; it was the culmination of a deep collaboration between AT&T and Apple that 

spanned years, not months, and led to revolutions in the wireless industry. One notable example of this collaboration was the ability of iPhone customers to activate 

their phones and initiate service simply by logging onto Apple iTunes. For customers, this was a boon, and for the industry it was a game-changer. But it only 

happened because AT&T and Apple committed the money, resources and countless 

hours necessary to develop and synchronize the systems and software that enable 

it. It is highly unlikely either that Apple would have been willing or able to devote 

the resources necessary to enable the process with dozens or even a few providers, 

or that AT&T would have risked this time, talent and money, just to see the iPhone 

available to its competitors. 

Notably, another AT&T collaboration on a wireless device evidences the very real 

risks of failure that faced the iPhone. AT&T teamed with Motorola and Apple to 

develop a robust wireless device that would also include direct access to iTunes and 

store up to 100 songs. The companies made significant investments, heavily marketed the device, and fully anticipated that it would be a game-changer. It was not. 

Despite all the effort, the Motorola ROKR E680 simply did not connect with consumers and failed in the marketplace. It also drove customer defections from AT&T, 

and is just one of many examples of seemingly promising but ultimately unavailing 

attempts to compete—examples that are rarely talked about and almost never drive 

calls for regulatory reform. 

Thus, those now calling for bans on exclusive arrangements—and even government abrogation of existing contracts—should ask themselves whether they would 

be just as willing to repay wireless carriers and handset makers that took risks on 

new handsets that did not pan out as expected. The answer is, of course, no. And 

there is likewise no conceivable basis to conclude that it would be in the ‘‘public interest’’ to forgo future opportunities to unleash market forces through exclusive distribution arrangements: heavy-handed intervention in manufacturer and carrier 

choices would dramatically decrease the chances that consumers would reap the procompetitive benefits of the next iPhone or whatever other as-yet-unimagined 

handset innovation is on the horizon. 

Finally, even if public policy was concerned with protecting small competitors 

from competition, rather than protecting competition and consumers, claims that exclusivity prevents smaller wireless carriers from obtaining desirable handsets on 

terms that allow them to remain competitive are simply false. In fact, an entire industry has developed for the wholesale distribution of wireless handsets to smaller 

carriers. These wholesale distributors buy in bulk, operate worldwide, and plainly 

have the clout to obtain favorable terms for popular handsets from the scores of 

manufacturers that compete in the vigorously competitive global handset market. 

Thus, even the smallest carriers offer dozens of handsets, from basic voice phones 

to the highest of the high end, including ‘‘smartphones’’ from multiple manufacturers that include the latest features. And smaller carriers also can (and do) band together to obtain their own handset exclusives. For all of these reasons, exclusivity 

provides enormous consumer benefits and results in devices and innovations that 

would not otherwise be introduced. 

Senator KERRY. Thank you very much, we appreciate it. 

Mr. Rooney? 

STATEMENT OF JOHN E. ROONEY, PRESIDENT AND CEO, 

UNITED STATES CELLULAR CORPORATION 

Mr. ROONEY. Good afternoon, Mr. Chairman. 

Senator KERRY. Can you push the mike and pull it toward you? 

30 

Mr. ROONEY. Is it on? 

Senator KERRY. If there’s a light on it, it’s on. If the light goes 

on—— 

Mr. ROONEY. Yes, there we go. It was on. 

Senator KERRY. And pull it toward you, if you would, please. 

Mr. ROONEY. I’m sorry. 

Senator KERRY. Can you pull it toward you? Thank you. 

Mr. ROONEY. Good afternoon, Mr. Chairman. It’s a privilege to 

appear before you and the Committee today. My name is John Rooney and I’m the President and Chief Executive Officer of U.S. Cellular. We are the fifth-largest wireless carrier in the United States, 

serving over 6.2 million customers. 

I’m here to talk about the wireless industry’s current reality. 

Four wireless carriers have hijacked consumer access to handset 

technology. These dominant wireless carriers are leveraging their 

economic might, to obtain from handset manufacturers the right to 

be exclusive distributors of the handsets most desired by consumers. These arrangements deny consumers the ability to select 

a handset, access popular software applications, and use it on a 

network of their choosing. 

The biggest problem is the market for higher-end, iconic phones, 

and smartphones that are essentially a little computer in your 

hand, such as Blackberry Storm, and the iPhone. Smartphones represent the fastest growing segment of the industry. As our Nation 

commits itself to an aggressive deployment of broadband to serve 

all Americans, it is vitally important that we get the issue of access 

to mobile wireless handsets right. 

Exclusive arrangements are especially damaging to rural citizens, because oftentimes the biggest carriers don’t offer any service 

at all, and so the product is unavailable to that consumer. When 

rural consumers buy an exclusive phone from one of the bigger carriers, they frequently must accept an inferior network as a tradeoff, 

a tradeoff no consumer should be compelled to make. 

There is harm in urban areas as well. Consumers who desire an 

iPhone or a Blackberry Storm Smartphone, cannot use it on our 

network, even if they prefer our service. We do not understand how 

the public can possibly be served by such a practice. 

If you take away nothing else from this meeting, I want you to 

understand, a central goal of policymakers should be to enable consumers to buy the handset they want and choose the service that 

best suits their needs. We think the anti-consumer effects of 

handset exclusivity must be examined in a broader context, to include the entire relationship between these dominant carriers and 

their handset manufacturers. 

Even without exclusiveness, the ability of the dominant carriers 

to manipulate the handset manufacturers through their purchasing 

power, to the detriment of all consumers, should be of concern to 

the Committee. 

Under the Telecommunications Act, it is illegal for carriers to engage in unreasonable and discriminatory practices. We ask you to 

direct the FCC to use these tools you have already given them, to 

protect consumers from the harms created by exclusive arrangements. Monday’s bipartisan letter was a good start. 

31 

Now, let me address a few of the objections addressed in this 

problem that we have heard from the biggest carriers. I have heard 

that exclusive arrangements drive innovation. This is counter-intuitive. Every manufacturer desires to sell its products to the widest 

possible audience. If handset exclusivity did not exist, would any 

manufacturer refuse to invest in great devices, knowing that 

there’s currently a handset market of nearly 300 users in the 

United States. Any handset maker that invents a great device, receives intellectual property protection, and that confers a tremendous financial incentive to build a winning product. 

Others have argued that removing handset exclusivity will kill 

the incentive to invest risk capital in the handset market. I cannot 

identify a single market, as large as the U.S. wireless handset business, that needs exclusive dealing to attract risk capital on investment. When you overlay both European and Asian markets available to handset manufacturers, this answer becomes even more 

problematic. 

Turning to the iPhone, Apple does not require their customers to 

connect their computers only to the ISP of the manufacturers’ 

choice, and who would accept such a proposition for their laptop or 

personal computer? Well, that’s precisely what’s happening in this 

sector. You should not approve of arrangements that limit a wireless consumer’s ability to choose what is essentially a handheld 

computer. 

I’ve been part of the mobile and wireless industry for over 15 

years, and until recently, both carriers and handset manufacturers 

thrived without exclusive arrangements. I believe it is no coincidence that the growth in exclusive arrangements occurred in concert with the acquisition binge of this decade, and the resulting 

consolidation of market power in the hands of a few. 

In closing, we understand that simply banning exclusivity arrangements is not the complete answer. We ask you to look carefully at the bigger picture, the fact that the wireless industry consolidation enables the largest carriers to dominate the product supply chain in ways that harm consumers. 

Mr. Chairman, thank you for your interest in this important 

issue, and I’m happy to answer any questions. 

[The prepared statement of Mr. Rooney follows:] 

PREPARED STATEMENT OF JOHN E. ROONEY, PRESIDENT AND CEO, 

UNITED STATES CELLULAR CORPORATION

Introduction 

Good afternoon, Mr. Chairman and members of the Committee. I am John Rooney, President and Chief Executive Officer of United States Cellular Corporation. 

Thank you for the opportunity to appear before you today. My testimony addresses 

why the Federal Communications Commission must examine wireless carriers’ 

handset exclusivity arrangements and impose restrictions on these practices. These 

arrangements harm consumers in rural areas and decrease competition nationwide 

and do not enhance innovation. 

Expanding wireless broadband services is an important public policy, and the 

dominant carriers’ handset practices should not be allowed to continue impeding 

this goal. We also ask the Committee to examine the business practices of dominant 

carriers in a broader context, to protect robust competition and ensure that consumers have the ability to choose the handset and the network that best suit their 

needs. We think the bi-partisan letter from some members of this Committee of earlier this week to the FCC requesting expeditious examination of the issue and deciVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
32 

sive action if such arrangements are found to unfairly restrict consumer choice or 

adversely impact wireless competition is a really good step. 

Wireless Marketplace 

U.S. Cellular provides wireless services in nearly 200 markets located in regional 

clusters across the country. We serve many of the states represented on this Committee, including: West Virginia, Texas, Maine, California, Kansas, Minnesota, Missouri, Nebraska, Virginia, and Washington. The overwhelming majority of the geography we serve is rural. 

We continue to expand our network to increase coverage, call quality and the 

availability of broadband services. In 2008, U.S. Cellular deployed new cell towers 

to bring wireless service to unserved and underserved areas in every state where 

we provide service. As we aggressively upgrade our CDMA networks with third-generation technology (EVDO rev-A), we have been or are likely to be the first provider 

of broadband wireless services in many rural markets. 

Satisfying customers with excellent network quality and customer service is central to U.S. Cellular’s operations. For the seventh consecutive time, U.S. Cellular 

received the J.D. Power and Associates award for overall call quality in the North 

Central Region. Moreover, people in our service areas increasingly look to our network for advanced wireless services, as shown by the 36 percent increase in our 

data revenues in the most recent quarter. 

U.S. Cellular serves over 6.2 million customers, making us the country’s fifth largest wireless carrier. Yet, we are tiny compared to the two wireless industry giants— 

Verizon Wireless is about 14 times our size, and AT&T is about 13 times larger. 

Together, these two dominant carriers account for about 60 percent of subscribers 

nationwide. The next two leading carriers are part of the excessive concentration in 

this industry—Sprint Nextel is over 8 times our size, and T-Mobile is over 5 times 

larger. These four carriers, which collectively hold a 90 percent market share, have 

come to dominate the industry not through superior network quality or efficiency, 

but rather because the FCC and Justice Department approved a long string of acquisitions in this decade. 

Despite their size and huge spectrum holdings, the ‘‘Big Four’’ carriers have decided not to serve many rural areas. These carriers focus on providing service in 

densely populated urban areas, and their coverage is much more limited in rural 

areas, especially away from major highways. For example, many rural residents of 

Alaska, Arizona, Colorado, Idaho, Kansas, Maine, Montana, Nebraska, Nevada, New 

Hampshire, New Mexico, North Dakota, South Dakota, Utah, West Virginia and 

Wyoming are not served by AT&T network facilities. Many rural residents and businesses look to U.S. Cellular and other smaller carriers to provide them with important voice and data wireless services to raise their productivity, give them access 

to public safety and health care services, and improve their quality of life. 

Handset Exclusivity 

One manifestation of wireless market concentration is the ability of dominant carriers to tie up almost all of the most advanced, attractive handsets through exclusive arrangements. While U.S. Cellular sells about 3 million handsets annually, 

each of the two largest carriers sell that many in 4 weeks. The ‘‘Big Four’’ exert 

their enormous buying and marketing clout over handset manufacturers. Recently, 

nine of the ten most popular handsets were offered exclusively by one of the ‘‘Big 

Four’’ carriers. 

In rural areas where none of the ‘‘Big Four’’ carriers offers service, their exclusive 

handsets are simply not available to consumers at any price. Where the ‘‘Big Four’’ 

have built networks, people who want to use Apple’s iPhone have to sign up for 

service with AT&T and people who want Blackberry’s Storm have to take service 

from Verizon Wireless, even if their prices, network quality, and customer service 

levels do not measure up to their competitors. 

The handset exclusivity period negotiated by the dominant carriers is often 5 

years or, in some cases, for the lifetime of the device. In some cases they apply to 

handsets not yet developed. Handset technologies and features are advancing rapidly, with the lifecycle of handsets averaging about twelve months after initial commercial offering. Consequently, even an exclusive period of 6 months—together with 

the 5 or 6 months needed to test and launch a handset on another network—can 

greatly impair the availability of that handset through other carriers. 

As I will explain, the dominant carriers’ handset practices harm consumers in 

rural areas and decrease competition nationwide. The remainder of my testimony 

is organized in three sections: (1) harms to rural consumers and broadband expansion; (2) decreasing competition nationwide; and (3) actions the FCC should take to 

promote the public interest. 

33 

1. Harms to Rural Consumers and Broadband Expansion 

The four dominant wireless carriers have locked-up almost all of the advanced, 

highly desired devices. Consumer harms from these practices are especially severe 

in rural areas. Since the ‘‘Big Four’’ carriers have decided not to build high-quality 

networks in many rural areas, many rural residents cannot use some or all of these 

advanced handsets. Inability to use the best devices impairs business productivity 

and quality of life for rural residents. 

Although U.S. Cellular and other smaller carriers are aggressively expanding 

their networks and broadband wireless deployment, they cannot offer certain 

handsets. Many rural consumers are left unsatisfied by inferior wireless service 

from the ‘‘Big Four’’ and an inability to access the most desirable devices from competitors. 

In rural areas where one of the ‘‘Big Four’’ carriers provides service, it can attract 

customers to its exclusive handsets and services even with higher prices and inferior 

network coverage. The handset advantage dulls a Big Four carrier’s incentive to invest in improving its service quality and network coverage in rural areas. Moreover, 

a decision to invest in network facilities that can deliver advanced services is greatly complicated when you cannot offer the most advanced handsets to attract customers. 

Despite the public policies and programs supporting comparable telecom services 

in urban and rural areas, the dominant carriers are consigning rural businesses and 

residents to second class status for some handset-enabled capabilities. We are not 

talking about just sleeker cases or cooler video games. For example, some leading 

education applications for medical professionals and students are only available to 

AT&T’s customers through the Apple iPhone. These applications and features are 

not available in many rural areas, even though smaller carriers serve those areas 

and are eager to provide the most advanced services there. 

Congress is to be commended for expanding rural broadband wireless services via 

the American Recovery and Reinvestment Act of 2009. This legislation wisely provides grants through the Departments of Agriculture and Commerce for broadband 

wireless infrastructure projects. These projects are vital for the economic health of 

rural areas and for the economic recovery of the entire nation. Additionally, they 

can contribute to rural education, health care, public safety services and quality of 

life. However, infrastructure projects alone will not bring the most advanced wireless broadband services to rural areas. The Federal Government must ensure that 

rural citizens have reasonably comparable choices in telecommunications products 

and services. This hearing is an important step in eliminating the detrimental effects on rural areas of the dominant carriers’ handset exclusivity arrangements. 

2. Decreasing Competition Nationwide 

While rural areas suffer particularly severe harms from handset exclusivity arrangements, these practices hurt businesses and consumers in markets nationwide 

by lessening competition in wireless services. Smaller carriers are drivers of wireless 

competition and innovation, but are handicapped by these practices. There is no evidence showing that these practices create significant pro-competitive benefits. 

Congress recognized the competitive importance of smaller wireless carriers in directing the FCC to disseminate licenses among a wide variety of applicants and to 

avoid excessive concentration of licenses. Wisely, Congress sought to avoid the 

harms to consumers and the Nation from an oligopoly in this critical industry. Nevertheless, the FCC has approved a series of transactions and rules leading to domination of the wireless market by just four carriers. And among those four, two are 

exerting increasing power with each acquisition. These carriers have recently leveraged their huge subscriber bases and dominant spectrum holdings to obtain exclusive distribution arrangements for almost all of the hottest handsets. While several 

smaller carriers have been acquired by the Big Four, there are many markets where 

other smaller carriers remain significant competitors, many markets where smaller 

carriers are expanding their networks, and many markets where smaller carriers 

are entering. 

Smaller carriers like U.S. Cellular have been able to achieve excellent network 

quality and offer competitive prices. In part, our success in building competitive networks in rural areas has been a direct result of our participation in the Federal Universal Service program. We have used Federal universal service funds to build cell 

sites and improve network quality in rural areas that would not otherwise receive 

such investments. The increased competition in the areas where we are building 

networks has delivered tremendous consumer benefits including: 

34 

• Improved health and safety through our CDMA technology’s superior E–911 accuracy, along with improved coverage enabling critical and sometimes life saving calls to be placed; 

• Improved economic development opportunities in every area where businesses 

need mobile wireless services to improve efficiency and productivity; 

• Lower prices as a result of our wider local calling areas, enabling many rural 

citizens to avoid expensive toll charges on competing networks; 

• Increased availability and improved telecommunications services encourages all 

other carriers to improve service quality; and 

• Job creation in two areas: (1) jobs created by the construction and operation of 

new network facilities, and (2) jobs created through the ‘‘multiplier effect’’, that 

is, the presence of a mobile wireless network driving secondary investments 

from industries that use our technology. 

Economic development benefits described above will increasingly require a 

smartphone, which is capable of voice, messaging, and Internet access. Many businesses increasingly rely on applications available over the Internet, which cannot 

be accessed on a traditional telephone device. It is frustrating for rural consumers 

to be denied the ability to purchase the best smartphone devices and place them 

on the network that delivers the best coverage. It scarcely bears mention that network quality is important to a business user. Unfortunately, the Big Four’s control 

over the most advanced, attractive handsets has made it significantly harder for 

smaller carriers to attract and retain subscribers, and to effectively compete in rural 

areas, even with Federal universal service support. 

Our perspective that the ‘‘Big Four’’ carriers have less interest in providing highquality service to rural communities is borne out by our experience. We know that 

in almost every area where we are investing Federal universal service funds, our 

network quality is superior. Beyond just our experience, however, it is important for 

the Committee to understand that at a time when we are experiencing the worst 

economic crisis since the Great Depression, a time when job creation and business 

investment are critical to helping citizens, Verizon Wireless and Sprint have voluntarily agreed to withdraw from receiving Federal universal service support as a condition to approval of large merger transactions. 

What is the takeaway from these actions? From our perspective, these carriers 

may wish to free themselves from the additional regulatory burdens associated with 

the receipt of universal service support, a valid motive if their business plan does 

not include providing high-quality service throughout the rural areas where their 

universal service obligations attach. Our problem is not their choice to forego universal service—it is that we cannot offer the best devices to consumers in areas 

where we are providing the best network quality. 

In this respect, our parochial business interest aligns with the interests of rural 

citizens, who are paying into the Federal Universal Service Fund and deserve to 

have the benefits of telecommunications services that are reasonably comparable in 

quality and price to those available in urban areas. I understand that this is what 

Congress intended, and that is why we are here. If these practices are allowed to 

continue, competition in many markets will fall and consumers will pay more for 

inferior network services. 

Of course, the dominant carriers have proclaimed that their exclusive handset arrangements foster innovation and competition. The experience of U.S. Cellular in 

about 200 markets across the country does not bear out these claims. Moreover, it 

is counterintuitive that handset manufacturers with access to a customer base of 

over 300 million users in the United State alone, would want or need exclusive arrangements that limit the pool of potential customers who can buy their products. 

In fact, we cannot identify a single market the size of the U.S. handset business 

that requires exclusive contracts to improve innovation and competition. 

This Committee would not approve if a rural customer could not buy an Apple 

computer because it could only be connected to a particular Internet Service Provider that did not serve that customer’s home. We see no reason for a different result in the mobile wireless industry. Moreover, handset exclusivity for Smartphones 

is just the beginning. We are already seeing exclusivity arrangements being used 

in the market for netbooks, and if Congress takes no action it will likely spread to 

other device categories as they are invented. 

Consumers would benefit if smaller carriers could offer the most attractive 

handsets and compete with the dominant carriers on the basis of network quality, 

customer service and price, as well as handset features. Our subscribers who have 

enjoyed our leading network quality and customer service would not have to choose 

between, (a) inferior service but the hottest handsets from another carrier, or (b) 

35 

remaining with U.S. Cellular but using a less productive set of handset-enabled applications and features. Additionally, manufacturers would be driven to innovate by 

rapid distribution to the entire base of nearly 300 million handset buyers, including 

our 3 million sales annually. 

Dr. William P. Rogerson (Professor of Economics at Northwestern University and 

Chief Economist of the FCC in 1998–99) recently examined the arguments and 

available evidence on this issue. In an economic analysis filed at the FCC in February 2009, he found no evidence showing that any of the ‘‘Big Four’’ carriers played 

a significant role in advancing handset technology. In particular, he concluded that 

AT&T played almost no role in developing the iPhone, and that the carrier likely 

made relatively insignificant network and other investments to support this innovative handset. 

As wireless markets have become increasingly concentrated, this handset exclusivity (along with decreased roaming opportunities, high special access rates and 

certain other practices) has emerged as a major threat to competition in markets 

nationwide. In the next section, I describe the actions that the FCC must take to 

address this threat. 

3. Actions the FCC Should Take to Promote the Public Interest 

U.S. Cellular supports the petition for rulemaking filed by the Rural Cellular Association (RCA) at the FCC over one year ago. Along with consumer groups and 

most wireless carriers, we urged the FCC to commence a rulemaking proceeding to 

examine the effects on consumers of exclusivity arrangements between wireless carriers and handset manufacturers, and to adopt rules necessary to promote the public interest in competition, innovation and expansion of broadband services. There 

is convincing evidence in the record demonstrating the need for the FCC to take 

these actions. Moreover, we agree with RCA’s position that the FCC has authority 

under the Federal statute to prevent carriers from engaging in unreasonable or discriminatory practices. We applaud the letter of earlier this week from some members of this Committee urging the FCC to investigate handset exclusivity arrangements to protect consumers. 

To date, the FCC has not commenced a rulemaking or restrained the dominant 

carriers’ harmful handset practices. While this petition has been pending, the FCC 

approved further industry consolidation for the dominant carriers, via acquisitions 

by Verizon Wireless, AT&T and Sprint. Two pending transactions would add about 

2.6 million subscribers for AT&T. During this period, as the dominance of the ‘‘Big 

Four’’ increased, they have locked-up almost all of the hottest new handsets, including exclusives for AT&T on new models of Apple’s iPhone, for Verizon Wireless on 

the Blackberry Storm, for Sprint on the Palm Pre, and for T-Mobile on the Samsung 

Behold. Rural areas and smaller carriers are suffering from the increased consolidation and these handset practices. 

The last time that the FCC looked at wireless carriers’ exclusive dealing contracts 

with handset manufacturers was in 1992. The FCC decided that it had the statutory 

authority to regulate such dealings, and promised ‘‘if in the future, it comes to our 

attention that carriers’ exclusive distribution agreements with [handset] manufacturers are resulting in anticompetitive abuse, we will not hesitate to revisit this 

area.’’ Not only has the FCC received extensive evidence of anticompetitive abuses 

in response to the RCA petition, but also the changes in the marketplace warrant 

prompt re-examination by the FCC. 

Subscribers to cellular and similar services have grown from 11 million in 1992 

to over 270 million in 2008; each of the two largest carriers now annually sells 

handsets in volumes that are about four times greater than the total number of cellular subscribers in 1992; these two carriers have through acquisitions come to control about 60 percent or more of handset sales nationwide; wireless devices and 

services have become critical for business productivity, health care, public safety 

and other services; about 41 percent of consumers are likely to choose a smartphone 

for their next mobile device, according to a recent survey; and access to the most 

advanced handsets is important to achieving rural wireless broadband expansion 

and competition in markets nationwide. 

The FCC’s regulation of landline carriers’ practices regarding customer equipment 

has been an unquestioned success in spurring competition, innovation and consumer 

satisfaction. Congress should direct the FCC promptly to examine wireless carriers’ 

practices in handset exclusivity and take necessary actions to promote the public interest. 

Conclusion 

I am pleased that this Committee is devoting its attention to the emergence of 

exclusive handset arrangements for the four dominant wireless carriers, and appreVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00039 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
36 

ciate the opportunity to testify today. By leveraging their market dominance in negotiations with handset manufacturers, the largest wireless carriers are locking-up 

almost all of the most advanced, attractive handsets for many months or years. 

These practices deprive rural areas of leading handset-enabled applications and features, and impede the productivity of rural businesses, important services to rural 

residents and the expansion of broadband capabilities. Furthermore, these practices 

impair competition in wireless markets nationwide, and do not enhance innovation. 

Congress should act so that the FCC promptly examines these practices and adopts 

rules to eliminate these harms. 

Senator KERRY. Thank you, Mr. Rooney, we appreciate it. 

Mr. Frieden? 

STATEMENT OF ROBERT M. FRIEDEN, PIONEERS CHAIR 

AND PROFESSOR OF TELECOMMUNICATIONS AND LAW, 

PENN STATE UNIVERSITY 

Mr. FRIEDEN. Senator Kerry, and members of the Committee, 

thank you for inviting me to contribute to this discussion about the 

consumer wireless experience. 

I hold the Pioneers Chair and serve as a Professor of Telecommunications and Law at Penn State University. As a teacher, 

researcher, and cell phone subscriber, I’m working to understand 

the potential for wireless handsets to stimulate innovation, particularly as these devices become even more widespread and essential. 

Three major developments in the wireless marketplace have the 

most significant impact on consumers and innovation. First, wireless handsets will provide a third screen for users, no less important than what the first screen, television, and the second screen, 

the personal computer monitor, have provided. Wireless handsets 

have started the evolution to become a much more diverse Swiss 

Army Knife collection of features and functions. But the scope of 

innovation in handset design depends on difficult balancing between the sometimes divergent interests of consumers, carriers, 

and handset makers. 

Second, near-exclusive reliance by wireless carriers and their 

agents, on a single business model, which combines wireless service 

and handsets used to access this service, strongly influences what 

kinds of services the handset can perform and what kinds of software the subscriber can download. This combination of handset 

and service also creates incentives for carriers to secure exclusive 

distribution rights for choice devices, such as the Apple iPhone. It 

motivates carriers to favor ways to recoup their handset subsidies, 

rather than to concentrate on offering unconditional access to the 

features within the handset or services available by downloading 

software and content to the handset. 

Third, even as some subscribers resort to self-help strategies to 

remove these limitations, legislation should direct the Federal 

Communications Commission to ensure non-discriminatory access 

to wireless networks and services, including the elimination of 

handset exclusivity arrangements. Forty years ago, the FCC established the Carterfone policy, which specified the right of consumers 

to own phones and to attach them and other devices, such as fax 

machines and modems, to the wired telephone network. 

This policy made it possible for consumers to decide what type 

of devices and functions would best serve their needs. More fundamentally, separation of service and equipment allows consumers 

37 

to decide how to use the telecommunications and information services available for wireless handsets, now and in the future. 

We take for granted the right to attach telephones to the wired 

network, and that freedom should extend to wireless networks, 

subject to legitimate and readily addressed network management 

and spectrum interface concerns. Television broadcasters have no 

right to restrict consumers from watching cable and DVDs. Likewise, no personal computer manufacturer or software vendor can 

regulate what consumers see on their monitors and what services 

they can access. Applying the Carterfone policy to wireless would 

stimulate innovation in handset design, promote competition, and 

motivate carriers to make their networks more accessible. 

Remarkably, the 270 million wireless cell phone subscribers in 

the United States do not have the same freedoms for the third 

screen, as they do for television sets, computer monitors, and wired 

telephone service. If the wireless handset marketplace worked like 

its wired counterpart, carriers would derive limited benefit from exclusivity—exclusive handset distribution agreements, and they 

would not program restrictions on the limited types of phones they 

make available. 

Manufacturers would have great reluctance in disabling features 

or refraining from devising new ones that carriers do not want consumers to have. Applying the Carterfone non-discrimination policy 

does not impose new or additional regulations. Cell phones companies operate as telecommunications service providers, already obligated by law to comply with FCC common carrier regulations. 

Wireless handsets use radio spectrum, subject to the FCC’s jurisdiction. 

The FCC has applied its widely respected Carterfone policy in 

many ways and for many different types of competitive industries 

since 1968, including cable television. Most recently, the Commission included the Carterfone open-access policy in its 2005 policy 

statement on what freedoms consumers have a right to expect 

when accessing the Internet. Limitations on access can frustrate 

consumers, stifle innovation in wireless services and software applications, and adversely affect the international competitiveness of 

U.S. equipment and services. 

The potential for Swiss Army Knife versatility in handsets diminishes when carriers and handset manufacturers agree on exclusive handset distribution deals, locks on what functions handsets 

can performs, and locking out consumers from downloading software and other content. Mandating consumer access freedoms, supports development of separate wireless handset and service markets. This will create incentives for wireless equipment manufacturers to offer customized solutions to diverse user requirements. 

Additionally, it will create incentives for wireless carriers to come 

up with innovative service plans and to compete based on how 

many different services wireless devices can access. 

I appreciate the opportunity to share my views with the Committee and to participate in a discussion about this important 

issue. Thank you very much. 

[The prepared statement of Mr. Frieden follows:] 

38 

1For more comprehensive examination of wireless handset access to content and services, see 

Rob Frieden, Lock Down on the Third Screen: How Wireless Carriers Evade Regulation of Their 

Video Services, 23 BERKELEY TECHNOLOGY LAW JOURNAL (2009) (in production); draft available 

at: http://papers.ssrn.com/sol3/cfldev/AbsByAuth.cfm?perlid=102928; Hold the Phone: Assessing the Rights of Wireless Handset Owners and Carriers, 69 PITTSBURGH LAW REVIEW, No. 

4, 675–725 (2008); draft available at: http://papers.ssrn.com/sol3/cfldev/AbsByAuth.cfm?per 

lid=102928; Wireless Carterfone—A Long Overdue Policy Promoting Consumer Choice and 

Competition (New America Foundation, Wireless Future Program, Working Paper No. 20), available at http://www.newamerica.net/files/WirelesslCarterfonelFrieden.pdf. 2See, e.g., Nick Wingfield, Time to Leave the Laptop Behind, THE WALL STREET JOURNAL, (Oct. 27, 2008), available at http://online.wsj.com/article/SB122477763884262815.html, Int’l 

Telecommunication Union, The Regulatory Environment for Future Mobile Multimedia Services, 

http://www.itu.int/osg/spu/ni/multimobile/index.html. 3Wireless subscribers violate service contracts and lose warranty coverage when they ‘‘unlock’’ 

their handsets for use on unauthorized networks. Wireless subscribers ‘‘jailbreak’’ a handset 

‘‘which allows a user to install on his device third-party applications unapproved by the provider.’’ See Sarah Perez, Why You Have To Jailbreak the iPhone, N.Y. TIMES (Jan. 12, 2009), 

http://www.nytimes.com/external/readwriteweb/2009/01/12/12readwritewebwhylyoulhaveltoljailbreakltheliphone.html. 4See Hush-a-Phone v. United States, 238 F.2d 266, 269 (D.C. Cir. 1956) (ordering the FCC 

to eliminate telephone company tariff restrictions on customers’ right to attach non-electronic 

acoustic devices to telephones). In 1968, the FCC extended the right to include attachment of 

electronic devices. Use of the Carterfone Device in Message Toll Tel. Serv., 13 F.C.C.2d 420 

(1968), recon. denied, 14 F.C.C. 2d 571 (1968). 

PREPARED STATEMENT OF ROBERT M. FRIEDEN, PIONEERS CHAIR AND PROFESSOR OF

TELECOMMUNICATIONS AND LAW, PENN STATE UNIVERSITY

Good afternoon Mr. Chairman and Senators. Thank you for inviting me to contribute to this discussion on the consumer wireless experience. 

I hold the Pioneers Chair and serve as a Professor of Telecommunications and 

Law at Penn State University. As a teacher, researcher,1 observer of student behavior, and cellphone service subscriber, I am working to understand the potential for 

wireless handsets to stimulate innovation, particularly as these devices becomes 

even more widespread and essential. 

Three major developments in the wireless marketplace have a substantial impact 

on consumers and innovation: 

1. The wireless handset will provide a ‘‘third screen’’ for users,2 no less important than what the first screen, television, and the second screen, the personal 

computer monitor, have provided. Wireless handsets have started the migration 

from cordless telephones to a much more diverse ‘‘Swiss Army Knife’’ collection 

of features and functions. But the scope of innovation in handset design depends on a difficult balancing between the sometimes divergent interests of consumers, carriers, and handset makers. 

2. Near exclusive reliance by wireless carriers and their agents on a single business model, which combines wireless service and the handset used to access this 

service, strongly influences what kinds of services handsets can perform, and 

what kinds of software subscribers can download. In exchange for the opportunity to use a subsidized handset, wireless subscribers must agree to a one or 

two year service commitment and accept significant limitations on what services 

their handsets can access and what features their handsets offer. The ability 

to combine handsets and service creates incentives for carriers to secure exclusive distribution rights for choice handsets, such as the Apple iPhone. It also 

motivates carriers to favor ways to recoup their handset subsidies, rather than 

to concentrate on offering unconditional access to features within the handset, 

or services available by downloading software and content to the handset. 

3. Even as some subscribers resort to ‘‘self-help’’ strategies to remove limitations,3 legislation should direct the Federal Communications Commission 

(‘‘FCC’’) to ensure non-discriminatory access to wireless networks and services, 

and to order carriers to eliminate handset exclusivity arrangements. Forty 

years ago, the FCC established its Carterfone policy that specified the right of 

consumers to own phones and to attach them and other devices, such as fax machines and modems, to the wired telephone network.4 Applying the Carterfone 

policy to wireless would stimulate innovation in handset design, promote competition, and motivate carriers to make their networks more accessible. 

Third Generation Wireless and Beyond 

Wireless technology has developed along three generations of service. In the first 

generation, from 1984 to the early 1990s, analog cellphones almost exclusively provided voice telephone service. The second generation, which approaches its concluVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00042 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
39 

5See Apple, Inc., App Store and Applications for iPhone, http://www.apple.com/iphone/ 

appstore/. 6 Voice over the Internet Protocol (‘‘VoIP’’) offers voice communications capabilities, much like 

ordinary telephone service, using the packet-switched Internet, for all or part of the link between call originator and call recipient. 7 Brad Stone, Skype, the Web Phone Giant, Brings Cheap Calls to Cellular, THE NEW YORK

TIMES, Internet, Inside Technology (March 29, 2009); available at: http://www.nytimes.com/ 

2009/03/30/technology/internet/30skype.html. 8 ‘‘Tethering is the ability to connect your mobile phone (either wirelessly, over Bluetooth, or 

via a cable) to your PC and use it as a wireless modem. MMS is a format for sending multimedia, such as photos, over the wireless network. In both cases Apple displayed lists of carriers 

around the world who would support these features, and AT&T was not on them.’’ Brad Stone, 

AT&T: Tethering and MMS Coming to the iPhone, THE NEW YORK TIMES, Technology, Bits, 

(June 8, 2009); available at: http://bits.blogs.nytimes.com/2009/06/08/att-tethering-and-mmscoming-to-the-iphone-in-us/. 

sion, offers digital technologies capable of providing many enhancements, including 

text messaging, music downloading, photography, and slow speed access to the 

Internet. The third generation, promises a variety of features at least in theory no 

less numerous and diverse than what consumers can access via computers and television sets. 

I use the phrase ‘‘in theory,’’ because the combination of handset and service enables wireless carriers to impose limitations on what handsets subscribers can use, 

the functions performed by these handsets, and what applications subscribers can 

download to their handsets. Even the much-touted Apple iPhone has significant limitations. Apple now offers over 30,000 diverse applications,5 quite a large number 

as compared to what other handsets can download. But consider 30,000 in the context of the millions of applications available via personal computers. Innovators with 

hopes for offering the next ‘‘killer application’’ have limited prospects if one or more 

of the major wireless carriers choose not to allow subscribers to access the service, 

or download the software. 

The list below identifies many of the handset limitations wireless carriers have 

imposed: 

Locking handsets so that subscribers cannot access competitors’ networks (by 

frequency, transmission format, firmware, or software). Some carriers even lock 

handsets designed to allow multiple carrier access by changing an easily inserted chip, commonly referred to as the Subscriber Identity Module; 

Using firmware ‘‘upgrades’’ to ‘‘brick,’’ i.e., render inoperative, the handset, or 

alternatively disable third-party firmware and software; 

Disabling handset functions, e.g., bluetooth, Wi-Fi access, Internet browsers, 

GPS services, and e-mail clients; 

Specifying formats for accessing memory, e.g., music, ringtones, and photos; 

Creating ‘‘walled garden’’ access to favored video content of affiliates and partners; and 

Using proprietary, non-standard interfaces making it difficult for third parties 

to develop compatible applications and content. 

The most recent limitation affects when and how iPhone subscribers can use their 

handsets to access services that provide voice communications via the Internet, a 

service commonly referred to as Voice over the Internet Protocol (‘‘VoIP’’).6 AT&T 

will allow subscribers to exploit VoIP innovation supplied by Skype, when they have 

Wi-Fi Internet access, currently available in various standalone ‘‘islands’’ such as 

coffee shops, libraries, hotels, offices, and residences. However, once a subscriber no 

longer has Wi-Fi access, the iPhone contains programming that blocks access to 

Skype via the AT&T wireless network.7 Additionally, AT&T has not yet set a date 

when iPhone subscribers can activate built-in features in their handsets to link lap 

top computers with the Internet via their phone, or to offer enhanced multimedia 

messaging.8

AT&T, to its credit, wants to promote a robust, versatile, and innovative wireless 

handset, an interest in synch with that of Apple, its manufacturing partner, and 

with consumers. But AT&T part ways when handset innovation prevents it from 

maximizing revenues and profits in providing long distance telephone services, particularly costly international calls. Skype offers free international VoIP calls when 

both parties use the Internet, and retails service at pennies-a-minute when a call 

leaves the Internet and travels via conventional telephone networks. AT&T and 

other wireless carriers charge a substantially higher rate for international calls. 

Wireless subscribers suffer when carriers and handset manufacturers lack clear 

incentives to offer the most versatile services and handsets possible. UnderstandVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00043 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
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9 CTIA, The Wireless Association, Wireless Quick Facts (as of Dec., 2008); available at: http:// 

www.ctia.org/advocacy/research/index.cfm/AID/10323 [hereinafter cited as CTIA Wireless 

Quick Facts]. 10 A prominent Wall Street Journal industry analyst has concluded that the wireless carriers 

have succeeded in creating the inference that they are unregulatable: 

A shortsighted and often just plain stupid Federal Government has allowed itself to be bullied 

and fooled by a handful of big wireless phone operators for decades now. And the result has 

ably, wireless carriers need to recoup subsidies in handsets and to offer new services, in addition to offering the basic commodity of wireless transmission time. But 

when carriers and handset manufacturers can readily implement strategies to lock 

down handsets, and to lock out consumers from competing services and features, the 

potential for Swiss Army Knife versatility in handsets diminishes. 

Bear in mind that the limitations imposed by wireless carriers apply regardless 

of whether a subscriber uses an unsubsidized handset, and these restrictions extend 

even after completion of the service commitment by subscribers using subsidized 

handsets. I know of no wireless carrier in the United States that offers lower rates, 

and more relaxed software and third-party access policies for subscribers who activate service with an existing handset, thereby freeing the carrier of having to make 

a subsidy. These type subscribers pay the same rates, on a month-to-month basis, 

as subscribers reimbursing carrier subsidies. 

Liberating Handsets and Spurring Innovation 

Consumers’ right to own and attach any technically compatible device will spur 

competition and innovation in the development of handsets and other devices, as 

well as the software that can customize services. The FCC’s Carterfone policy, established in 1968, made it possible not only for consumers to consider the telephone 

a fashion accessory, but more importantly, to have the freedom to decide what types 

of devices and functions would best serve their needs. More fundamentally, separation of service and equipment supports consumers in their freedom to decide how 

to use the telecommunications and information services available from wireless 

handsets now and in the future. 

We take for granted the right to own and attach telephones to the wired network 

and that freedom should extend to wireless networks, subject to legitimate and 

readily addressed network management and spectrum interface concerns. Television 

broadcasters have no right to determine how consumers use their television sets, including accessing video content from competing sources such as cable television and 

DVDs. Likewise, no personal computer manufacturer or software vendor can regulate what consumers see on their monitors and what services they can access. 

Remarkably, the 270.3 million wireless cellphone subscribers in the United 

States 9 do not have the same freedoms for the third screen as they do for television 

sets, computer monitors, and wired telephone service. If the wireless handset marketplace worked like its wired counterpart, carriers would derive limited benefit 

from exclusive handset distribution agreements, and they could not program restrictions on the limited types of phones they make available. Manufacturers would have 

great reluctance in disabling features, or refraining from devising new ones that carriers do not want consumers to have. 

Applying Carterfone Policy to Wireless Service Promotes Innovation, Helps 

Consumers, and Offers Carriers the Opportunity to Pursue Different 

Business Models. 

Wireless carriers seem to perceive a wireless Carterfone policy as technologically 

infeasible, imposing more regulation, guaranteeing greater subscriber churn, and 

adversely impacting profitability. Just as wired carriers did in the 1960s, wireless 

carriers dismiss any likelihood that separating handsets from service providers will 

generate more opportunities to develop networks that stimulate usage, customer 

loyalty, and diversification of services available from a wireless network. I see no 

basis for concluding that the upside benefits accruing from the wired Carterfone policy somehow will not apply to wireless networks. 

The wired Carterfone policy triggered widespread innovation in handsets and 

other devises located on customer premises. Such advancement did not shut down 

parallel progress in wired telecommunications, but instead promoted increased network use by a diversifying array of equipment. Rather than cause harm to telephone 

employees and networks, consumers’ freedom to attach devices of their choice enhanced the utility of the network and the satisfaction of subscribers with the network. 

When we move from a discussion about the benefits of wired Carterfone to wireless networks, carriers seek to frame the issue as one involving burdensome regulatory intrusions,10 unnecessary and inappropriate in light of how competitive, innoVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00044 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
41 

been a mobile phone system that is the direct opposite of the PC model. It severely limits consumer choice, stifles innovation, crushes entrepreneurship, and has made the U.S. the laughingstock of the mobile-technology world, just as the cellphone is morphing into a powerful handheld computer. . . . That’s why I refer to the big cellphone carriers as the ‘Soviet ministries.’ 

Like the old bureaucracies of communism, they sit athwart the market, breaking the link between the producers of goods and services and the people who use them. 

Posting of Walt Mossberg to All Things Digital (Mossblog), Free My Phone, (Oct. 21, 2007) 

available at: http://mossblog.allthingsd.com/20071021/free-my-phone/. 11Title II of the Communications Act, as amended, 47 U.S.C. § 201 et. seq. (2008) requires providers of basic telecommunications services to operate on a nondiscriminatory basis, providing 

services on just and reasonable charges and also subject to numerous entry regulations, 

tariffing, interconnection, and operating requirements. 12See Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103–66, 107 Stat. 312, Pub. 

L. No. 103–66, Title VI, § 6002(b), amending the Communications Act of 1934 and codified at 

47 U.S.C. § 332(c) creating a hybrid, streamlined regulatory classification for Commercial Mobile 

Radio Service Providers, commonly known as cellular telephone carriers. The term ‘‘commercial 

mobile service’’ is defined by the Communications Act of 1934, as amended, as ‘‘any mobile service . . . that is provided for profit and makes interconnected service available: (A) to the public 

or (B) to such classes of eligible users as to be effectively available to a substantial portion of 

the public, as specified by the Commission.’’ Communications Act § 332(d)(1), 47 U.S.C. 

§ 332(d)(1)(2008). ‘‘Mobile service’’ is defined at Section 3 of the Act. Communications Act § 3(27), 

47 U.S.C. § 153(27)(2006). The term ‘‘commercial mobile service’’ came to be known as the ‘‘commercial mobile radio service.’’ 47 C.F.R. § 20.3(2008). 13See Reexamination of Roaming Obligations of Commercial Mobile Radio Service Providers, 

Report and Order and Further Notice of Proposed Rulemaking, 22 FCC Rcd. 15817 (2007). 14 ‘‘[O]ur venerable Carterfone principles, for example, were first established via adjudication 

and then codified into rules.’’ Formal Complaint of Free Press & Public Knowledge Against 

Comcast Corp. for Secretly Degrading Peer-to-Peer Applications, 23 FCC Rcd.13028, 13050 

(2008) available at http://hraunfoss.fcc.gov/edocslpublic/attachmatch/FCC–08–183A1.doc 

[hereinafter cited as Free Press Complaint]. 15See, e.g., Pub. Util. Comm’n of Tex. v. FCC, 886 F. 2d 1325, 1329 (D.C. Cir. 1989) (noting 

long established FCC policy that carriers and non-carriers alike have a Federal right to interconnect to the public telephone network in ways that are privately beneficial if they are not publicly detrimental); Am. Tel. & Tel. Co.’s Proposed Tariff Revisions, 53 F.C.C.2d 473, 477 (1975), 

aff’d sub nom. Mebane Home Tel. Co. v. FCC, 535 F.2d 1324, 1329 (D.C. Cir. 1976); Telerent 

Leasing Corp., 45 F.C.C.2d 204, 205 (1974), aff’d sub nom. N.C. Util. Comm’n v. FCC, 537 F.2d 

787 (4th Cir. 1976), cert. denied, 429 U.S. 1027 (1976). 16 ‘‘[T]he Commission adopted the widely respected Carterfone principles via adjudication.’’ 

Free Press Complaint, 23 FCC Rcd. at 13045. 17 ‘‘Internet, consumers are entitled to connect their choice of legal devices that do not harm 

the network.’’ Appropriate Framework for Broadband Access to the Internet Over Wired Facilities, Policy Statement, 20 FCC Rcd. 14986, 14988 (2005). 18Service Rules for the 698–746, 747–762 and 777–792 MHz Bands, Second Report and Order, 

22 FCC Rcd. 15289(2007). 19DTV Delay Act, Pub. L. No. 111–4, 123 Stat. 112 (Feb. 11, 2009). 20 Implementation of the DTV Delay Act, MB Docket No. 09–17, Third Report and Order and 

Order on Reconsideration, 24 FCC Rcd. 3399 (2009). 21FCC rules ensure ‘‘that all cable TV viewers, including the 98 million analog-only cable TV 

viewers, retain the same access to their local stations after the transition as they have today. 

The rules require cable operators to comply with the statutory viewability requirement by choosing to either: (1) carry digital signals in analog format, or (2) for all-digital systems, carry the 

Continued 

vative, and successful the wireless industry has become. Applying the Carterfone 

policy does not impose new, or additional regulations. Cellphone companies operate 

as telecommunications service providers, already obligated by Title II 11 and III of 

the Communications Act of 1934, as amended, to comply with FCC common carrier 

regulations.12 The fact that wireless carriers now offer information and video services does not diminish their common carrier responsibilities.13

Wireless carriers also assert that the Carterfone policy had a legitimate and necessary function only back in the time when a monopoly Bell System dominated all 

aspects of telephone service. The FCC has applied its ‘‘venerable,’’ 14 longstanding,15

and ‘‘widely respected’’ 16 Carterfone policy in many ways and for many different 

types of competitive industries well after divestiture of AT&T and its Bell System. 

For example, the FCC included the Carterfone open access concept in the Commission’s 2005 Policy Statement of what freedoms consumers have a right to expect 

when accessing the Internet.17 The Commission also established an ‘‘Open Platform’’ 

requirement for a portion of the choice 700 MHz spectrum made available by the 

conversion to digital television.18 Speaking of digital television, the FCC established 

a long conversion period, and Congress extended it,19 so that consumers could acquire the necessary digital converter to continue watching broadcast television without having to replace their existing analog sets.20

The FCC has ordered cable television companies to continue offering service to 

‘‘cable ready’’ analog televisions that do not require installation of a set top box.21

42 

signals only in digital format, provided that all subscribers have the necessary equipment to 

view the broadcast content. The viewability requirements apply from June 12, 2009 through 

February 2012, subject to review by the Commission during the last year of this period. Carriage 

of Digital Television Broadcast Signals: Amendment to Part 76 of the Commission’s Rules, CS 

Docket No. 98–120, Third Report and Order and Third Further Notice of Proposed Rule Making, 

22 FCC Rcd 21064 (2007). 22 ‘‘[A] CableCARD . . . plugs into a slot in a host navigation device, permitting the device 

to perform both the security and non-security functions.’’ Charter Communications, Inc. v. Federal Communications Commission, 460 F.3d 31, 34 (D.C. Cir. 2006) available at: http:// 

www.cesweb.org/sharedlfiles/edm/2006/govalert/DCCircuitAdvanceNewhousevFCCOrder081 

806.pdf. 23See Implementation of the Cable Television Consumer Protection and Competition Act of 

1992, Development of Competition and Diversity in Video Programming Distribution: Section 

628(c)(5) of the Communications Act: Sunset of Exclusive Contract Prohibition, MB Docket No. 

07–29, Report and Order and Notice of Proposed Rulemaking , 22 FCC Rcd. 17791 (2007). 24 ‘‘The ability of end users to retain their telephone numbers when changing service providers 

gives customers flexibility in the quality, price, and variety of telecommunications services they 

can choose to purchase. Number portability promotes competition between telecommunications 

service providers by, among other things, allowing customers to respond to price and service 

changes without changing their telephone numbers. The resulting competition will benefit all 

users of telecommunications services. Indeed, competition should foster lower local telephone 

prices and, consequently, stimulate demand for telecommunications services and increase economic growth.’’ Telephone Number Portability, CC Docket No. 95–116, First Report and Order 

and Further Notice of Proposed Rulemaking, 11 FCC Rcd 8352, 8368 (1996). 25 CTIA, Wireless Quick Facts. 26 ‘‘Few doubt that the future of telecommunications will rely mostly on broadband and wireless technologies. Wireless and broadband technologies are transforming the telecommunications 

market, offering users ubiquitous access to voice, data, and Internet services. The number of 

mobile subscribers has already surpassed that of end-user switched access lines served by local 

exchange carriers.’’ National Regulatory Research Institute, Methods for Analyzing the Effects 

of Broadband and Wireless Services on Competition in Local Telephony, Project Announcement; 

available at: http://www.nrri.ohio-state.edu/current-projects/telecommunications/methods-foranalyzing-the-impact-of-broadband-and-wireless-services-on/. 

Additionally, the FCC prevents device lock in by requiring cable television operators 

to support CableCard access to programming in lieu of mandatory leasing of a cable 

company supplied set top box for watching digital television service tiers.22 To guard 

against cable operators exploiting the ability to favor content created by affiliates, 

Congress prohibited exclusive program access deals.23 Even in the wireless marketplace, the FCC has mandated number portability to prevent locking in subscribers 

by preventing them from using the same telephone number when shifting carriers.24

Wireless carriers appear to have concluded that applying the Carterfone policy 

could lead to higher rates of customer churn, because fewer subscribers might acquire a subsidized phone and accordingly would not have to commit to a one-, or 

two-year term of service. The policy does not absolutely guarantee increases in 

churn, particularly if wireless carriers work harder to customize service, to respond 

to consumers’ diverse service requirements, and to provide service via any functioning handset. Wireless carriers would have to consider implementing alternative 

business models, including ones where customers initiate service using an existing 

handset instead of using a new one subsidized by the carrier. Under this scenario, 

the carrier might have to offer a discounted rate, but service diversification and discounting constitute two strategies any business must consider in a maturing market. 

After having achieved a nearly saturated market of 87 percent penetration,25

wireless carriers should consider service diversification and as well differentiating 

their brand by something other than the likelihood of getting reliable service and 

the handset choices they offer. 

Conclusions and Recommendations 

Technological and marketplace convergence favor increasing reliance on the Internet as a medium for delivering all kinds of information, communications and entertainment services. Already the Internet makes it possible for carriers and consumers to combine traffic onto a single Internet conduit in lieu of using separate 

networks to carry voice, data, and video traffic. Wireless access to the Internet, via 

next generation networks, will offer consumers the potential to use a truly 

broadband information superhighway.26 However, if wireless carriers continue to 

limit subscribers’ handset options, the breadth and scope of wireless access will not 

achieve parity with wired alternatives. 

I see no compelling case why wireless networks should not offer consumers the 

same access opportunities as available from wired broadband networks. Any limitations on access can frustrate consumers, stifle innovation in wireless services and 

software applications, and adversely affect the international competitiveness of 

43 

United States equipment and services. Many nations do not permit the bundling of 

wireless service and handsets. Such separation does require wireless consumers initially to pay more for their handsets, in light of the absence of a carrier subsidy. 

But bear in mind that because U.S. wireless carriers do not operate as charities, 

consumers surely pay for their upfront subsidy over the one-, or two-year service 

commitment. In nations prohibiting the bundling of handsets and service, carriers 

typically offer a broader array of service plans, including many more pre-paid, calling card opportunities for low volume callers. 

Mandating consumer access freedom supports development of separate wireless 

handset and service markets. This will create incentives for wireless equipment 

manufacturers to offer customized solutions to diverse user requirements. Additionally, it will create greater incentives for wireless carriers to come up with innovative 

service plans, and to compete based on how many different services wireless devices 

can access. 

Senator KERRY. Thank you very much, we appreciate it, Mr. 

Frieden. 

Ms. Esbin? 

STATEMENT OF BARBARA S. ESBIN, SENIOR FELLOW 

AND DIRECTOR OF THE CENTER FOR COMMUNICATIONS 

AND COMPETITION POLICY, THE PROGRESS & FREEDOM 

FOUNDATION 

Ms. ESBIN. Thank you, Senator Kerry, and members of the Committee for the opportunity to testify on the issue of wireless 

handset exclusivity. My name is Barbara Esbin, I’m a Senior Fellow at the Progress and Freedom Foundation, a think-tank focused 

on the digital economy. 

My research indicates that exclusive handset arrangements have 

brought palpable benefits to both consumers and competition within the wireless sector, because both the wireless services and 

handset markets are robustly competitive and show no evidence of 

market failure, a regulatory prohibition on such exclusive arrangements would be ill-advised. Consumers will remain protected from 

demonstrable anti-competitive activity or unfair and deceptive 

practices in this sector by our anti-trust and consumer protection 

authorities. 

The FCC has repeatedly found the wireless marketplace to be effectively competitive, not perfectly competitive, but effectively competitive. The most recent report found that over 90 percent of U.S. 

residents live in areas served by four or more mobile carriers and 

that, ‘‘Consumers continue to reap significant benefits, including 

low prices, new technologies, improved service quality, and choice 

among providers of commercial mobile radio services.’’ 

The level of concentration in the U.S. wireless carrier market is 

below that of other nations and below the usual level of concern for 

the anti-trust authorities. The wireless handset market is even 

more robustly competitive. There are hundreds of models sold in 

the U.S., manufactured by 33 companies. No single firm appears to 

have market power in the handset market, and certainly no single 

firm may be viewed as the sole source of innovation. 

The typical exclusive handset agreement grants the carrier an 

exclusive distribution right for a particular handset model or a set 

of features for a limited period of time. Carriers are willing to pay 

for exclusive arrangements, because offering subscribers a hot new 

handset is a way to differentiate their service. 

44 

The FCC has acknowledged that product differentiation is a natural competitive response by carriers to customer churn. Churn 

itself is a sign of competition and the exclusive arrangements are 

simply a feature of an intensely competitive market. 

Handset manufacturers benefit from the exclusives by being able 

to develop the initial version of a device for one type of network, 

ensuring both speed to market and some control over the user experience. Guaranteed minimum orders from the manufacturer, another common feature, can remove some of the risks associated 

with a new product offering, thus permitting riskier and more innovative designs. Each side of the exclusivity transaction benefits, but 

more importantly, consumers benefit in terms of gaining innovative 

handset features, applications, and services. 

Analysts have noted that the exclusives are fairly good from the 

consumer standpoint, because guaranteed distribution incentivizes 

the carriers to heavily promote the product and offer subsidies to 

lower the price of the phone for consumers. Prohibiting such arrangements and effectively mandating that all offerings look the 

same would leave the carriers with fewer options to attract customers. Over the long term, it would likely lessen rather than enhance competition and consumer welfare. 

Indeed, since 1992, when there were only two mobile carriers per 

region and far fewer equipment manufacturers, the FCC has permitted exclusive handset arrangements in light of competition in 

the relevant markets. 

Today’s wireless carriers, facing far greater service competition 

and increased numbers of suppliers, have even less economic power 

to stop equipment manufacturers from working with other carriers. 

In the case of the iPhone, for example, it was Apple, a new entrant 

with a single handset, who sought exclusivity and tightly-controlled 

product development, rather than AT&T. 

Exclusivity is far from a rarity in the world of cell phones and 

is not a practice limited to large carriers. Even some mobile virtual 

network operators have successfully obtained such agreements, 

which one would not expect if these arrangements were the result 

of the exercise of market power. 

The dynamic created by exclusive handset arrangements has allowed equipment manufacturers and carriers to bridge the gap between the technologies of today and the disruptive innovations of 

tomorrow. If exclusive arrangements were to be prohibited today, 

we would run the risk that all Americans will miss out on the dramatic benefits of innovation tomorrow, thus banning exclusive arrangements would effectively spite all consumers by ensuring that 

if some consumers can’t have the fruits of device innovation immediately, then none may. 

I respectfully submit that upon further development of the 

record, neither Congress nor the Commission will find the need for 

additional action on the matter of exclusive handsets. 

Thank you again for the invitation to testify and I welcome any 

questions. 

[The prepared statement of Ms. Esbin follows:] 

45 

PREPARED STATEMENT OF BARBARA S. ESBIN, SENIOR FELLOW AND DIRECTOR OF THE

CENTER FOR COMMUNICATIONS AND COMPETITION POLICY, THE PROGRESS & 

FREEDOM FOUNDATION

I. Introduction 

Chairman Rockefeller, Ranking Member Hutchison, and members of the Committee, good afternoon and thank you for inviting me to discuss the issue of handset 

exclusivity arrangements. My name is Barbara S. Esbin, and I am a Senior Fellow 

at the Progress & Freedom Foundation, a non-profit think tank that is focused on 

the digital economy. As Director of PFF’s Center for Communications and Competition Policy, I have endeavored to develop and advocate an evidence-based policy 

framework that relies to the maximum extent possible on competitive forces to 

achieve next generation infrastructure deployment and service innovation in the 

communications industries. Prior to joining PFF, I spent over fourteen years as a 

regulatory attorney at the Federal Communications Commission, where I held a variety of senior staff positions with the Common Carrier, Wireless Telecommunications, Cable Services, Media, and Enforcement Bureaus. 

My testimony will focus on the ongoing debate about exclusive handset arrangements and their role in the consumer wireless experience. On the basis of my research into the issue, it is my conclusion that the wireless service and handset markets are effectively, if not robustly, competitive; that exclusive handset arrangements have brought palpable benefits to both consumers and competition within the 

wireless sector; and that regulatory intervention to prohibit such arrangements 

would be ill-advised. Any actual consumer harm arising from demonstrable anticompetitive activity or unfair and deceptive practices would be better handled 

through our antitrust and consumer protection authorities. 

II. The Wireless Service and Handset Markets are Thriving 

In January of this year, the FCC’s Wireless Telecommunications Bureau released 

its Thirteenth Annual Report on the state of competition in Commercial Mobile 

Radio Services. It found that there is effective competition in the CMRS market and 

that ‘‘U.S. consumers continue to reap significant benefits—including low prices, 

new technologies, improved service quality, and choice among providers—from competition in the CMRS marketplace, both terrestrial and satellite CMRS.’’ American 

consumers may receive service from a host of national, regional, and small providers, including dozens of mobile virtual network operators (MVNOs). According to 

the report, ‘‘there was an approximate 8 percent increase in the percentage of the 

U.S. population with access to five or more different mobile telephone operators in 

1 year, from nearly 57 percent at the end of 2006 to almost 65 percent at the end 

of 2007. Moreover, approximately 96 percent of the total U.S. population lives in 

areas where three or more different operators compete to offer mobile telephone 

service in some parts of those counties, while nearly 91 percent of the U.S. population continues to live in counties with four or more mobile telephone operators 

competing to offer service.’’ According to information compiled by CTIA—The Wireless Association, the United States has the lowest HHI (that is, the least concentration) among wireless carriers of the 26 Organisation for Economic Co-operation and 

Development countries tracked by Merrill Lynch. Further, in the U.S., the top four 

carriers control only 86 percent of the market, yet in 23 of the 26 OECD countries, 

the top four carriers control 100 percent of the market. No U.S. carrier has a market 

share appreciably over 30 percent, which is well below the level of concern for antitrust authorities. 

There is also extremely healthy competition in the market for wireless handsets. 

InformationWeek reported U.S. handset market shares for the larger suppliers as 

of late 2008: 22.4 percent for Samsung, 21.1 percent for Motorola, 20.5 percent for 

LG, 10.2 percent for Research in Motion, 8.4 percent for Nokia, and 5.7 percent for 

Apple. CTIA reports that there are over 630 handsets sold in the United States, 

manufactured by 33 companies. These devices are sold by both carriers and a vast 

number of retailers, including ‘‘Big Box’’ and national electronics stores, independent 

retail outlets, manufacturers’ stores and websites, and online auction sites. In nearly every case (Apple has only one handset to sell: the iPhone), handset manufacturers offer a variety of models, only a few of which are sold under exclusive distribution agreements. New products are hitting the market regularly, and prices for existing models are dropping. Additionally, in the past year, several on-line ‘‘applications stores’’ have launched, making over 40,000 applications suitable for wireless 

devices available to consumers. There is every reason to expect this cycle of innovation to continue to grow, as carrier networks evolve to support the new handsets 

and applications, and the latter develop to utilize the former. 

46 

This level of competition for both services and equipment has directly benefited 

wireless consumers as a whole. The price per minute of service in the United States 

is the lowest of the 26 OECD countries tracked by Merrill Lynch. From December 

2006 to December 2007, the average number of minutes each subscriber used per 

month increased 7.7 percent and the average numbers of text and multimedia messages each subscriber sent each month doubled. 

The evidence above clearly illustrates that the market for both wireless carriers 

and handsets in the U.S. is competitive and innovative, and is delivering consumer 

benefits. Yet rural carriers have painted a vastly more pessimistic picture of today’s 

wireless marketplace, one in which the market is dominated by four large nationwide carriers with large enough subscriber bases to exert significant influence on 

handset manufacturers, such that no manufacturer can afford not to ‘play ball’ with 

the largest wireless carriers. The rural carriers do not claim that the handset markets are uncompetitive; rather they stretch to argue that consumers and smaller 

competitors are harmed by the actions of the ‘‘Big Four’’ carriers (AT&T Mobility, 

Verizon Wireless, Sprint Nextel , and T-Mobile) in accepting these exclusive deals 

because the effect is to deprive some consumers of either their desired handset, 

their desired carrier, or both. 

But this overstates the market power of the carriers when it comes to desirable 

new handsets. First, as discussed previously, the FCC has found the wireless services market is subject to effective competition. Although the largest national carriers 

may be large, the level of concentration in these markets is below that which is typically of concern to the antitrust authorities. The RCA Petition alleges that the ‘‘Big 

Four’’ carriers today exercise ‘‘monopolistic’’ control over device manufacturers and 

use their market power to force manufactures into exclusive relationships that harm 

the ability of rural carriers to compete. In the case of high-end handsets, the very 

opposite seems true: It appears now that it is the manufacturers who ‘‘command’’ 

the carriers, and the manufacturers are under no generalized ‘‘duty to deal’’ under 

our antitrust laws. Economists have long recognized the benefits of exclusive deals 

entered into by companies who lack substantial market power. 

Even the RCA Petition acknowledges that ‘‘unique services and features’’ are a 

key element of competition among carriers. The FCC itself has noted that exclusive 

handset arrangements—i.e., product differentiation—is a natural competitive response by carriers to the high customer ‘‘churn’’ rates they face. In other words, 

‘‘churn’’ is the sign of a competitive marketplace and the exclusive arrangements are 

a simply feature of an intensely competitive market, rather than an ‘‘unfair’’ or 

‘‘anticompetitive’’ tool. 

Rural consumers are by no means bereft of attractive options for smartphones and 

other advanced handsets. There is less a ‘‘smartphone divide’’ than ‘‘lag’’ in the 

availability of certain models in certain regions of the country. Even if the leaderof-the-pack, the iPhone, remains available in the U.S. exclusively through AT&T for 

another year or two, there are already a wide variety of increasingly sophisticated 

alternatives to the iPhone, each of which also has a limited period of exclusivity 

with a single carrier. And the other large carriers have all announced plans to support ‘‘open’’ applications and handsets, with not one but two emerging open-source 

mobile platforms—Google’s Android and Linux Mobile or ‘‘LiMo.’’ 

III. Calls for Exclusive Handset Prohibitions Overstate the Harms and 

Understate the Pro-Competitive Benefits 

The typical exclusive handset agreement permits the product distributor, the 

wireless carrier, an exclusive right to distribute the product for some period of time. 

Exclusive handset arrangements benefit the manufacturer, the carrier and ultimately, the consumer. The deals typically include a guaranteed minimum order, 

which gives the carrier an incentive to heavily promote the product and offer subsidies to lower the price of the phone to consumers. Such arrangements can enable 

the research and development of more innovative—that is, riskier—handsets knowing that the carrier partner has greater incentive to promote and support the result. 

For manufacturers of smartphones such as the Apple iPhone, RIM Blackberry, and 

Palm Pre, securing a large base of users is especially important as it ensures that 

third-party developers will develop applications for the handset. As the number of 

third-party applications increases, the handsets are even more desirable. As Apple 

itself expressed it, ‘‘Your iPhone gets better with every new app.’’ 

Carriers are willing to pay for the right to be the sole retailer of a ‘‘hot’’ new 

handset in the belief that the handset will draw in new customers. The ability to 

lure subscribers with a handset that has created a ‘‘buzz’’ is a key element in operator differentiation, and differentiation is what permits companies to thrive in a 

competitive environment. AT&T improved its position with the iPhone and now 

Sprint is hoping to do the same with its exclusive introduction of the Palm Pre. For 

47 

smartphones, these new customers often also have higher bills because of increased 

data usage, resulting in even more revenue for the carrier. The net result is a competitive wireless services market that offers consumers a variety of devices, applications, service plans, and content associated with their wireless handsets. 

Exclusivity is far from a rarity in the world of cell phones, and it is not a practice 

limited only to the largest carriers. Many carriers work closely with manufacturers 

to offer the specific package of features that they think will be most desirable to 

potential customers. For example, Cellular South’s ‘‘Pic Sender’’ feature automatically delivers every picture taken with the built-in camera in a subscriber’s cell 

phone to a specific e-mail account, a folder on the user’s computer, or photo sharing 

websites. T-Mobile’s Hotspot Calling feature allows certain of its WiFi-enabled 

phones to make unlimited calls from any WiFi hotspot and can seamlessly transition from WiFi to cellular networks. And as a startup with no customers, Jitterbug 

was able to work with Samsung to design and manufacture an exclusive handset 

designed specifically for the elderly, thus differentiating itself from other providers. 

Jitterbug is now a successful MVNO with 5 million subscribers. Helio (which was 

recently sold to Virgin Mobile), another small MVNO that never had more than 

170,000 subscribers, worked with Pantech to develop one of 2007’s most talked 

about phones, the Ocean. 

There are many potential developers of innovative handsets, including both traditional manufacturers and new entrants such as Apple and Google. No single firm 

appears to have market power in the handset market, and certainly no single firm 

may be viewed as a sole source of innovation. The fact that small MVNOs can procure innovative ‘‘exclusive’’ handsets strongly suggests that there is no market failure to be addressed by regulatory intervention. 

A. The iPhone is an Example of a Successful Exclusive Distribution Arrangement 

Back in 2005, what we now know as the ‘‘iPhone’’ was just a concept, with no 

name, design plan or operating system, offered by a computer company with neither 

market share nor experience in wireless service or devices. This was a risky venture 

for both the equipment designer and the wireless carrier, one that has paid off 

handsomely. But the success of the iPhone follows the failure of Apple’s first attempt to bring its iTunes music service to the mobile phone: the Motorola ROKR, 

launched in September 2005. The ROKR failed, in part, because Motorola insisted 

on loading the phone with its standard software. ROKR’s failure to meet Apple’s expectations caused the company to launch development of its own mobile phone product. 

Part of the iPhone’s success is because of features, such as Visual Voicemail, that 

were only possible through changes to the carrier’s wireless network. Apple originally began negotiations with Verizon to be the exclusive carrier of its product, but 

Verizon was unwilling to meet Apple’s demands, which also included limitations on 

the set of retailers for its handsets. Apple then turned to Cingular (now AT&T). 

AT&T was willing to cede control and take the risk of modifying its network and 

entering into an exclusive arrangement when the iPhone’s market success was unknown. AT&T recognized that only by letting Apple take the lead on technological 

development could a truly revolutionary device be created. The resulting partnership allowed the two companies to make significant investments to develop a radically innovative device while ensuring that the phone and its new features would 

function properly on AT&T’s network, thus guaranteeing the high-level user experience that Apple seeks for its devices. 

In agreeing to be the exclusive provider of wireless service for this product, AT&T 

gave up the substantial sway that carriers normally had over how phones were developed and marketed for use on their wireless networks. Both carrier and equipment manufacturer took considerable risks, and contributed substantial assets toward product development. Nearly eighteen months and $150 million in development costs later, the iPhone was born. 

The iPhone was not only a revolutionary product in terms of design and features. 

The original business model struck between Apple and AT&T was revolutionary as 

well: It appears to be the first time a handset manufacturer was able to obtain a 

share of the monthly subscriber revenues generated by its product. When the followup ‘‘iPhone 3G’’ was launched in 2008, it was sold for $199, less than half the price 

of the original. This dramatic price reduction reflected a change in the business 

model: AT&T agreed to pay Apple a subsidy of about $300 per device, according to 

industry analysts, to help hold down the retail cost of the handset to consumers. 

Although this represented a reversion to the traditional business model of carrier 

subsidization of handsets, at $199, the iPhone became far more affordable for the 

average wireless user and available to a vastly expanded customer demographic. 

48 

This continual cycle of technological innovation, aided by flexible business arrangements, has led to iPhone capacity increasing and prices dropping approximately $500 in a 2-year period. Overall, this is an extremely consumer-friendly outcome, as it brings the iPhone, first released as a very high-end wireless phone and 

data product, within the reach of average wireless users. Regulation, with its inherent delays and disputes, simply cannot produce comparable consumer benefits. 

B. The Harms of Exclusive Arrangements are Overstated 

One might think that everyone would celebrate the iPhone as a breakthrough 

stimulus to innovation in the handset market as well as to the business relationships between carriers and equipment manufacturers. Yet, on May 20, 2008, the 

Rural Cellular Association (RCA) petitioned the FCC to investigate whether the 

agency should prohibit as anticompetitive the business model that helped bring the 

iPhone to fruition: an exclusive arrangement between the wireless carrier and the 

handset manufacturer. This is a profoundly backward-looking request, and I respectfully suggest that both the FCC and Congress decline the invitation. 

RCA’s Petition to the FCC casts the Nations’ ‘‘Big Four’’ carriers variously as ‘‘monopolistic,’’ ‘‘dominant,’’ and ‘‘oligopsonistic’’ villains who use their market power to 

‘‘command’’ exclusive arrangement’s like that between AT&T and Apple. The RCA 

Petition claims that its members are challenged in their ability to compete with the 

‘‘Big Four’’ not only by their inability to access wireless handsets comparable in 

function and style to the high-end exclusive handsets, but by virtue of their inability 

to command the same volume discounts from vendors as the largest carriers, creating what RCA states is a ‘‘wireless marketplace bordering on oligopsony.’’ The alleged ‘‘oligopsony’’ is a small group of carriers who, as handset buyers, supposedly 

exercise market power over handset suppliers. But the RCA Petition overlooks the 

fact that rival handset manufacturers offer many advanced handsets with features 

that are competitive with the most popular models sold under exclusive distribution 

arrangements, and that several of these models are available to and offered by RCA 

member companies, including the HTC ‘‘Touch’’ series of phones (offering 

touchscreen, Internet access, e-mail and music capability). 

In addition to their alleged harms to smaller competitors, the RCA Petition claims 

that the exclusives create two distinct forms of consumer harm: (I) Consumers in 

‘‘Big Four’’ service areas are forced to purchase service from a carrier they may not 

wish to use in order to utilize their handset of choice (which will cost more due to 

the lack of competition for distribution), and (ii) consumers in the foreclosed areas 

(those served by RCA members) are denied the opportunity to obtain service for the 

premium handsets they desire. 

There is not yet—nor should there be—a governmentally-sanctioned right to obtain a particular handset (no matter how desirable that handset might be). Where 

both the handset manufacturer and the carrier service markets are effectively—if 

not robustly—competitive, the lack of availability of some equipment in certain 

parts of the country today should not give rise to an FCC rulemaking tomorrow. 

RCA offers not a shred of evidence that the iPhone, for example, would cost less 

but for the exclusive distribution deal with AT&T. Nor would it seem likely that 

such a case could be made. There has been a steady decline in iPhone prices and 

the introduction of larger-capacity phones since its introduction 2 years ago. Nor do 

these arguments take into account that despite its initial premium (although falling) 

price, the iPhone has set record sales globally since its introduction. Again, this is 

the sign of a highly desirable product for which consumers are willing to pay a high 

price—in other words, the sign of a healthy marketplace, not one hobbled by anticompetitive activity. 

Additionally, it is argued that exclusive arrangements are disproportionably 

harmful to rural consumers. An unstated premise of the rural carrier’s request that 

exclusives be prohibited is that consumers in every area of the country have a legal 

or perhaps even constitutional right to the smartphone of their choice, and that any 

business arrangement that restricts the exercise of this right is, in essence, ‘‘contrary to the public interest.’’ This is an extraordinary proposition, unsupported by 

fact, law, or reason. 

Consumers today have an incredible array of wireless devices before them, and 

are by no means foreclosed from obtaining competitive wireless services by reason 

of the exclusive handset agreements. Moreover, the exclusive handset arrangements 

in the market today are for limited periods of time, and appear to be undergoing 

significant renegotiation by the principals as the market for these products evolves. 

Resolution of the thorny problem of the correct duration of an exclusive distribution 

arrangement is best left to freely negotiated contractual arrangements between the 

carrier and the equipment manufacturer. 

49 

RCA has argued that such arrangements harm rural consumers (and, of course, 

RCA’s members) because only the largest wireless carriers are able to command 

these exclusive arrangements, leaving small rural wireless carriers and their customers without access to the most innovative handsets and services. According to 

RCA, the combination of Apple’s exclusive U.S. deal with AT&T and the carrier’s 

policy of barring its users from spending more than 40 percent of their time roaming 

off-network effectively renders the iPhone unavailable to subscribers in RCA member service territories. 

The argument that these deals are driven by the market power of the four largest 

national wireless carriers, who use exclusive arrangements as a weapon against 

their competitors, including rural carriers, overlooks the fact that, if the iPhone is 

unavailable in certain rural areas, it is because AT&T does not compete as an originating carrier in that area. The sought-after prohibition on a wireless carrier’s ability to enter into an exclusive handset distribution agreement with an equipment 

manufacturer would effectively regulate the equipment manufacturer’s ability to 

conduct business in a profitable manner. It would interfere with the manufacturer’s 

ability to freely contract the terms and conditions under which it sells its products, 

by imposing a back-door ‘‘duty to deal’’ with each and every wireless carrier. This 

would be both unprecedented and bad public policy. 

C. The Benefits of Exclusive Handset Arrangements Are Increased Innovation and 

Competition 

Now that the iPhone’s success is established, why should other carriers that were 

initially unwilling to take the risk be able to share in the success? More importantly, if every wireless carrier had been able to sell the iPhone when it was initially released, it is unlikely that there would have been as much carrier support 

for developing competing products such as Google’s G1, Research In Motion’s touch 

screen Blackberry Storm, Samsung’s Instinct, or Palm’s Pre. And without those 

smartphones to compete with, Apple might have had little incentive to release the 

second-generation and now third-generation iPhones so quickly after the initial 

iPhone’s release. For its part, Congress and the FCC should let the competitive 

forces of the wireless services and handset markets continue to produce devices like 

the iPhone unhindered by unnecessary government intervention. 

Arguments that exclusive agreements doom rural customers to dwell forever on 

the wrong side of the so-called ‘‘Digital Divide’’ between urban/suburban residents 

with access to the hottest new smartphones and rural customers without ignores an 

even more important divide: that between the technologies of today and the disruptive innovations of tomorrow. If Congress or the FCC prohibits the exclusive partnerships between manufactures and carriers that make it possible to master the 

technical challenge of device innovation and to finance such risky ventures, all 

Americans will miss out on the dramatic benefits of innovation and increased mobility of Internet access. 

One must ask whether the iPhone or its competitor devices would have been developed as well and as quickly without such exclusive deals—and ask the same 

question about future devices. In other words, would banning such arrangements effectively spite all consumers by ensuring that, if some customers can’t have the 

fruits of device innovation immediately, then none should? 

While some carriers had reached exclusive arrangements prior to the 2005 Apple/ 

Cingular iPhone deal, most of those deals concerned MVNOs, whose business model 

as resellers required that distinguish themselves from the underlying carriers whose 

services they resold by offering unique devices and service features. These early exclusive equipment arrangements largely failed in the marketplace. But today other 

smartphone manufacturers are following Apple’s lead and demanding exclusive 

deals with sharing of revenue from resulting customer wireless data service plans 

rather than the traditional model of simply try to sell as many units as possible. 

This practice makes sense—the attractive new devices can attract huge numbers of 

new customers to a carrier—with each new customer paying for data as well as 

voice service. In an industry with high fixed costs and low marginal costs, this 

translates into large potential profits for a carrier with an attractive new device. 

This dynamic can incentivize a new entrant like Apple to fund expensive, risky 

efforts to develop revolutionary wireless handset products like the iPhone. Handset 

innovation, in turn, can spur carriers to upgrade their infrastructure to accommodate the increased bandwidth demands sophisticated handsets place on their wireless networks. Each side of the business transaction gains, but more importantly, 

so do consumers in terms of gaining innovative handset features, data applications, 

and wireless service offerings. 

The phenomenal success of the iPhone has galvanized other equipment manufacturers and carriers to enter into similar exclusive arrangements to develop their 

50 

own innovative, competing products. The introduction of the iPhone was followed by 

a flood of other innovative handsets under exclusive distribution agreements. These 

include, in addition to the handset options discussed above, LG’s Voyager (offered 

exclusively by Verizon Wireless), Samsung’s Ace and Instinct (offered exclusively by 

Sprint Nextel), Samsung’s Katalyst (offered exclusively by T-Mobile), and the RIM 

Blackberry Storm (offered exclusively by Verizon Wireless). Several of these 

handsets have features the iPhone lacks, such as the Bold’s higher resolution and 

the Instinct’s tactile feedback. Similarly, Google has teamed up with HTC to offer 

a ‘‘G1’’ smartphone exclusively through T-Mobile. The G1 makes use of Android, 

Google’s new operating system, and also offers features not available with the 

iPhone. Many, if not most, of these products are direct competitive responses to the 

challenge posed by AT&T and the iPhone; their development has brought additional 

feature-rich options to consumers. 

The most recent entrant to this burgeoning field is the ‘‘Palm Pre,’’ touted as a 

‘‘respectable competitor’’ to Apple’s increasingly popular device, which for a limited 

time, will be exclusively sold by Sprint Nextel, a carrier that has been struggling 

with customer losses over the past few years and is looking for a way to stop subscriber losses and win back market share. The device is being marketed at $299 before a $100 rebate for new or renewing Sprint data plan customers. It is likely not coincidental that Apple announced its new lower $100 pricing for 

last year’s iPhone 3G at about the same time the Pre hit the market. Just days 

later, AT&T itself took out advertisements promoting its exclusive Blackberry Bold 

smartphone for $199 after mail-in rebate of $100. In addition, there are recent signs 

that some carriers are dropping, and others considering dropping, the cost of their 

monthly data service plans supporting these smartphones to further drive penetration. These are signs of a well-functioning marketplace: one competitor breaks ahead 

of the pack with a unique offering, others race to catch up, new products and services are introduced, prices drop, and consumers benefit. 

Product development, like business arrangements, in the fast-moving technology 

sector can be a hit or miss endeavor. For every successful product like the iPhone, 

there are tens if not hundreds of commercial failures. It would be unfair to require 

carriers and manufacturers to share the rewards of only their successes, while bearing sole responsibility for their product failures. 

IV. Competition Should be Protected, not Competitors 

It is the competitive process, rather than individual competitors, that competition 

policy seeks to protect in light of the benefits competition brings to consumers in 

the form of lower prices, greater innovation and better service quality. It is well recognized that the wireless market is reaching saturation: that is, most all of the people who want mobile phones likely have them already. Subscriber growth for the 

carriers must come from attracting new customers away from the competition. 

Handset differentiation is a key means of drawing such customers, and handset exclusivity is a key marketing tool. Prohibiting such arrangements and effectively 

mandating that all offerings look the same would interrupt a well-functioning competitive process and leave the carriers with fewer options to attract customers. Although this undeniably leaves some carriers out of the competition for customers desiring a particular smartphone, it does not completely foreclose their ability to compete on other service features and functions. 

One of the enduring lessons of childhood is that you should share your toys. But 

in the realm of electronic communications networks, this rule of thumb does not always have beneficial consequences. In a 1999 U.S. Supreme Court decision overturning portions of the FCC’s unbundled network element sharing rules, AT&T v. 

Iowa Utilities Board, concurring Justice Stephen Breyer observed: 

Nor can one guarantee that firms will undertake the investment necessary to 

produce complex technological innovations knowing that any competitive advantage derived from those innovations will be dissipated by the sharing requirement . . . Increased sharing by itself does not automatically mean increased 

competition. It is in the unshared, not in the shared, portions of the enterprise 

that meaningful competition would likely emerge. 

A totally unbundled world—a world in which competitors share every part of 

an incumbent’s existing system, including say, billing, advertising, sales staff, 

and workforce (and in which regulators set all unbundling charges)—is a world 

in which competitors would have little, if anything, to compete about. 

Substitute mandatory ‘‘sharing’’ of handsets developed through equipment manufacturer-carrier collaboration and shared risk taking for ‘‘advertising’’ and one can 

see the net effect of a prohibition on exclusive handset arrangements: there will be 

little left for the carriers to compete about. In networked industries like wireless, 

51 

with high fixed costs, if all other areas of competition are removed, forcing the firms 

to compete on price alone will make recovery of network investment more difficult 

and eventually could lead to one or more of the current providers exiting the market. In other words, it would likely lessen, rather than enhance, competition and 

consumer welfare. 

V. Existing FCC Policy and Rules Correctly Permit Exclusive Handset 

Arrangements 

Well established FCC precedent supports exclusive handset arrangements, based 

on the highly competitive nature of the telephone consumer equipment market and 

the effectively competitive services market. In the 1968 Carterfone decision, the 

Commission first required that any piece of ‘‘customer premise equipment’’ be allowed to access the telephone network (then truly a monopoly) so long as it did not 

cause harm to the network. In the FCC’s landmark 1980 Computer II decision, the 

agency ‘‘de-tariffed’’—removed from common carrier regulatory controls—customer 

premises equipment (CPE) as well as data transmission services, but required that 

both be sold unbundled from the underlying common carrier wireline service and 

by separate corporate entities. The FCC did so in recognition of the fact that the 

CPE market was highly competitive such that the imposition of common carrier regulation had serious and deleterious consequences. In 1992, the Commission created 

an exception to the bundling prohibition in its Cellular CPE Bundling Order, allowing wireless providers to bundle devices and transmission services with wireless 

voice service. The Commission justified this exception on the grounds that ‘‘most 

wireless carriers were smaller and operated in local markets, making it unlikely 

that they could ‘possess market power that could impact the numerous CPE manufacturers operating on a national . . . basis.’ ’’ 

In the same 1992 order, and at a time when there were only two cellular carriers 

per market, the FCC rejected claims by both cellular resellers and equipment manufacturers that permitting carriers to enter into exclusive agreements with CPE providers created the potential for anticompetitive abuse. Two markets were analyzed: 

the CPE market and the cellular services market. The FCC had little trouble concluding that the ‘‘cellular CPE market is extremely competitive.’’ After noting that 

the record was not conclusive as to whether the service market was ‘‘fully competitive,’’ the FCC reiterated that in establishing the duopoly cellular market, it had 

concluded that ‘‘even a marginal amount of facilities-based competition will foster 

public benefits of diversity of technology, service and price.’’ Accordingly, the FCC 

refrained from intervening in these markets where the record before it was devoid 

of evidence that cellular carriers were violating their obligations to provide service 

to customers purchasing other brands of CPE or that the exclusives were having an 

anticompetitive impact on competition in the CPE market. 

Not only did the FCC find that no evidence of anticompetitive effects from the exclusive CPE deals had been presented on the record before it, but the agency went 

on to note that the record did not demonstrate a reason to be concerned about future exclusive dealing arrangements, because nondiscrimination requirements (still 

in effect today) precluded cellular carriers from refusing to provide services to a customer on the basis of the CPE he or she owns and it was unlikely that cellular carriers could effectively eliminate competition in the CPE market by entering into 

such agreements. In other words, the two markets potentially affected by 

exclusives—the upstream CPE market and the downstream carrier services market—were both sufficiently competitive even in 1992 to withstand any potential adverse effects from exclusive deals. Certainly today’s exclusive deals pose no greater 

threat in wireless markets served by many more carriers offering a far greater variety of handset options. 

VI. Any Prohibition on Handset Exclusivity Would Be Difficult to 

Implement 

If Congress wished to impose a prohibition on exclusivity, it would have to address the question of what should be considered an ‘‘exclusive?’’ As explained above, 

many carriers offer nearly identical handsets with the only differences being the 

software. In some cases, carriers offer handsets in exclusive colors, or with the camera removed. 

Similarly, because there are multiple wireless standards in the United States, a 

phone designed for GSM networks simply will not work on CD MA networks without significant product redesign. For voice, there is also Sprint’s iDEN network, and 

for data there are multiple technologies for both of the two major network types. 

In the case of the iPhone, AT&T currently has a technological basis for its exclusive 

distribution arrangement. It is the only major U.S. carrier with a 3G network utilizing the HSPA standard on the 850 MHZ band, and the iPhone as currently conVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00055 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
52 

figured only supports AT&T’s service for full data functionality. Even if carriers 

were prohibited from entering into exclusive arrangements, manufacturers can easily obtain de facto exclusives by designing phones for only one carrier’s network. 

Adapting the phone to the spectrum interface technologies utilized by other carriers 

would most likely require adding other spectrum bands and/or overhauling the device to utilize CDMA calling and 3G access utilizing standards other than HSPA. 

Forcing manufacturers to design phones for multiple carriers is more likely to destroy innovation than to increase consumer welfare. 

Eventually, as carriers transition their networks to a common 4G standard, some 

of these differentiating factors will disappear. But even if exclusive handset arrangements were prohibited tomorrow, it would not be possible for all carriers to immediately offer the iPhone or similar handsets on their network. Thus, little good 

would be accomplished but tomorrow’s innovations would be put at risk. 

Even setting limits on the terms for exclusive arrangements, while less disruptive 

than an outright prohibition, would entail difficult decisions over exactly what the 

permissible period of exclusivity should be. Last December, France’s Competition 

Council struck down Apple’s five-year exclusive iPhone distribution agreement with 

Orange (formerly known as France Telecom). The decision was partly reflective of 

the authority’s concern that the French mobile phone market was less competitive 

than others, such that a five-year exclusive sales agreement was far too long. The 

ruling specified that all existing and future sales agreements between Apple and Orange must expire after a maximum of 3 months, which the carrier argues will not 

allow it to justify the investments needed to upgrade its network to support mobile 

Internet services. If 5 years is too long, and 3 months too short, would Congress 

or the FCC be able to set a single time limit on exclusivity that will fairly balance 

the equities for all wireless providers and all equipment manufacturers? 

Finally, an economic assessment prepared for one of the larger rural carriers 

seeking an FCC rulemaking to limit use of exclusive handset arrangements suggests 

that any exclusive sales arrangement made by a ‘‘Big Four’’ carrier and an equipment manufacturer be limited to apply the handset exclusivity only to the other 

‘‘Big Four’’ carriers, leaving smaller carriers free to obtain those handsets. Even assuming there were a competitive basis for such a restriction (which is doubtful), 

while it may be clear enough which carriers should be so restricted in their ability 

to contract for equipment today, it is by no means clear what the appropriate test 

should be in the future, or even how such a rule could be written into the Code of 

Federal Regulations. 

VII. Alternatives Exist for Rural Carriers Seeking Access to Innovative 

Handsets 

Rather than trying to prohibit or limit the use of exclusive handset arrangements, 

the rural carriers may wish to pick up where the ACG members left off, pool their 

resources, and negotiate such arrangements for themselves. Like AT&T, the rural 

carriers may have to be willing to share some subscriber revenue or increase their 

handset subsidies to bring prices on advanced units down sufficiently to increase the 

addressable market for such products, but that’s simply the market at work. 

There is nothing stopping smaller carriers from banding together to achieve 

economies of scale. Indeed, many have already done so. The Associated Carrier 

Group (ACG), a consortium of 25 small or rural Tier II and II CDMA carriers ‘‘was 

formed to benefit both its members and the consumer by facilitating efficient production and marketing of devices as well as increased competition. The consortium 

enables its members to work with manufacturers, suppliers and other vendors to develop and procure products in a more timely fashion through economies of scale and 

standardization of coding and other features.’’ Proceeding in this manner, the ACG 

members actually beat Apple and Cingular’s Motorola ROKR to market in 2005 

with a digital music player smartphone, the Kyocera Slider Remix KX5 music 

phone. At the time, ACG’s president proudly declared: ‘‘Although other phones have 

been launched with MP3 capability, we think this was the first phone to be centered 

around music. Shortly thereafter, other carriers launched music-centric devices,’’ 

adding, ‘‘This phone is exclusive to us for a limited time.’’ 

More recently, ACG has partnered with Brightpoint, Inc. which supplied approximately 84 million wireless devices globally in 2008. Similarly, twenty eight small 

carriers that won licenses in the FCC’s recent 700 MHZ auction formed NextGen 

Mobile, LLC. An official of the new company explained that, ‘‘By aggregating our 

orders, NextGen Mobile hopes to entice device manufacturers to develop and deliver 

the next ‘it’ handset or data card to those customers shut out in the past.’’ 

The fact that these small carriers and MVNOs can procure innovative ‘‘exclusive’’ 

handsets indicates that other smaller carriers can as well and strongly suggests that 

there is no market failure to be addressed by regulatory intervention. As no single 

53 

carrier and no single manufacturer has a position of market power, exclusive arrangements should pose no antitrust concern. 

Yet another avenue is negotiating with the carriers who currently have exclusive 

distribution arrangements for desired handsets. There are indications that at least 

one rural cellular carrier, Cellular South, through the ACG, is in discussions with 

Verizon Wireless to secure access to handsets currently exclusive to Verizon Wireless from two manufacturers, 6 months after their introduction by Verizon Wireless. 

Such negotiated contractual resolutions to the problems alleged by rural cellular interests are surely far superior to resolution through government intervention. 

VIII. Conclusion 

RCA has asked the FCC to initiate a rulemaking proceeding to investigate alleged 

anticompetitive effects of exclusivity arrangements between commercial wireless 

carriers and handset manufacturers, and to adopt such rules, as necessary, to prohibit such arrangements as contrary to the public interest. But the allegations supporting this request amount to little more than complaints that lack of access to the 

most popular new smartphones such as the iPhone and Blackberry Storm make it 

more difficult for rural carriers to compete with the largest national carriers. But 

the FCC and Congress should refrain from interfering with these beneficial contractual arrangements freely negotiated by equipment manufacturers and wireless carriers in a competitive marketplace. 

These exclusive handset arrangements do not preclude competition on other wireless service attributes any more than they preclude the smaller carriers from joining 

together to strike their own deals for exclusive handsets with equipment manufacturers. The situation is not analogous, for example, to that of an exclusive contract 

to serve multiple-dwelling unit for multichannel video programming services where 

the existence of the contract completely precludes marketing a competing service to 

the residents. Rather, it is more closely analogous to network sharing requirements 

for unbundled elements, where the accepted standard is whether access to the desired element is necessary in that lack of access would impair the ability of a competitor to enter the market. Mere difficulty is not impairment, and sharing of competitive assets should not be ordered lightly. A prohibition on exclusive handset arrangements would have the net effect on equipment manufacturers and carriers of 

a sharing obligation. Such an action is neither necessary nor advisable in today’s 

wireless marketplace. But if I am incorrect in my views on the competitive situation 

or harms to consumers posed by these arrangements, there would be nothing to prevent our antitrust authorities from intervening under either the antitrust laws or 

consumer protection statutes. 

I respectfully submit that neither Congress nor the Commission should take such 

action on the matter of exclusive handsets. The FCC today has before it a record 

on this question. If further study of the matter is deemed advisable, the FCC is well 

within its powers to conduct a Notice of Inquiry and gather a more fulsome record 

from additional parties. I am confident that at the end of such an inquiry, the Commission would determine that there is no need for additional regulatory intervention. 

Mr. Chairman, thank you again for the invitation to testify today. I would welcome any questions the Committee may have. 

Senator KERRY. Thank you, Ms. Esbin, very much. 

Mr. Meena? 

STATEMENT OF VICTOR H. ‘‘HU’’ MEENA, 

PRESIDENT AND CEO, CELLULAR SOUTH, INC. 

Mr. MEENA. Good afternoon, Mr. Chairman, and members of the 

Committee. My name is Hu Meena, I’m President and CEO of Cellular South. Thank you for this opportunity to testify today on behalf of Cellular South, our customers and consumers everywhere 

who want more choices when it comes to their wireless plans and 

devices. 

Wireless has experienced a golden age and offers the opportunity 

to engage with the world as never before. We see this golden age 

coming to an end, as the largest wireless carriers engage in anticompetitive and anti-consumer practices—practices, such as exclusivity agreements with wireless device manufacturers. 

54 

Today, AT&T and Verizon Wireless have over 60 percent of the 

national wireless market share and roughly 90 percent of the wireless market is in the hands of those two plus Sprint and T-Mobile. 

Instead of fostering innovation and offering consumers the best 

range of choices, the largest companies are using their power to demand and to receive long-term exclusive agreements with device 

manufacturers. 

These long-term agreements essentially put the best, most powerful, and most popular cell phones, smartphones, and other wireless devices out of the reach of millions of consumers. 

If you live in New York City and want a touch screen Blackberry 

Storm, then you will be a Verizon Wireless customer whether you 

want to be or not. If you live in Washington, D.C. and want an 

iPhone, then you are obligated to be an AT&T Wireless subscriber, 

even if they do not cover your metro route. If you live in Laurel, 

Mississippi and want to subscribe to a 3G network, you will be limited to only devices that Cellular South is allowed to offer. 

Of course the Nation’s largest carriers aren’t limiting the use of 

exclusive arrangements to wireless handsets, these carriers have 

already begun using exclusive arrangements in the Netbook market. I hold one here. The device is smaller than a laptop and a little 

larger than a PDA. 

Will Congress sit by and allow the largest carriers to lock the 

most attractive Netbooks into exclusivity agreements before this 

segment of market is fully—fully emerges? Left unchecked in this 

segment of the PC market, the largest wireless carriers will gain 

control and begin to restrict PC innovation and distribution, just as 

they have wireless handsets. 

Furthermore, the claim that exclusivity agreements drive innovation is completely unfounded in this segment of the market. Companies like Dell, Acer, and others were advancing the Netbook market well before the largest carriers got involved. How then can the 

largest carriers claim a divine right to exclusivity on Netbooks? 

The situation with exclusivity is bad and only getting worse. Cellular South and carriers like us have tried to find solutions to this 

problem without resorting to help from policymakers. We’ve attempted several solutions with industry, including fruitless direct 

talks with the large carriers and indirect talks via CTIA. We have 

tried to entice device manufacturers to sell us the latest technologies by forming a buying group and consolidating the purchasing power of 27 regional carriers, but we have not been able 

to capture their attention—the manufacturer’s attention, as they 

consistently look over their shoulders for approval from the largest 

carriers of what they might be allowed to sell to us. 

The big wireless carriers argue that device manufacturers can 

not innovate and offer new devices without the help of funding generated by exclusivity agreements. Yet, long before the Razor, before 

the iPhone or the Storm existed, consumer electronics manufacturers had established an almost 30-year record of innovation. And 

European and Asian consumers enjoy a broad choice of innovative 

devices, 70 to 80 percent of which are available independent of any 

network operator. 

In short, what we are witnessing is a strategy by the largest carriers to limit consumer choice and undermine competition. Our viVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00058 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
55 

1 According to a series of SEC filings and/or corporate press releases all of which are publicly 

available, customer totals of the four largest carriers as of 3/31/09 were: Verizon Wireless—86.6 

million customers, AT&T—78.232 million customers, Sprint—49.083 million customers, and TMobile—33.2 million customers. Total customers served by ‘‘Big Four’’—247,115,000. According 

to CTIA—The Wireless Association, there were 270.3 million wireless customers as of 12/31/08. 

Even if one makes the unlikely assumption that wireless growth continued at the same rate 

in the first quarter of 2009 as it did in 2008, the total number of wireless subscribers rises to 

only 274,025,000. These numbers yield a combined market share of 90.179 percent for the Big 

Four. Of course, this does not include the addition of Centennial’s customer figures to AT&T’s 

customer count once that acquisition is approved by the FCC. 2See explanation in FN 1. 

sion is to allow all consumers in the U.S. to freely choose their own 

combination of attractive devices, relevant applications, quality coverage, access to high-speed broadband networks, all with a rate 

plan that best fits their needs and their budget. Now, that’s true 

innovation. 

I hope that our vision is the one that policymakers will embrace, 

before consumers find themselves in a wireless dead zone of limited 

choice. 

Thank you for your time today. 

[The prepared statement of Mr. Meena follows:] 

PREPARED STATEMENT OF VICTOR H. ‘‘HU’’ MEENA, 

PRESIDENT AND CEO, CELLULAR SOUTH, INC. 

Introduction 

Mr. Chairman and members of the Committee, thank you for allowing this opportunity to testify before you today regarding a number of important issues related 

to competition in the wireless industry. I have been in the wireless industry for over 

twenty (20) years with Cellular South, the Nation’s largest privately-owned wireless 

carrier, serving all of Mississippi and portions of four other southeastern states. 

In my years in the wireless industry, I have seen the duopolistic world of the 

early cellular licenses, the rise in wireless competition as a result of spectrum auctions in the personal communications service, and the growth and innovation 

throughout the industry as a result of the Telecommunications Act of 1996. However 

as I sit before you today, I am convinced that, unless things change quickly, the industry is coming full-circle and progressing—or, rather, regressing—into a duopoly 

once again. 

The Justice Department broke up the AT&T monopoly in 1982. In 1993, the 

wheels were set in motion for spectrum auctions that would open the duopoly in 

wireless markets to competition. In 1996, Congress rewrote the Telecommunications 

Act to further promote competition in telecommunications services. Today, however, 

the industry is trending back toward consolidation and the days of Ma Bell. The 

largest carriers continue with acquisition after acquisition—Centennial Wireless, 

Alltel, Rural Cellular Corporation, Midwest Wireless, SunCom, Dobson Communications, just to name a few—with seemingly no interest from regulators in the effects 

that this consolidation has on the market. 

Today over ninety percent (90%) of the wireless market is in the hands of AT&T 

Wireless, Verizon Wireless, Sprint Nextel and T-Mobile.1 Combined, AT&T Wireless 

and Verizon Wireless control over sixty percent (60 percent) of the market.2 This 

should come as no surprise after the parade of acquisitions over the past several 

years. 

One reason that this is a problem is that the largest carriers use their market 

power to prevent competitors from having access to devices and roaming. If this 

trend continues, and I believe it will without intervention from Congress, then there 

will once again be a duopoly in the wireless industry. Our country’s banking and 

finance policy mistakenly believed that free reign in the marketplace with little 

oversight was the best course of action and that certain institutions were simply too 

big to fail. This reasoning will lead to the same market failures in the wireless industry. Congress must take action now to ensure that the wireless industry remains 

the competitive and innovative marketplace that Congress intended for consumers 

to have. 

56 

3This has continued even though Sanyo is now owned by Kyocera. 

I. Exclusive Agreements for Devices 

One effect of the market concentration described above is that the largest carriers 

now use their market power to demand (and receive) long-term exclusive agreements with device manufacturers for the latest and greatest handsets. Exclusivity 

agreements prevent other carriers from acquiring these devices and are particularly 

harmful to wireless consumers. 

A. Exclusive Agreements for Devices are Anti-Competitive 

Wireless service has evolved from a market where consumers were primarily concerned with attractive monthly plans and a provider’s network, to a market where 

a carrier’s wireless devices reign supreme. Cellular South and other regional and 

rural carriers have competed with the largest carriers for years based on network 

quality, network coverage and price. These are all factors that are within our control. If we lose a customer because we don’t offer the right plan or because we drop 

too many calls, that blame falls squarely on our shoulders—and I can and will fix 

that problem. However, our ability to compete is compromised because the largest 

carriers lock up devices in exclusivity agreements. Put simply, regional and rural 

carriers cannot gain access to the latest, cutting-edge devices which gives large carriers a key competitive advantage. Focus groups of customers who have left Cellular 

South for the largest carriers repeatedly say that they are buying the device, not 

the network, and certainly not the company. 

Historically, exclusive agreements lasted three (3), maybe even six (6), months. 

Agreements of this length were certainly obstacles to competition, but they were not 

the anti-competitive weapons that today’s long-term agreements have become. 

Today, handset manufacturers tell us that the largest carriers are demanding exclusivity on more devices, as well as longer exclusive periods for devices. The largest 

carriers are increasingly demanding ‘‘lifetime’’ exclusives on handsets. At least one 

large carrier is demanding that all of the devices it accepts from a particular manufacturer be provided under exclusive agreements. For years, Sprint has had exclusive agreements for all of Sanyo’s devices.3 Manufacturers know that they must 

cater to the largest carriers in order to secure any kind of market share in the U.S. 

market. 

B. Exclusive Agreements for Devices are Anti-Consumer 

This battle among the industry titans has left consumers as collateral damage because device manufacturers are prohibited from providing the cutting-edge devices 

that consumers desire to the smaller carriers. Vast portions of America—including 

all or part of Alaska, Arizona, California, Idaho, Kansas, Maine, Minnesota, Montana, Nebraska, Nevada, New Hampshire New Mexico, Oregon, Vermont, Washington, West Virginia and Wisconsin—are not served by any of the largest carriers, 

so Americans in these areas are prohibited from acquiring the newest and most innovative devices. Even in areas that are served by one of the largest carriers, consumers are not free to choose the latest devices without being forced into accepting 

service from a particular carrier. If you live in New York City and want a Blackberry Storm, then you will be a Verizon Wireless customer whether you want to pay 

confusing add on fees or not. If you live in Washington, D.C. and want an iPhone, 

then you are obligated to be an AT&T customer even though it will be years before 

you can reliably use your iPhone when traveling to and from work on the Metro. 

Because exclusive agreements prevent Cellular South from getting these devices, if 

you live in Laurel, Mississippi and want to subscribe to a third generation (‘‘3G’’) 

network, you will be limited to only those devices that Cellular South can provide. 

Of course, the Nation’s largest carriers aren’t limiting their use of exclusive arrangements to wireless handsets; these carriers have already begun using exclusive 

arrangements in the Netbook market. Netbooks are devices that fit somewhere between a Smartphone and a laptop computer. These devices offer Internet access and 

common laptop functionality, but are priced at a level at or near most Smartphones. 

These devices will offer the perfect solution for a number of wireless users who find 

Smartphones too small for extensive use, but find a laptop to be too cumbersome. 

Cellular South has been in touch with several Netbook manufacturers and, as you 

may have guessed, the largest carriers are already demanding exclusivity on many 

models of these wireless devices. 

What would happen if merchants sold computers that only worked with one Internet service provider? Imagine a world in which Macintosh computers only worked 

on AT&T’s DSL. That’s exactly the world we live in with the iPhone and Apple’s 

exclusivity agreement with AT&T. If you want that handheld computer, you must 

have service through a particular wireless voice and Internet provider. 

57 

As another example, what would happen if a pharmaceutical company developed 

a lifesaving drug that could be purchased exclusively from one pharmacy chain in 

the country, but you didn’t have a branch of that chain in your city? That is similar 

to what consumers experience without access to some of the latest devices. Potentially lifesaving applications are being developed for devices that are exclusive to a 

single carrier. If that carrier does not serve your area, then you are simply out of 

luck. 

I was asked about this at a recent hearing in the House of Representatives. Unfortunately, the question was presented as if we were seeking a free ride off of the 

investments of AT&T and Verizon. Holding aside that it is far from clear that those 

carriers take any real risk in developing handsets, we are simply seeking to buy the 

products that handset manufacturers produce and sell to others. Our conduct in 

seeking to limit or ban exclusivity arrangements is intended to broaden the market 

for handsets. We do not seek any special treatment or discounts, only an opportunity to buy the products they make. 

C. Impact on Consumers, Economic Development, Public Safety and Health Care 

If a regional or small carrier cannot get access to the latest devices, then it cannot 

roll out next-generation services. No carrier can justify the expense of deploying a 

new technology unless it can also deliver the devices necessary to make that technology work and deliver the products and services that consumers want. While this 

is bad for the carrier, it is ultimately the consumer who pays the price for not having access to the devices necessary to use mobile broadband services. Without access 

to the latest devices, consumers are ill-equipped to respond to natural disasters, 

they cannot access many benefits of telemedicine applications, and they cannot adequately protect themselves in emergency situations. Today’s advances in wireless 

technology will not be realized until the latest wireless handsets are available to all 

of rural America. 

Collectively, a lack of access to the latest devices means that rural communities 

cannot maximize economic development. One of the first questions Toyota asked 

when it considered whether to build a plant in Mississippi was whether the rural 

town of Blue Springs had access to wireless 3G technology. Thankfully, for Blue 

Springs and the surrounding area that answer was ‘‘yes.’’ However, without access 

to modern wireless devices, large portions of America will be left behind as the industry continues to deploy third generation or 3G technologies and eventually deploys 4G technology. Yesterday’s economic development infrastructure meant rail, 

electrical, and road access. Today’s global economy demands that rural areas have 

access to wireless broadband and the latest wireless devices. 

D. The False Dilemma: Keep Exclusivity Agreements or Lose Innovation 

The largest carriers claim that handset exclusivity agreements are good for consumers and the industry because they promote innovation. According to this argument, without exclusivity agreements, there would be no innovation in the wireless 

device market. The largest carriers offer a false dilemma between banning exclusivity agreements and innovation. 

If this tactic sounds familiar, it is because the argument is simply today’s version 

of the doomsday scenario that legacy companies ask us to believe whenever their 

control is threatened. Years ago, we were warned that using non-AT&T owned 

equipment could cause harm to the landline network. When the Federal Government finally permitted Americans to use non-AT&T equipment, the network miraculously survived. Had AT&T prevailed in those days, the people that continue to have 

landline telephones may still be using rented, black, bulky boxes that are connected 

to the wall and useful only for voice connections. 

Not only did the landline network survive when consumers were allowed to purchase and use non-AT&T equipment, incredible innovation sprang forth and the network became more than just a tool for voice communication. Today, the old landline 

network is used for high-speed data connections between computers (albeit they are 

limited to location-to-location connectivity). No one could argue that the computer 

industry has lacked innovation, yet the service providers do not have exclusive 

agreements for the customer equipment. Since today’s wireless devices are far more 

akin to computers than merely voice telephones, how does the myth of exclusivity 

driving innovation continue to persist? 

1. iPhone 

While it is important to understand that the handset exclusivity issue is about 

far more than one device, the fact remains that Apple’s iPhone crystallized the problem for consumers. Although AT&T touts this device as ‘‘creating enormous benefits 

58 

4See the late-filed Written Statement of AT&T, Inc. before U.S. House of Representatives, 

Subcommittee on Communications, Technology and the Internet at 7 (no filing date given; May 

7, 2009 hearing date) (emphasis added). 5 Id. 

6 Id. 

7While early reviews of the iPhone were positive, the complaints about AT&T’s slow network 

were too numerous to count. A quick Google search with the terms ‘‘AT&T slow network iPhone’’ 

returns 156,000 results. 8 ‘‘Tethering’’ is the capability to use the handset as a wireless modem by connecting it to a 

computer with a cord, so that the computer can access the Internet. This is especially useful 

in areas beyond the reach of wireline broadband connections and Wi-Fi networks. 9 ‘‘AT&T Lagging Behind in iPhone 3G Feature Deployment’’ available at: http:// 

www.neowin.net/news/main/09/06/09/att-lagging-behind-in-iphone-30-feature-deployment (last 

visited June 14, 2009) (‘‘Because of carrier exclusivity agreements it’s the end user who gets 

harmed because they do not have the option of using a phone of their choosing on the network 

they prefer. All operators are guilty of exclusivity agreements, AT&T with the iPhone, Verizon 

with the Blackberry Storm, Sprint with the Pre and T-Mobile with the G1. Hopefully 1 day soon 

these contracts will be outlawed in favor of consumer choice, but until then, everyone must play 

the cards that have been dealt.’’). 

for all consumers’’ 4 the fact remains that millions of Americans do not benefit from 

the iPhone due to the limited scope of AT&T’s network and its poor coverage in 

many areas. 

According to AT&T, those customers who do benefit from the iPhone do so ‘‘in no 

small part’’ as a result of ‘‘[t]he exclusive arrangement between AT&T and Apple’’ 

that delivers ‘‘spectacular public interest benefits.’’ 5 Although AT&T claims ‘‘close 

collaboration and enormous investment,’’ 6 the level and timing of AT&T’s collaboration has never been disclosed and it is widely assumed that much, if not all, of 

AT&T’s investment was attributable to long-overdue network upgrades.7

With the release of the latest iPhone 3GS, AT&T continues to impede innovation 

by ensuring that Multimedia Messaging Service (MMS) will not be supported on 

AT&T’s network until sometime this fall and that tethering 8 will not be available 

until some undisclosed time in the future.9 This is hardly an example of a carrier 

driving innovation. 

2. Netbooks 

As discussed above, Netbooks are the next emerging wireless market segment 

with the opportunity to change the way people look at their wireless device. 

Netbooks combine the functionality of a personal computer with greater portability 

than a laptop, and they approach price points comparable to many Smartphones on 

the market today. Netbooks represent a solution for businesspeople, students, travelers, and anyone else that values full connectivity in a compact yet functional device. This product offers an economical entry point for demographics that have been 

left on the wrong side of the ‘‘digital divide.’’ 

Well-known computer manufacturers such as Dell are already in the Netbook 

market but, predictably, the largest carriers are now demanding exclusivity agreements simply because manufacturers of Netbooks have embedded wireless data 

cards—in addition to embedded Wi-Fi cards—to allow them to connect to the Internet. The largest carriers have not driven innovation in this market, yet they are 

able to extract exclusivity agreements—once again—because they have the market 

power to demand them. In the case of the most economical Netbooks on the market, 

Acer’s devices, we have been told by that manufacturer that all of their Netbooks 

are under exclusivity agreements. These agreements effectively deny Netbooks to 

any American who could meet an entry-level price point but who does not live in 

the proper service area, or who wishes to connect the device to their carrier of 

choice. 

3. True Innovation 

Our vision is to end big-carrier practices that prohibit every wireless consumer 

in the United States from being able to freely choose their own combination of attractive devices, relevant applications, quality coverage, and access to high-speed 

broadband networks, all with a rate plan that meets their budget. Now that’s true 

innovation! As long as handset exclusivity agreements are allowed to exist, this vision for innovation will never be reached. 

E. Attempts at Non-Governmental Solutions 

The situation with exclusivity agreements is bad and is only getting worse. Without action from Washington, there will be no solution. Cellular South and carriers 

like us have tried to find solutions to this problem without resorting to help from 

policymakers. We have attempted several solutions within the industry, but all have 

been fruitless insofar as resolving this problem. 

59 

1. Direct Contact with Large Carriers 

Cellular South, in conjunction with another regional carrier, had discussions with 

Verizon Wireless regarding the possibility of Verizon lifting its exclusivity agreements for regional and rural carriers. There was an initial oral agreement that 

would allow Associated Carrier Group (ACG) members and certain other regional 

and rural carriers to offer a limited number of Verizon’s exclusive handsets from 

two manufacturers—LG and Samsung—six (6) months after Verizon launched the 

devices. It was understood and agreed to by Verizon and ACG that this would require access to the devices prior to Verizon’s launch so that other carriers could 

begin optimizing and testing the devices, which is generally a nine (9) to twelve (12) 

month process. As a condition of this agreement, Verizon would determine which 

carriers would be allowed to be a part of the ACG buying group. ACG was willing 

to accept these terms because it represented a step in the right direction. 

Prior to the hearing on May 7 before the House Subcommittee on Communications, Technology and the Internet, Verizon advised ACG that it would not, in fact, 

allow the smaller carriers to have access to the devices or to work with manufacturers prior to Verizon’s launch. This change had the potential to double the exclusivity 

period and thus terminated the deal. Without access to the devices in advance of 

Verizon’s launch, ACG members and the other smaller carriers could not offer these 

devices for approximately nine (9) to twelve (12) months after Verizon’s introduction. By this point, the devices are at or nearing the end of their life cycle and certainly are no longer the cutting-edge devices that consumers demand. 

Cellular South and other ACG members have been, and still remain, opposed to 

exclusivity agreements for any period of time. Verizon’s actions clearly demonstrate 

the need for Congress to resolve this issue for consumers and competitors. 

2. Device Manufacturers 

Our efforts with the equipment manufacturers have produced information, but no 

solution to the problem of exclusive agreements for devices. Manufacturers tell us 

that they would like to open their portfolios to us, but that they cannot show us 

a number of their devices—much less sell them to us—because the largest carriers 

will not allow it. 

3. Industry Groups 

The Cellular Telecommunications and Internet Association (‘‘CTIA’’) convened a 

working group late last year in an effort to resolve the device exclusivity issue. 

CTIA brought large and small carriers to the table along with manufacturers, and 

the effort began with an early hope of promise. However, over the course of approximately 3 months, it became apparent that the largest carriers had no incentive to 

participate, the manufacturers remained virtually silent on the matter, and the effort proved futile. 

4. Consolidation of Purchase Power 

One frequent response from the four carriers that profit from exclusive handset 

arrangements is the suggestion that smaller carriers should consolidate purchasing 

power in order to gain access to cutting-edge devices. While that idea is good in theory, it does not work in practice. 

The Associated Carrier Group was formed a number of years ago for just this purpose. ACG has almost 30 carriers who, at this time, are exclusively CDMA service 

providers. For the past 2 years, representatives of ACG have traveled to South 

Korea to plead for access to cutting-edge devices from LG and Samsung, but South 

Korean manufacturers have made it clear that exclusive arrangements insisted 

upon by the Nation’s largest carriers prevent them from selling the most appealing 

handsets to ACG members. 

It is commonly suggested that ACG should push for its own exclusive devices. Although ACG did have a device several years ago that was not sold by another carrier, the suggestion that small carriers join together for their own exclusive device 

ignores our belief that exclusives are not good for consumers or the industry. It is 

not our position that exclusives are bad because we don’t have them—it is that exclusive agreements negatively impact consumers by unfairly impeding competition. 

Furthermore, it strains the limits of credibility to suggest that the smaller carriers can pool their purchasing power in order to acquire devices, because market 

power has been concentrated in the hands of the largest carriers over the past several years. As discussed previously, the largest four carriers have over ninety percent (90%) of the Nation’s wireless service market, with AT&T Wireless and Verizon 

Wireless combining for approximately sixty percent (60%) of the market. These carriers have grown through acquisition after acquisition with seemingly no regulatory 

consideration given to market concentration. As a result, all remaining carriers reVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00063 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
60 

gardless of technology have less than 10 percent (10%) of the market. If the largest 

carriers are allowed to continue using their market power to thwart competition, we 

will once again have a duopoly for wireless services. 

A second flawed argument is that there are plenty of device manufacturers from 

whom the smaller carriers can acquire handsets that are not bound by exclusivity 

agreements. This argument essentially boils down the concept that smaller carriers 

should offer the devices that the largest carriers do not want. If the non-exclusive 

devices were the type of cutting-edge, game-changing devices that attracted customers, you can be assured that the mega-carriers would be locking those devices 

up with exclusive arrangements. 

F. Efforts at the FCC 

On May 20, 2008, Rural Cellular Association (‘‘RCA’’), of which Cellular South is 

a member, filed a Petition for Rulemaking (‘‘Petition’’) with the Federal Communications Commission (‘‘Commission’’), asking the Commission to investigate the widespread use and anticompetitive effects of exclusivity arrangements between commercial wireless carriers and handset manufacturers, and, as necessary, adopt rules 

that prohibit such arrangements when contrary to the public interest. 

Only the four largest carriers and one manufacturer expressed opposition to the 

RCA Petition. In contrast, over two hundred (200) parties representing the rest of 

the wireless industry and the public interest community expressed their unconditional support for RCA’s petition either individually or through their trade associations. The message of the majority was clear: free market competition and innovation has been strangled by large carrier demands for exclusive access to the latest 

advanced devices. 

The market is distorted when a single carrier is allowed to have a monopoly on 

a device. Action is needed now to restore competition in the handset market and 

to ensure that consumers have the option to choose both the device and the service 

provider that they want. 

II. Roaming 

On the topic of roaming, far and away the most important issue is that of automatic roaming for data services—specifically, roaming for high-speed data such as 

EV–DO, HSPA, and as we go forward, both WiMAX and LTE. An equally important 

aspect of roaming is the issue of interoperability which allows seamless transitions 

between networks. 

A. High Speed Data Roaming 

When I began in this industry, roaming agreements were standard practice. As 

networks expanded across the country, consumers came to expect their device to 

work, wherever they happened to be, regardless of who they chose as their service 

provider. Roaming agreements for voice service could be negotiated and finalized in 

hours or days. Recently, the FCC mandated that all carriers enter into roaming 

agreements for voice services, but did not extend that mandate to data services. 

As technology has advanced in the industry, consumers now expect to be able to 

send and receive e-mail and access the Internet over their devices, again wherever 

they happen to be. In order to accomplish this, a roaming agreement that covers 

data services must be entered into among carriers seeking access to distant networks. Instead of data roaming becoming routine, some of the largest carriers have 

been refusing to enter into data roaming agreements—as a means to restrict competition. Today’s wireless devices do so much more than just make phone calls, and 

new applications are being introduced every day. Consumers literally have access 

to the world at their fingertips with today’s wireless services. However, this world 

is often unavailable to many consumers because the largest carriers refuse roaming 

agreements for high-speed data. 

Regional and rural carriers offer network access in areas that the largest carriers 

have not and, likely, will never build out on their own. These smaller carriers do 

not seek these roaming agreements as a means to actively market outside their footprint because: (1) that is not the goal in seeking roaming, and (2) even if that were 

the goal, roaming rates are too high to make an economic case for that type of 

growth. Our customers travel just like the customers of the big carriers and we believe that consumers should be able to use their devices wherever they may be. Besides, this is not a free ride for us—we pay for the service that our customers use 

on distant networks. 

At the FCC, some Commissioners question whether they have authority to mandate data roaming. While we believe that the Commission has the power to resolve 

this issue, there is no doubt at all that Congress has the power to address highspeed data roaming obligations. By requiring carriers to provide automatic data 

roaming to requesting carriers that use a compatible technology, Congress can enVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00064 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
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sure that consumers never again find themselves unable to utilize the indispensable 

data features of their wireless device when traveling outside of their home carrier’s 

footprint. 

B. Interoperability 

A related matter in the roaming discussion is the issue of interoperability between 

wireless carriers. At its most basic, interoperability allows consumers to move 

seamlessly from one network to another. In other words, the networks are configured in such a manner that the consumer gets full access to the features on his or 

her device whether that consumer is at home, or traveling on the other side of the 

continent. The applications that are possible with interoperable networks are virtually limitless: 

• Navigation—the ability to provide turn-by-turn directions to end users outside 

the home footprint. 

• Tracking—the ability to track a device, package, or other shipment nationwide 

instead of just inside the home footprint. 

• Person finder—the ability to use a child’s phone to find a lost child outside the 

home footprint, or to use a wearable device on a vulnerable adult to prevent 

them from becoming lost. 

• Weather Applications—the ability to passively provide the current and forecasted weather conditions in the location where the end user is currently located. This would include severe weather alerts and warnings to move out of 

a storm’s path. 

Each day, consumers rely more and more on the data capabilities of their wireless 

devices. As wireless providers deploy 3G and 4G technologies, we are entering a 

world where even voice communications are treated like data transmissions. It is 

not acceptable in this era of wireless technology that there would be a roaming requirement for yesterday’s voice traffic, but not for the data services of today and 

tomorrow. Consumers need a solution and Congress is in the clearest position to 

provide it. 

Conclusion 

As you can see, we are at a critical juncture in the wireless industry. Decisions 

made today will determine whether our industry becomes more consumer-friendly 

and innovative as a result of increased competition, or whether the trend toward 

a duopoly will continue and competition will be eliminated. 

Although the wireless industry may no longer be in its infancy, it is no more mature than a gangly teenager. There is much innovation left to be done. There are 

more people of all socio-economic backgrounds and geographic locales who have yet 

to benefit fully from the wireless experience. Before it is too late, Congress must 

step in and put an end to the largest carriers’ stranglehold on devices, as well as 

ensure full roaming access. A light regulatory touch today will prevent the re-emerging duopoly in which two companies control all the customers, all the devices, all 

the prime spectrum, and become ‘‘too big to fail.’’ 

Thank you again for the opportunity to be here today. I appreciate your time and 

your interest in these issues and look forward to discussing them here this morning. 

With that, I welcome any questions you may have. 

Senator KERRY. Well, thank you very much. 

We have some clear lines that have been drawn, and I’d like to 

kind of probe that a little bit, if we can here. And I invite a healthy 

back and forth, frankly. I don’t like hearings where we just sort of, 

you know, constrain between the questions. So, if somebody wants 

to dig in, counter somebody, I’d like you to do that. 

Why—first of all, listening to you, Mr. Roth, and also Ms. Esbin, 

I accept the benefits that you articulated, but I’m having a difficult 

time trying to envision why an innovator, given the size of the market and the numbers of outlets, is not going to innovate in order 

to produce a product that is equally as competitive, that does all 

the whiz-bangs and gadgets and bells and whistles it has today, 

even more so, because it wants to appeal across different providers 

in order to gain as much market share of each of those providers 

that it can. So, I’m having trouble understanding why that innovaVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00065 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
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tion would be curbed. I just don’t see that, given the size of the 

market here. 

Mr. ROTH. I’d like to—I’d like to answer that. Because—I think 

there are two stories that might really help shed some light on 

that. The first is a colossal failure and the other one has been a 

real success. 

And I think I’ll start with the failure. The first iPhone, the first 

attempt at a music-centric device, was this device I hold right here. 

And I know you can’t see it from here, but it was the Motorola 

Rocker, and I don’t know if you’ve all heard of the Rocker. It was 

our first attempt. Motorola, Apple, and AT&T went together in 

2005 to create a device that we thought would cater to the musiccentric. It was the predecessor of the iPhone, if you will, colossal 

failure. I still have them in inventory. And I don’t hear Mr. Rooney 

or Mr. Meena asking for the Rocker. I have plenty to sell, still. 

But my point of that was, Motorola bore the brunt of that, so did 

AT&T. It was a huge risk for both companies. Large inventory commitments were made, production was—on a device that we thought 

would be successful, and it wasn’t. So that type of risk is what 

manufacturers are looking for carriers to say, if you want to specify 

a device, you want to bring innovation that’s not part of their product roadmap, then you need to share the risk with us. 

So I’ll give you an example of a success, and I kind of look at 

the age of the group that sits behind you all. About 3 years ago we 

saw texting as a trend that we thought would come to the youth 

of America. The Blackberry was the only texting device that existed. We go to Korea, and we do this every year, we travel the 

world. We go to Korea 24 months ago, and we sat down with them, 

and we talked to manufacturers about a low-cost device that had 

a ‘‘qwerty’’ keyboard for texting, and we wanted it for the teen market in the United States. 

We met with Samsung and we met with LG. That’s not what was 

on their product roadmap, that was a significant risk for them. 

That wasn’t the product that they planned on introducing on a 

global standard, but it’s what we wanted. So, we went to them and 

we had to commit significant inventory, technical resources, marketing dollars, inventory space in our stores, in order to bring that 

product to market. We bore the risk of that. Unlike the Rocker, the 

little Samsung Propel, these little texters, enormously successful, 

and we’ve borne—we’ve borne the fruits of that. 

So, there’s—I think that story—the tale of two cities kind of tells 

the story. Manufacturers want someone to share the risk, when 

what you’re asking for is something that’s not on their product 

roadmap. 

Senator KERRY. Now, Ms. Esbin, in her testimony, talked about 

how this would involve a particular model for a particular period 

of time. Is that in fact true, that—with respect to AT&T, the 

iPhone is for a particular period of time? 

Mr. ROTH. Yes, sir, it is. 

Senator KERRY. And what is that period of time? 

Mr. ROTH. The term of the agreement we’ve not disclosed. It’s a 

confidential fact, but what we have said when we introduced the 

iPhone, is a multi-year deal that we signed with Apple. 

63 

Senator KERRY. Well, in terms of our, sort of, thinking about 

marketplace power and access, is it important for us to, perhaps, 

have some sense of that time period? 

Mr. ROTH. I think it’s probably—— 

Senator KERRY. Might that not weigh in to, sort of what the equities are here, as we look at this. Because, you have a legitimate 

point, I raised that very point with my own staff, and I ask it of 

Mr. Rooney and Mr. Frieden and Mr. Meena. Why, in the American 

way of doing business, does a company not have the right to go sit 

down with somebody, assume a certain amount of risk together, 

enter an exclusive arrangement to assume that risk, and if they 

come up with a successful product, why don’t they have a right to 

market that product in this way? What distinguishes this from 

other exclusive arrangements in the marketplace? 

Mr. Rooney? 

Mr. ROONEY. Two things, one, we do that all the time in other 

businesses, give people exclusive marketing rights for a period of 

time, and then after that, other businesses have access to it 

through licensing fees and other things. 

Senator KERRY. As they’ve said, it’s for a period of time. I don’t 

know what it is yet. 

Mr. ROONEY. This is years, not months. 

Senator KERRY. So you think—— 

Mr. ROONEY. Here’s the result. 

Senator KERRY. Isn’t there a legitimacy to having a sufficient return on investment and taking a success story and riding it for a 

period of time? 

Mr. ROONEY. With all due respect, here’s the result. There are 

14 new products out there right now, that are exclusively licensed 

to the Big Four. So that Mr. Meena and our customers have no access to these. What is happening is everybody now is going—and 

the Big Four is using their power to get exclusive rights to these 

phones. So, we’re stuck with whatever comes out other than these. 

And it really puts a big dent in our ability to compete, it puts a 

big dent in our ability to supply these phones to areas of the country where we serve customers that the big guys don’t. 

Senator KERRY. Now I’m going to be very provocative—I’m going 

to be provocative here on purpose and be a little bit of a Devil’s 

advocate, because I want to get at this, but not because somebody 

represents where I’ve landed here. 

But some people might argue, hey, you guys are complaining because, you know, they’ve been more successful than you have, 

they’ve carved out a good concept, they have a good product, they 

created a joint effort. It’s not as if people don’t have access to the 

market. People can go and they can either do the Blackberry, they 

can get the phone, they can get the iPhone, they can have choices 

as to which combination of provider and product they want. Would 

you argue that there’s insufficient availability to the consumer of 

those various combinations? 

Mr. ROONEY. If you lived in Chicago or New York, I would agree 

with you. But if you live in rural Iowa or rural Wisconsin or rural 

Missouri, then you’ve got problems. 

Senator KERRY. Those can be very important to some of us here. 

64 

Mr. ROONEY. That’s right, exactly. I know who’s on this committee. So, I mean, it’s a question here of—in terms of rural America, they really pay the price. In terms of urban America, there are 

more options, and yes—what it does is it hinders our ability to 

compete in those markets, but it doesn’t eliminate completely the 

customer’s choice. 

Senator KERRY. Mr. Frieden, is there something that makes a 

wireless network different from a cable network or a satellite network? Do we need to be thinking about the network itself, as a sort 

of, you know, public utility, in essence, and provide greater access 

to it, regardless of the innovative component that Mr. Roth appropriately talks about? 

Mr. FRIEDEN. Yes, the Carterfone policy addressed a wired network. A wired network which doesn’t use spectrum, can perhaps be 

more easily technically managed. But, I don’t want to overstate the 

innovativeness of engineers to solve the spectrum issue. I mean, we 

have different cellular technologies, different cellular frequencies, 

different cellular transmission formats, and standards can be 

reached. So, I don’t see the use of spectrum as preventing the ability of engineers to find interfaces that would make wireless 

Carterfone a possibility. 

Senator KERRY. Well, should we accept that wireless carriers can 

dictate to a consumer what technology they have to—they can and 

can’t use to access a network? 

Mr. FRIEDEN. Well, my concern is—— 

Senator KERRY. Is there adequate competition among those networks, that we could allow that? 

Mr. FRIEDEN. Where there are lies, damn lies and statistics. 

When you look at the wireless industry, there are two ways to examine it. You can say it’s robustly competitive and the carriers certainly are advertising how great their service is and how reliable 

their service is and how nifty their new handsets are. But truly 

there are four major carriers. And if you look at the penetration 

statistics, they’re sharing 90 or so percent of the market, with 

Verizon’s acquisition of Alltel. 

Going back to innovation, there really are two types of lock-in 

and lock-out, both in terms of the handset and access to the devices 

of the handset and software. There’s this 2-year service commitment, and now we’re talking about a multiple year, indeterminate 

period in which Apple has an exclusivity arrangement. That may 

serve Apple’s interest in cache, but in terms of promoting innovation and access to those innovations, you’re really locking consumers to one carrier. 

Senator KERRY. Let me just ask a final question, because I want 

to get Senator Wicker in on this, and cede the chair to Senator Klobuchar. 

But, you have laid out some of the restrictions that are placed 

on handset technology, by a carrier like AT&T. For instance—and 

he said, Mr. Roth—Mr. Frieden is saying, that for competitive purposes, you are blocking out certain applications. For instance, 

Skype is blocked out on an iPhone, and obviously that has to do 

with the question of who pays for what, and with Skype you don’t. 

Also Mr. Frieden points out how we, sort of, take for granted the 

right to own and attach a telephone or a TV or a computer to a 

65 

network, without particularly worrying about the cable company or 

the telephone company telling us what kind of equipment we have 

to use. Why is this not completely analogous to that, and is there 

a detriment to the blocking out in that way? Or is that merely then 

a choice, if you don’t buy an iPhone, you go somewhere else, I 

mean, what’s your feeling about that? 

Mr. ROTH. So—so, I don’t think it’s analogous to the television, 

the PC, or the home phone, for one primary reason. In the United 

States there are two very different technologies. There’s the CDMA 

technology used by Mr. Rooney and Mr. Meena. There’s GSM, 

which is the global standard that AT&T uses. I could give my 

iPhone to Mr. Rooney and tell him he could take it home, it’s not 

going to work on U.S. Cellular’s network. That’s—they don’t have 

the global standard. It’s a VHA, Beta debate from a technology 

standpoint. So, we have two very different networks, there’s the 

global standard, which most of the world uses. And there’s CDMA, 

which, if you will, is the Beta version of the debate. 

The other thing is that—I want to clarify—we are open. You can 

download Skype and you can use it on an iPhone in a Wi-Fi environment. You can—and I would encourage Skype to do what 

they’ve done in Europe. They actually have a phone they brought 

to the market, and they sell a Skype phone in Europe where you 

can do voice over Internet calls. The reason that we don’t want a 

partner to offer Skype on the iPhone is we subsidize the iPhone. 

I don’t want to—and Skype would be a direct competitor. There’s 

no business logic in taking a Skype application on a phone that I 

subsidize, and then opening up to my competitor. 

But Skype could bring an—could bring their own phone to Amer- ica, for $25 they could go to our store and buy a SIM card and use 

the GSM technology and standard to compete. 

Senator KERRY. So what you’re saying is, that they may be 

blocked in one modality, but they’re not really stopped from being 

able to access the market—— 

Mr. ROTH. Yes, sir. 

Senator KERRY.—or sell a product. 

Mr. ROTH. Yes, sir. Our network is open. That’s the first thing 

I want to communicate. Our network is open, and if you want to 

bring your own applications to our network, you can do that. But 

the devices we subsidize and buy down, sell below their cost, we 

don’t want to enable a competitor to use those devices. 

Mr. MEENA. Mr. Chairman, I’d like to respond to Mr. Roth’s kind 

offer on the—offering us the iPhone. Last year we did a detailed 

study to look at what it would take to move to the GSM world, and 

we studied financial concerns, we studied device availability. And 

we found out the GSM world was more constrictive than the 

CDMA world in device exclusivity. 

And I can tell you there’s one device we sure couldn’t have gotten, no matter, he threw this thing over here at me, we would not 

be able to get an iPhone. We found that out in our research. 

Senator KERRY. Well, that’s interesting. There are a lot more 

questions to exhaust this topic, obviously. I will rely on my colleagues to do that. 

We’re going to leave the record open for a week, in order for colleagues to be able to submit questions in writing, which I’m conVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00069 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
66 

fident a number of them will do. And I will submit some additional 

questions in order to fill out the record. 

I greatly appreciate your being here. I’m grateful to Senator Klobuchar for taking on the Chair. 

And I recognize Senator Wicker. 

STATEMENT OF HON. ROGER F. WICKER, 

U.S. SENATOR FROM MISSISSIPPI 

Senator WICKER. Well thank you, Senator Kerry. 

Before I ask a question, of course we’re always glad to see witnesses come from the various states. 

Mr. Meena is a constituent of mine, from Bridgeland, Mississippi. 

As you know, he is CEO of Cellular South. And it’s one of the largest privately held wireless providers in the Nation, with 900 employees, a good many of them in Mississippi. And, Mr. Meena, I believe you have your family here with you. 

Mr. MEENA. I do. I have my two oldest sons, and my wife is here 

today. 

Senator WICKER. Great, well we’re glad to have them. 

Mr. MEENA. Thank you. 

Senator WICKER. You’ve been itching to get into this debate, 

here. What about the point that Mr. Roth makes, that time and 

money used to develop the next breakthrough device, and he says 

AT&T is entitled to a return on the investment that his company 

legitimately made in the iPhone. So, I want to give you an opportunity to respond to that claim. 

Mr. MEENA. Their primary investment in the iPhone was in the 

network. We put in—we put in a 3G network without any guarantee from Apple or any other manufacturer that we would have 

access to a latest technology device. I don’t know why they have to 

be guaranteed success when we don’t—we’re not guaranteed success. We’re willing to get out there, put our capital to work, put in 

3G speeds throughout the State of Mississippi and other places, 

and be able to compete in the marketplace. It does make it tough 

though, when you cannot have access to the latest and greatest 

technology. 

Senator WICKER. You know, I see the commercials for Cellular 

South, when I’m home in Mississippi. You’re proud of the coverage 

that you have. 

Mr. MEENA. Yes, sir. 

Senator WICKER. And, would you—is it your feeling that there’s 

better coverage for Cellular South in the State of Mississippi than 

any of the other providers? 

Mr. MEENA. No question about it. We have better urban coverage 

and better rural coverage. We have taken the opportunity to drop 

leaky coax down hospital elevator shafts to make sure that urban 

hospitals are covered. We cover out in rural areas, we cover the 

Mississippi delta extensively. We cover Rena Laura, Mississippi, as 

well as we do Memphis, Tennessee. It’s just part of—it’s just part 

of who we are and what we do. 

And that’s why it’s so frustrating for the consumers. There’s no 

reason, in this day and time, for consumers to not have access to 

the best network and the best devices, and the best applications, 

and high-speed. We can do that as an industry. Why not do it? 

67 

Senator WICKER. So, that 18-year-old kid that’s hunting out in 

the woods near Rena Laura, he might like to have an iPhone. But 

if he doesn’t have coverage, really that consumer is prevented from 

having the consumer choice that we kind of like to talk about in 

the United States. 

Mr. MEENA. That’s correct. If he has an iPhone and if AT&T does 

not have coverage there, that’s not doing him a lot of good out on 

the deer stand. 

Senator WICKER. Now, do I understand that—that we don’t know 

how long this device exclusivity with AT&T and the iPhone is. Is 

that correct? 

Mr. MEENA. I don’t know for sure. I have heard 5 years, but I 

can’t say that I have. 

Senator WICKER. Yes, I’ve heard 5 years, too. Maybe someone— 

maybe our two researchers could tell us where we got 5 years. But 

I’m interested, from any member of the panel. Now, is it a fact that 

most exclusive arrangements last only 6 to 12 months? 

Mr. MEENA. No, sir, that’s—that used to be the fact. And we 

moved from a time period where the exclusivity period was 90 days 

to 180 days to measure in years and now there are lifetime 

exclusives on devices. And, so that’s why it has become more and 

more and more unacceptable to those of us—— 

Senator WICKER. So, we didn’t have a lot of complaints when 

there was a reasonable short period of time to get a product going? 

Mr. MEENA. There were some complaints, but not like it is today. 

Senator WICKER. Now Mr. Frieden, you heard Ms. Esbin’s testimony. What’s wrong with her research? 

Mr. FRIEDEN. I’d like to think great minds can think differently, 

but—it probably gets down to how you define the market. I mean, 

I do research on market competition. I look at the wireless industry 

and I see four carriers with a 90-plus percent market share. I know 

they compete vigorously on television. I know they tell me how 

great their service is. And I know they certainly want to showcase 

their telephones, but I don’t see the robust competition and the 

pushing of innovation as could be. 

Going back to, sort of a historical analogy, when I hear about exclusivity, on one hand, there’s something called a ‘‘Colgate Doctrine’’ and Colgate can sell toothpaste to anybody. But we’re talking 

about an essential resource that’s really part of our DNA, part of 

what makes our global information age work. And, in the past 

when we’ve had—— 

Senator WICKER. And that is choice. 

Mr. FRIEDEN. Yes, choice, but bringing it back to telecommunications, we had a time when there was a telephone, and that telephone accessed AT&T. And if you wanted to access MCI, you got 

inferior interconnection or you had to dial 27 digits instead of 7 

digits or 10 digits. And that exclusivity was something that the 

courts and the FCC ultimately found illegal and inappropriate. The 

choice was to have multiple carriers via the same telephone. 

Senator WICKER. Ms. Esbin, where did Mr. Frieden go wrong 

there? 

Ms. ESBIN. Well, I think it’s reasonable minds may disagree. I 

think your mind is great, too. 

68 

But, I think the problem is one of perspective rather than the 

data. Compared to the wireline world, having the original two cellular carriers per market—local market, looked like a great leap 

forward, and the FCC was able to find, based on the record at the 

time, in 1992, that there was enough competition that they could 

permit exclusive handset agreements. 

Following the Budget Act of 1993, when more spectrum was 

opened up and the regulatory framework for commercial mobile 

radio services was established, the idea was to introduce more competition into the market and reduce economic regulation. And I 

think that the results have been pretty good. As I said, it is not 

perfectly competitive, you won’t find that in a networked industry 

like communications. But if you compare it to the local wireline 

phone market, which today has more competition, but still not at 

the level of the wireless market. I think the wireless market was 

always held up at the FCC as a poster child for competition and 

a light touch approach to regulation. 

And I believe that part of the problem is, what is the correct 

market definition, and the FCC has looked at it from the local market, how many competitive choices do I have where I live, not how 

many competitors are competing nationally. 

Senator WICKER. Madame Chair, I think the clock has gone a little haywire, but if I could ask one more question. 

And to Mr. Frieden and Ms. Esbin, what’s going to happen to Mr. 

Rooney’s company and Mr. Meena’s company if these indefinite 5- 

year-plus exclusive agreements continue? Are they going to be able 

to survive? And will that be good for competitiveness? 

Mr. FRIEDEN. I think they are going to be able to survive, but 

is the Nation going to suffer a disadvantage when this digital divide extends into wireless? Wireless is certainly that third wave, 

that third screen. Increasingly we look to wireless to access the 

Internet. Congress has legislated a mandate to the FCC to promote 

access to the Internet, to promote ubiquitous access to advanced 

telecommunication services, and increasingly that’s going to be a 

wireless technology that gets there. So, if we continue to have a 

broadening of this digital divide between urban and rural, when 

you serve rural areas with inferior service, rural areas will suffer 

comparatively and competitively with their urban counterparts who 

have much better choices, much faster access to the Internet and 

the like. 

Senator WICKER. Ma’am? 

Ms. ESBIN. I tend to look at this more as a lag than an 

unbridgeable divide. My own research has indicated that the period 

of time for the exclusives that we’re probably talking about here, 

the iPhone and some similar products, is under 5 years, and is 

more in the nature of 1 to 2 years. I’ve read a number of analysts— 

industry analysts reports, and they seem to believe that the period 

is quite a bit shorter than 5 years. 

The other point I would make about the iPhone in particular is, 

this is Apple’s choice and I don’t believe the carriers were calling 

the shots with Apple on this particular device. 

In conclusion, I fully expect Mr. Meena and Mr. Rooney’s companies to not only survive, but thrive in the future. I just don’t think 

that this one device is the key to their survival. 

69 

Senator WICKER. What about the huge list that Mr. Rooney held 

up? It’s not one device. 

How long was that list, Mr. Rooney? 

Mr. ROONEY. Fourteen. 

Senator WICKER. Fourteen devices. 

Mr. ROONEY. Currently. 

Mr. MEENA. And nine of the top ten selling devices now are 

under exclusives, as well. 

Mr. ROONEY. And the other side of this coin is, it’s the customer 

that suffers, not my company. I can’t—there are areas that I serve, 

and we’re probably, in terms of geography, you know, 50/50 between rural and urban areas. And, we’ve got areas where we’re the 

only carrier. I don’t know where all these statistics about 12 carriers in an area are. I don’t know of any of those areas. 

But the point is, we serve many areas where we’re the only carrier to build cell sites in the area. And those customers cannot get 

any of those phones. So, when we talk about using 3G to access 

broadband in rural areas, which is probably the most economic way 

to do it, we are working at a disadvantage. 

Senator WICKER. Well, Senator Klobuchar, thank you for—no, I’ll 

shut up for a while. 

But, I have to agree with Senator Kerry, there are—it’s a complicated issue and there are a lot of questions to be answered. I’d— 

it does seem to me that the consumer and the ability of the consumer to have access and choices should be paramount. 

But thank you and I’ll—I’ll listen to your questions, ma’am. 

Senator KLOBUCHAR [presiding]. OK. Thank you very much, Senator. 

Thank you to our panelists. I’m going to try to follow up on some 

of the initial comments of Senator Warner. I figure he did pretty 

good in this business. I was a telecom lawyer for 13 years, he did 

a little better. 

So, I’m going to follow up—he was asking the Balkanization of 

this and his concern that if you start having these exclusive arrangements, you could potentially have AT&T with the iPhone, you 

have Verizon with someone else, and it just leads to the situation 

where, if we had done this in the past with say, in the computer 

area, it would be like Microsoft and IBM having an exclusive deal, 

and you would actually never have had a Google, because who 

would have wanted to make deals with some of these start-up companies that might not have had much promise. 

So, I have a big concern there about the innovation, as well as 

the long-term effect this could have on the pricing. And we already 

have concern on pricing with text messages and other things that 

we—actually, in the Judiciary Committee we had a hearing on this 

yesterday. 

So, I want to start with you, Mr. Meena. In your testimony you 

say that device manufacturers would like to open their portfolios, 

but they cannot do so because the largest carriers will not allow 

it. Could you expand on what the dealer said? 

Mr. MEENA. Yes, we have been—we formed a buying group, associated carrier group several years ago. We have been to Korea, 

we’ve tried to meet with manufacturers in Korea about purchasing 

the latest and greatest devices. And it’s hard to get a straight anVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00073 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
70 

swer when we talk to them about those devices. They—it seems 

like they would be able to make the decision as to whether they 

could sell their product to us, but they’re checking back with somebody, and we think we know who it is. 

Senator KLOBUCHAR. What did the dealers allege the largest carriers would do if you—they started doing business with you? 

Mr. MEENA. I guess they would cut off business with those manufacturers is my—that’s my guess. I don’t know that for sure. 

Senator KLOBUCHAR. You’re just having trouble getting any 

kinds of these devices? 

Mr. MEENA. We can get—we can get some of the lower-end devices. When it comes to the higher—the high-tech, latest and greatest, touch screen type devices, we really struggle in doing that, the 

type of devices that the market is demanding today. 

I’m often asked, since we serve a lot of rural areas, ‘‘Mr. Meena, 

what is it that your customers want?’’ Our customers want the 

same thing in rural areas, what their urban customers want in 

metro areas. That’s exactly what they want and we want to be able 

to provide those types of devices and services and have done it for 

many years in our network, and want to continue to do so with the 

devices and applications that we offer. 

Senator KLOBUCHAR. Mr. Rooney, have you had similar experiences? 

Mr. ROONEY. We have not had that type of similar experience, 

but we know that we have 14 on my little list here, that I can’t 

get a hold of. So, when you’re sitting there trying to build your 

portfolio, you’re already stopped from getting—as he pointed out— 

as has been pointed out by Mr. Meena—nine of those fourteen are 

the top-selling devices. So, we can’t get them. 

Senator KLOBUCHAR. And I think Mr. Meena was referring to the 

largest carriers demanding and receiving long-term agreements 

from the manufacturers. 

Mr. ROONEY. Well, all I can tell you is what’s going on. I judge 

what’s happening in the world by the results, not necessarily—— 

Senator KLOBUCHAR. Do you think that—so do I—do you think 

that manufacturers feel obligated to grant these exclusive deals for 

fear of being locked out of an American market, if they don’t acquiesce with—— 

Mr. ROONEY. I don’t think they’re going to be locked out, but let’s 

put it this way, they maybe have more favorable access. 

Senator KLOBUCHAR. Mr. Frieden, do you want to comment on 

that? 

Mr. FRIEDEN. Yes, ma’am. These statistics are very hard to come 

by, because they are largely trade secrets. But I understand, from 

credible statistics, that a major carrier like Verizon looks to get 65 

percent or so of its handsets sold, bundled with the handset from 

a Verizon store. And then you have to add about 20 to 25 percent 

for big box retailers like Wal-Mart and Best Buy. The vast majority 

of sales of the handset is coming from that one single business 

model, so the big carriers have substantial buying power, and the 

fact of the matter is, we don’t have a manufacturer here, perhaps 

because of that. 

Senator KLOBUCHAR. Mr. Roth, as we look at this competition 

issue—and I listened with interest to your—the innovation arguVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00074 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
71 

ment. I can actually see this as a start-up model. I could see, you 

know, the early days of TV, that they might have had a deal to innovate and do something differently, but I’m just trying to figure 

out how it is good for competition if the most popular devices that 

are rolling off the product lines are gobbled up by just a few large 

companies in exclusive deals. How can that be good in the long 

term? 

Mr. ROTH. Well, as I’m listening today, there are two 

misperceptions that are starting to brew, and it’s real important for 

me to take issue with both of them. One has to do with rural Americans and their access, and the other has to do with exclusive devices. 

Let me start with, 35 percent of AT&T’s portfolio is exclusive, 65 

percent of our portfolio is not. Let’s start with how exclusive devices actually come about. The manufacturer doesn’t fly over from 

Korea or fly in from Canada and open up a suitcase, and say which 

one of these do you want to buy and monopolize in the U.S.? That’s 

not the way it happens. You can buy what they want to sell. They 

come over with a suitcase, they’ll show you the devices, and you 

can buy what they want to sell you. Or you can sit down with them 

and say, ‘‘I want a touch screen device, when no one has a touch 

screen device,’’ or, ‘‘I want a two-way slider device that allows 

someone to text, and I want this chipset in it, and I want it in this 

color, and I want it at this price.’’ 

So, the exclusivity starts with the carrier sitting down with the 

manufacturer and saying, ‘‘I want you to produce something that’s 

not on your product roadmap.’’ And the manufacturer says, 

‘‘There’s significant risk in me doing that, you need to share that 

risk with me, volume commitments.’’ You can’t make a volume 

commitment if it’s suddenly going to be available to everybody if 

it’s wildly successful. You won’t achieve your volume commitments 

back to the manufacturer. So that’s one of the risks associated with 

that. 

Another thing—I really want to talk about this rural America. 

AT&T today serves over 90 percent of the U.S. population, with the 

divested assets that we’re trying to purchase through Alltel, it will 

be 95 percent. We spent $2.3 billion buying the assets from 

Verizon, largely to serve areas that are rural. 

We spent $8 billion in the 700 megahertz auction to fill in the 

rest of the United States, to bring places like North Dakota, South 

Dakota, Wyoming, and Montana. AT&T competes as aggressively 

in rural America, whether it’s Mississippi or whether it’s Michigan. 

We compete as aggressively in rural America as we do in major 

metro markets. And, our history of buying companies like Dobson 

and bringing the iPhone to Alaska, buying rural, parts of rural and 

bringing the iPhone and other devices to Maine and New Hampshire. You pull all that together, we have a history that says we’re 

very much interested in serving all of America. 

So there are two misperceptions, one, how exclusive device deals 

start, and two, that we’re somehow rural Americans who are disadvantaged. I don’t disagree that small carriers or rural carriers 

might be disadvantaged. I’m not in their business, I don’t run their 

business models. But rural Americans are not disadvantaged. 

72 

Senator KLOBUCHAR. But don’t you think having competition 

with people being able to choose their own carrier can be good for 

prices and good for our country? And if they can’t compete equally 

because they don’t have access to the same equipment, you might 

not have an equal playing field for competition. 

Mr. ROTH. I don’t disagree with what you’re saying, but there’s 

a difference between having no competition—there are—95 percent 

of Americans have three carriers today to choose from, 95 percent 

of Americans. And with the build-out of the 700 megahertz auction, 

that’s going to—that number is clearly going to go north of 95 percent. 

So—— 

Senator KLOBUCHAR. It’s just my own experience and I want to 

kind of get off the rural issue for a little bit. In the rural areas, 

you can have—on our campaign we carried three different phones 

with three different services, because it isn’t quite true because you 

can have areas of dropped calls and very problematic service with 

one of the large carriers—— 

Mr. ROTH. And you can. 

Senator KLOBUCHAR.—in rural areas. 

Mr. ROTH. You can. I mean, let’s take Minnesota, we bought Dobson so that we could get 850 megahertz spectrum in places like 

Minnesota. We’ve had it a year and a half. We bought a fixerupper. Some of our networks like Miami or Dallas, we’ve owned for 

25, 26 years, they’re a much better performing network. The areas 

that we bought in upstate Maine, New Hampshire, and Minnesota, 

we’re putting money into it and we continue to improve it, but 

they’re 21 years, 22 years behind some of the markets we started. 

Senator KLOBUCHAR. You know, Verizon just went on to a 6- 

month exclusivity contract for two of its models. This came out at 

our hearing yesterday. Would that be something—are you doing 

that with some of your models, or are they down to lower, or have 

you gotten rid of exclusivity, not including the iPhone. 

Mr. ROTH. So, 35 percent of our portfolio is exclusive as I sit here 

today. Some of those—some of those terms are as little as 6 

months, some of them are longer. Sixty-five percent of our portfolio 

is not exclusive. 

Mr. MEENA. But it’s the 35 percent that’s attractive, the most attractive part of the market. 

Mr. ROTH. That’s not a true statement. The number one selling 

device we have is not an exclusive device. Our top selling device 

is the GoPhone. It’s the $19.99 phone that you can buy in WalMart in a little round box. That’s our top selling device, it’s not exclusive. That’s our number one selling device. 

Senator KLOBUCHAR. There are a few people shaking their head 

no, they don’t think that’s—— 

Mr. ROTH. That’s our number one selling device. 

Senator KLOBUCHAR. Mr. Meena? 

Mr. MEENA. I’m all for not having exclusive devices. The Blackberry Curve is a non-exclusive device that we all have access to. 

It’s the number one selling device in the country. But the facts 

state that nine out of the top ten—top selling devices are under exclusive arrangements. 

73 

And I want to say something about the 700 megahertz auction. 

We participated in the auction as well. We were—— 

Senator KLOBUCHAR. So what—I’m just—Mr. Roth said something—you’re saying nine out of the top ten selling devices in the 

country are under exclusive arrangements? 

Mr. MEENA. Yes, ma’am. 

Senator KLOBUCHAR. And is that not true, Mr. Roth? 

Mr. ROTH. That’s not true in my company. I don’t know where 

Mr. Meena is getting his data—— 

Mr. MEENA. That is an industry—— 

Mr. ROTH.—but in my company—— 

Mr. MEENA. That is an industry statistic. 

Mr. ROTH. Well, the number one selling device in AT&T is the 

GoPhone. It’s the number one selling—— 

Mr. MEENA. The GoPhone is a phone that’s targeted to a certain 

segment of the market. We’re talking about all segments of the 

market, and we know that certain segments of the market are interested in the devices he has under exclusivity. 

Senator KLOBUCHAR. You know, in your testimony, Mr. Meena, 

you suggested that smaller carriers haven’t been able to consolidate 

purchasing power to gain access to these devices. While it may be 

true that manufacturers can’t sell you devices under exclusive arrangement, why can’t they design new handsets for you? What’s 

the issue, do you think? 

Mr. MEENA. I don’t know why they do, I don’t know why they 

can’t. I may—it could be a volume issue, it could be that they don’t 

want to infringe the type of devices that the larger carriers are selling. 

Mr. ROONEY. I can shed a little light on that. If you took all the 

sets sold by the non-top four suppliers, so you take out Verizon, the 

rest of them, we couldn’t even equal one of the Verizon or AT&T’s 

volume. So, you know, it’s a volume game, so if you want to consolidate, you’ve got to have enough volume to justify the consolidation, 

and it’s just not there. 

I mean, these guys have, basically they’ve gobbled up all the 

spectrum, they’ve gobbled up all the—they control the manufacturing side of the business. You’re building an oligopoly there, and, 

you know, it has already happened. So—and all this exclusivity 

does, is it effectively causes more difficulty in terms of trying to 

compete against that entrenched group. 

Senator KLOBUCHAR. OK. 

In comments filed yesterday with the FCC by a consortium of 

consumer groups, the—it was stated that, ‘‘Handset manufacturers 

in Asia and Europe are able to sell 70 to 80 percent of devices independent of exclusive deals with service providers.’’ And a 2008 article in Wired recently noted that handsets in Japan have been the 

envy of consumers in the United States, whereas cell technology 

has trailed the Japanese handset market by an estimated 5 years 

or more. 

In light of these statements, can you explain, Mr. Roth, why this 

exclusive handset deal is necessary in the U.S.? 

Mr. ROTH. So I’m not familiar with this study that you’re referencing. So, I would tell you that it is my view that the U.S. 

lagged the world, so I believe the information you say is true, but 

74 

I don’t believe it’s true of today. I think that was true 5 years ago, 

but that’s not true today. 

I mean, iPhone came first to the U.S. The Blackberry Storm, the 

Palm Pre, these are devices that are hitting the U.S. first, and I 

think they’re hitting the U.S. first because we finally have the ability to compete on a world level with Deutsche Telecom and 

Vodaphone and other major carriers who can go to manufacturers 

and can do the same thing as we’re doing. 

So, I believe that you also find, that on a cost-per-minute and 

cost-per-megabyte, which is how we measure data, the U.S. has— 

has the lowest rates. So, I think we have the most innovation. I 

think we have the lowest rates. And I think we have the most 

choices for consumers. 

Senator KLOBUCHAR. It just seems when you have—I think it’s 

what, 270 million consumers, and I think the Chairman remarked, 

the fastest growing market, that there would be a demand for 

these products in the United States. And that’s what I’m trying to 

deal with here, is, you know, you have carriers—I don’t want to be 

stuck with one kind of service if I want one kind of phone. And I 

think that’s how a lot of consumers feel. And, there are problems, 

as Mr. Rooney and Mr. Meena pointed out, in certain areas of the 

country where a certain kind of service won’t work, so then you 

can’t have—have your phone. 

And while I believe that there may be arguments for the startup piece of this and for some limited exclusivity arrangements, my 

concern is, if they go on too long, we are really going to be hurting 

competition and we’re really going to be hurting the prices. If you 

just want to comment on that as the end to this. I think Mr.—I 

am the last one here as the Chair wielding the gavel, but if each 

of you just wants to comment on that near the end. 

Mr. Roth, if you want to start. 

Mr. ROTH. For me there’s a track record that says the United 

States—that since the iPhone was launched in June 2007, what 

we’ve seen is a greater pace of innovation that we have ever witnessed in this industry’s history. The 30 new devices that have 

come out, the 30 new smartphones that have come out to challenge 

the iPhone are a direct response to the fact that not all carriers 

have it, in fact only AT&T has it. So in order to compete, other 

manufacturers and other carriers had to partner to race innovation 

out to the market. It think it’s working, I think it’s working extraordinarily well. 

And as I talked about with the iPhone, three new models have 

come out while it has been exclusive for AT&T. The price has 

dropped three times since it has been exclusive with AT&T. I think 

consumers have benefited. And when you look at the 95 percent of 

the market that we’ll serve this time next year, and more as we 

build out to 700 megahertz auction—from 700 megahertz, I think 

consumers are really benefiting at a point where now we’re the 

envy of the world. We no longer lag the world. 

Senator KLOBUCHAR. Mr. Rooney? 

Mr. ROONEY. I think that the facts tend to speak for themselves. 

We have four dominant carriers. They control the supply chain, 

they control a good part of the spectrum, they control the industry. 

And it’s a very difficult industry for those of us that are not in the 

75 

gargantuan size, to participate in. And it’s—we love to participate. 

I think that there’s a mythical aura to the idea that there’s competition. I mean, it’s not technical competition when you get a hold 

of the technology—somebody else’s technology and don’t allow it to 

be disseminated to anybody else. That says, I’m technically good 

and the rest of you are technically bad, or I have a better deal with 

Apple than you can ever get. 

So, you know, what we’re dealing with here is a series of complex 

issues about whether we’re going to have robust wireless industry 

that is going to serve all the country or are we going to have a continued concentration of issues here, and we’re going to have an oligopoly, which I will tell you, in most text books I’ve ever read, says 

pricing is going to become—and competition will hurt. 

Senator KLOBUCHAR. Thank you. 

Mr. Frieden? 

Mr. FRIEDEN. Yes, I’d frame this in terms of innovation and incentives. When you have these exclusive dealing arrangements, the 

incentive is to lock down the handset and the intention is to recover the subsidy. I’ve no problem with the subsidy mechanism, but 

it does affect incentives and it does affect innovation. 

Look at what Apple does: Apple upgrades the phones, sends a 

firmware upgrade, and that disables some of these self-help activities. Now the self-help activities might violate the warranty, violate 

the contract, but the fact that consumers are resorting to self-help 

at the risk of ‘‘bricking’’ the phone—rendering the phone disabled, 

tells you something about how they feel about those restrictions. 

When you lock out a consumer, when you deny access, when you 

limit the versatility of the handset primarily to cover the recovery 

of the subsidy, innovation suffers. 

Senator KLOBUCHAR. Thank you. 

Ms. Esbin? 

Ms. ESBIN. I think there’s obviously a great difference of opinion 

on whether the glass is half empty or half full in the wireless industry. I don’t really have anything more to add about that. 

Senator KLOBUCHAR. Would you worry though, if this just kept 

on and you’d have certain, you know, one kind of technology 

hooked in only with one service, and—for the biggest carrier and 

then you’d have another technology and then you’d have a bunch 

of people that couldn’t—that wouldn’t have the choice of their carrier because they wanted a certain phone? 

Ms. ESBIN. I think—it’s really an illustration of the fact that 

competition in this industry is—I don’t know if the word is messy 

or lumpy—it is not perfect and not everyone in the country has 

every choice available to them. I’m not sure that we want to mandate a world in which every single service offering is identical. I 

tend to think—— 

Senator KLOBUCHAR. Oh, I don’t—I don’t think anyone up here 

wants to do that. We just want to make sure that we’re putting the 

consumers in the middle here and picturing what may happen, and 

being concerned about it as this goes on. 

Ms. ESBIN. I understand. I think, at this point, it appears to me 

that consumers generally are being well served. I think the duration of the exclusives is—is an issue. 

Senator KLOBUCHAR. Thank you. 

76 

OK, Mr. Meena? 

Mr. MEENA. Let’s go back to the auctions of the late 1990s. We 

basically created seven national companies. And then we kind of 

got down to six, and then five, and then after last year, Alltel acquired by Verizon, we’re down to four. Rumor has it we might be 

even down to three by the end of the year. Of course you still have 

rural carriers and regional carriers like ourselves, like our company 

and like Mr. Rooney’s company that are out there trying to create 

a competitive landscape for the consumers. 

But if we don’t watch out, we’re going to not be able to create 

that competitive landscape for the consumers, by the fact of all the 

consolidation of the spectrum, and the control over devices, and access to roaming, access to back haul, and a whole host of issues 

that are going on through the duopolistic, oligopolistic, however you 

want to describe the world that we find ourselves today. And I 

think that would be very detrimental to the consumer, if vibrant 

competition is not nurtured and remains live and well in the wireless space in America. 

Senator KLOBUCHAR. And I think the argument there, for that in 

a bigger term is—you know, in the old days when we just had the 

local telephone companies, they were heavily regulated, the rates 

were regulated, all these things like early termination fee—everything was regulated. Then you go into a competitive environment 

with cell phones, where they really don’t have that kind of regulation at all, because the argument that this is a highly competitive 

market, and it’s new, there’s innovation. 

But then if you start Balkanizing it, as Senator Warner said, 

then you—then you have no regulation, no protections, and if the 

environment starts heading that way, where people don’t have that 

kind of choice, I think that is the concern, if I can be so bold of 

a number of us up here, that these exclusive arrangements are 

what concerns us. 

[Whereupon, at 4:35 p.m., the Committee was adjourned.] 

(77) 

A P P E N D I X 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. MARK WARNER TO

MARK GOLDSTEIN

Question 1. I understand that several consumers have complained about poor 

wireless coverage in rural areas. Could you tell me more about the nature of their 

complaints? 

Answer. While reviewing the quality of wireless phone service, we met with representatives of various consumer, industry, and state groups. Among these groups 

were national consumer organizations; industry associations and carriers; and state 

governments, including national organizations that represent state officials and officials from state utility commissions, offices of attorneys general, and offices of consumer advocates in California, Nebraska, and West Virginia. These representatives 

discussed concerns about wireless phone service that consumers have had in recent 

years, including concerns about coverage in rural areas. They cited geographic factors that contribute to coverage problems in rural areas. Specifically, consumers 

may experience more coverage problems in mountainous areas, since mountains 

block the radio signals wireless phones use to communicate. Wireless tower antennas are unable to serve as large an area in mountainous regions, since they rely 

on having a clear ‘‘line of sight’’ between the tower and the wireless user. Additionally, in areas with low population density where consumers live far apart, carriers 

may not have installed enough towers to provide full coverage over a large geographic area. According to one consumer group, carriers do not have an economic 

incentive to pay for more towers in areas with a small customer base. In either case, 

whether poor coverage is due to blocked signals or not enough towers to cover a 

large area, call quality problems, such as dropped calls, may result. 

Question 2. What does the FCC do with complaints from rural consumers? 

Answer. FCC follows the same process for handling consumer complaints, no matter where the complainant is located. This process includes several steps. After reviewing a complaint received, FCC responds by sending the consumer a letter about 

the complaint’s status. If FCC determines that the complaint should be forwarded 

to the carrier for a response, the agency sends the complaint to the carrier and asks 

the carrier to respond to FCC and the consumer within 30 days. Once FCC receives 

a response from the carrier, the agency reviews the response, and if FCC determines 

the response has addressed the consumer’s complaint, marks the complaint as 

closed. FCC officials told us they consider a carrier’s response to be sufficient if it 

responds to the issue raised in the consumer’s complaint; however, such a response 

may not address the problem to the consumer’s satisfaction. When FCC considers 

a complaint to be closed, it sends another letter to the consumer, which states that 

the consumer can call FCC with further questions or, if not satisfied with the carrier’s response, can file a formal complaint. FCC officials also told us that if a consumer is not satisfied, the consumer can request that FCC mediate with the carrier 

on his or her behalf; however, the letter FCC sends to a consumer whose complaint 

has been closed does not indicate this is an option. Additionally, most consumers 

may not know they can complain to FCC about a problem with their wireless phone 

service that their carrier could not resolve to their satisfaction. Specifically, we estimate from our consumer survey that only 13 percent of consumers would contact 

FCC about such a problem, while another 34 percent would not know where to complain. FCC reports quarterly on the number and largest categories of wireless consumer complaints the agency receives, but does not report more detailed information, such as which states complaints come from. 

Question 3. What do you think the FCC could do with these complaints to improve 

their telecom policy, particularly with respect to rural services? 

Answer. As part of our ongoing review, we are examining how FCC oversees the 

services wireless phone service carriers provide to consumers, including how the 

agency monitors wireless phone service consumer issues to identify trends or problems that may indicate the need for a change in policy. FCC’s consumer complaint 

78 

1 AT&T’s U.S. capital budget is the single largest of any American company in any industry. 

In fact, we will spend between $16 billion and $17 billion in capital 2009. 

data are one potential source of information the agency may be reviewing as part 

of its monitoring efforts. We plan to report on FCC’s oversight in this area when 

we issue our product based on this work in the Fall. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. TOM UDALL TO

PAUL ROTH

Question 1. New Mexico is a rural state where most areas have just one or two 

cell phone providers. This situation already limits consumer choices. People in rural 

areas with few wireless companies to choose from have even fewer options for phone 

handsets due to exclusivity arrangements between carriers and phone manufacturers. This exacerbates the digital divide between urban and rural areas. 

With traditional wireline service, one can take any telephone to any home or office 

and just plug it in to make calls—no matter who the service provider is. Yet if one 

changes wireless carriers, one often has to buy a new phone. This seems wasteful 

and unnecessary. What policies will you implement that will increase the availability of smartphones to consumers, particularly those that live in rural states? 

Answer. AT&T already is the industry leader in making the most innovative devices available to consumers throughout the country. We maintain this leadership 

in two fundamental ways. First, we have made significant investments to deploy one 

of the most ubiquitous and advanced wireless networks in the Nation. We are today 

able to provide service to approximately 90 percent of American consumers—whether they live in urban, suburban or rural regions of the country. That percentage will 

increase to approximately 95 percent once we complete our pending transactions 

with Centennial Wireless and Verizon Wireless (whereby we have agreed to purchase certain of Verizon Wireless’s rural assets). Moreover, our 3G wireless 

broadband network represents the first widely available service in the world to use 

High Speed Packet Access technology, and it has been rated the fastest 3G network 

in the Nation. Our 3G footprint now includes over 350 major metropolitan areas in 

the U.S., including the Albuquerque metroplex. 

Indeed, AT&T’s commitment to providing next-generation capabilities to as many 

consumers as possible is evidenced in New Mexico. From 2006 to 2008, AT&T’s capital investment in New Mexico was more than $85 million, which included 102 new 

cell sites and 115 site upgrades to 3G service. Our 2009 expansion effort includes 

three new cell sites and 51 site upgrades to 3G service.1 And, some of the assets 

that we are purchasing from Verizon Wireless are located in rural areas in the 

northwest, southwest and southeastern regions of New Mexico; once we obtain and 

upgrade those facilities, residents in these rural areas will enjoy the benefits of our 

Nation’s-fastest 3G broadband service. 

Second, through our collaborations with handset manufacturers, we have made 

available to U.S. consumers the most advanced devices in the world at distinctly affordable rates. That is, we have taken real risks and incurred enormous costs—in 

the form of technology development, marketing and retail discounts, just to name 

a few—to bring innovative devices to the marketplace. The currently most notable 

of these collaborations is our partnership with Apple in connection with the iPhone, 

which has provoked an unprecedented competitive reaction. The marketplace is now 

awash with next-generation devices that allow consumers to do things that no one 

even imagined just a year or two ago, and that cost consumers less than previous, 

less capable devices. The ultimate result of AT&T’s investments here: AT&T is the 

leader in the smartphone segment, with twice as many smartphone users choosing 

AT&T as compared to our competitors. 

In short, we intend to continue these successful strategies; in doing so, we will 

give our rural customers the greatest possible choice and access to the most cutting 

edge services and devices. 

Question 2. Why should consumers be forced to purchase new phones when 

switching carriers? 

Answer. AT&T does not force customers to purchase a new device when switching 

service to AT&T from a different carrier. AT&T’s wireless network employs GSM 

technology—the global wireless standard. Because we use the global standard, we 

are able to support a particularly wide array of devices. Thus, while AT&T offers 

customers a variety of ways to sign up for service (e.g, by purchasing a handset for 

a discounted price and signing a one or two year agreement promising to pay a 

monthly fee for service), we also allow a customer to bring any GSM-capable device 

to our network and establish service. 

79 

2 Contrary to the suggestion in the question, there is no lack of competition in New Mexico, 

which is served today by at least five competing providers: AT&T, Verizon Wireless, Sprint, TMobile and Plateau Wireless. While there may be pockets in New Mexico where there are relatively fewer alternatives, most consumers in New Mexico enjoy a wide variety of choices for 

wireless service. 

The other major wireless technology used in the U.S. is CDMA (employed by, for 

instance, Verizon Wireless and Sprint). GSM-capable devices do not operate on 

CDMA networks and CDMA devices do not operate on GSM networks, including 

AT&T’s. Thus, the only time that a new customer would be required to obtain a new 

device when signing up for service with AT&T would be if the customer has only 

a CDMA-capable device. Fortunately, as discussed above, AT&T makes available an 

industry-leading lineup of innovative devices at affordable, usually discounted 

prices. 

Question 3. Should public policy mandate that wireless networks allow any new 

handset to connect to it, similar to the existing situation with wireline service since 

the Carterfone decision? 

Answer. The Carterfone paradigm is not a relevant touchstone for today’s wireless 

industry. As an initial technical matter, as discussed above, not every wireless device will work with every wireless network. Beyond this, the competitive environment in which wireless carriers operate today bears no similarity to the market 

structure for landline voice service that was central to the Carterfone decision. At 

the time of Carterfone, voice telephony essentially was provided by a monopoly that 

not only provided service, but also manufactured the phones. There was, thus, no 

meaningful competition that constrained the provider’s practices and no demonstrable technical impediments to allowing other devices to attach to the landline telephony network. In that context, a regulatory solution arguably was appropriate. 

In stark contrast, the American wireless industry of today is a model of competitive dynamism, with nine independent companies each serving more than four million retail customers. More than 95 percent of the U.S. population—those living in 

urban, suburban and rural America—are served by at least three competing carriers, and more than half live in areas served by at least five.2 Eight years ago there 

were 100 million U.S. wireless customers. Today, there are more than 270 million, 

and in 2008 they used more than 2.2 trillion minutes—a tenfold increase since 2000. 

At the same time, prices have declined precipitously. Revenue per minute has fallen 

89 percent since 1994, and U.S. wireless prices are much lower than in any other 

major industrialized country. And, while AT&T and Verizon are currently the two 

largest wireless providers, the next two largest, Sprint and T-Mobile, have a combined 82 million customers, and the carriers that round out the top 10 have another 

nearly 20 million customers among them. Against this backdrop, there can be no 

serious argument that regulatory mandates could more effectively govern this marketplace than can these powerful competitive forces. 

Indeed, the true victims of the mandate suggested in the question would be consumers, as they would see less innovation, fewer choices, and significantly higher 

prices for wireless handsets. The U.S. model for handset development and deployment—whereby carriers and manufacturers collaborate to share the enormous risks 

and costs of bringing an inventive but unproven new device to market—have provided U.S. consumers the most advanced devices in the world at distinctly affordable rates; quickened the pace of technological advancement; incentivized carriers 

to offer even greater handset subsidies to their customers; and shifted the center 

of handset innovation from Europe and Asia—where it rested for years—to the 

United States. Now, the U.S. leads the world, with the best devices being designed 

and manufactured by American companies and American consumers often enjoying 

the earliest—and cheapest—access to them. There is no compelling argument that 

this wildly successful system should be scuttled through legal or regulatory fiat. 

RESPONSE TO WRITTEN QUESTION SUBMITTED BY HON. MARK WARNER TO

JOHN E. ROONEY

Question. I understand your plight that many rural consumers cannot purchase 

popular handsets because they reside in areas not served by the one carrier offering 

the desired handset (and the one carrier typically prohibits its subscribers from 

using more than 40 percent of their airtime roaming on an alternative network). 

Your firm, and rural carriers, contend that virtually all high-end handsets are subject to exclusives, limiting access to advanced telecommunications services and creating a ‘‘digital divide’’ between people who can get a phone or high-end Blackberry 

and those who cannot. 

80 

I’ve also heard from the larger wireless carriers. They contend that, absent 

exclusives that guarantee volume and term commitments, manufacturers would 

have to devote scarce resources to marketing—an expenditure that carriers typically 

assume under an exclusive contract—which reduces the amount of money available 

to develop technologies. Is there any compromise? 

Answer. To preface my answer Senator, I believe the factual statements we have 

provided to date concerning the difficulty that consumers have in accessing devices 

and the high number of handsets subject to exclusivity, are largely undisputed. The 

claims of other parties that manufacturers would have to devote scarce resources 

to marketing are largely unsubstantiated in several respects. Manufacturers such 

as Sony, Nokia, LG, and Samsung have plenty of resources to market their products. Does the fact that Nikon cameras are available in almost every camera store 

imaginable deter Nikon from marketing? Moreover, without exclusive arrangements, 

carriers would still market phones to consumers, as they do today. Before exclusive 

arrangements became the norm, carriers purchased handsets from manufacturers 

and marketed them to consumers under the same distribution system in effect 

today. 

We have learned over the past several years that no workable compromise is 

forthcoming from the large carriers without action from Congress or the FCC. Congressional leadership on this issue has been instrumental to activating limited industry talks, however to date I am unaware that such talks have led to any meaningful progress toward industry-wide compromise. I urge you to inquire of the ‘‘Big 

Four’’ carriers for answers on where compromise might exist because to date none 

has been offered to U.S. Cellular. The recent unilateral action by Verizon Wireless 

to modify its policies amounts to crumbs for most industry participants and it does 

nothing to address the fundamental concerns of the 6.2 million customers we serve. 

We will consider any reasonable industry-wide proposal that puts these handsets in 

the hands of all customers that want them but we can’t negotiate with ourselves. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. TOM UDALL TO

JOHN E. ROONEY

Question 1. New Mexico is a rural state where most areas have just one or two 

cell phone providers. This situation already limits consumer choices. People in rural 

areas with few wireless companies to choose from have even fewer options for phone 

handsets due to exclusivity arrangements between carriers and phone manufacturers. This exacerbates the digital divide between urban and rural areas. With traditional wireline service, one can take any telephone to any home or office and just 

plug it in to make calls—no matter who the service provider is. Yet if one changes 

wireless carriers, one often has to buy a new phone. This seems wasteful and unnecessary. What policies will you implement that will increase the availability of 

smartphones to consumers, particularly those that live in rural states? 

Answer. Senator, let me be clear at the outset that we don’t believe that substantial new regulatory structures are needed to increase the availability of 

smartphones and modern telecommunications technology to consumers in rural 

areas. I recommend two remedies. 

First, as the testimony at the Committee’s June 17 hearing reflects, exclusive arrangements harm rural consumers because while rural carriers such as U.S. Cellular have competitive, and sometimes superior networks in rural areas, rural consumers oftentimes must choose between our high-quality networks and a desirable 

smartphone. 

We compete against the four largest carriers in rural areas at a substantial disadvantage because of their enormous access to low-cost capital, their national advertising budgets, and their ability to offer the most desirable handsets. No market 

participant can reasonably ask regulators to level the playing field with respect to 

the first two factors, however the third factor is not one that has been fairly conferred in the marketplace. 

Exclusive arrangements have grown solely as a result of FCC-sanctioned merger 

activity that has concentrated enormous power within the largest carriers, causing 

significant adverse effects on rural consumers. For example, until recently there 

were entire states, such as Vermont, where Apple’s iPhone could not be used because AT&T Wireless had no facilities. 

Put simply, in order for the many rural consumers to have access to the latest 

and most desirable devices, exclusive arrangements must be prohibited. 

Our second remedy involves universal service. In 1996, Congress amended the 

telecommunications act to allow Federal universal service funds to be used by competitive carriers to deliver to rural consumers access to modern telecommunications 

81 

services that are reasonably comparable in quality, and at reasonably comparable 

prices, to those available in urban areas. As you know very well in New Mexico, 

there remain substantial parts of rural America where citizens’ access to high-quality wireless networks is absent. The phone works in some places, but not others. 

Large dead spots remain, despite the fact that the FCC has licensed nine carriers 

throughout the country. 

Today, we are investing in new wireless towers throughout the areas where we 

have become eligible to draw Federal universal service funds and as a result of our 

investments we have network service quality that is superior to our competitors in 

most of the areas where we have invested these funds. 

That is potentially an enormous benefit to rural citizens. I say potentially because 

when Congress spoke of delivering modern telecommunications technology to rural 

areas, I’m certain they did not intend for our modern networks to be broadcasting 

wireless signals to an area where consumers cannot choose the best devices that 

handset manufacturers are offering in urban areas through the largest carriers. Nor 

did Congress intend for consumers to be forced to choose between the most desirable 

devices and a superior network. 

In order to improve rural consumers’ access to high-quality devices, Congress 

must ensure that wireless carriers can to build out their networks and deliver highquality service that will make the devices useful. If handset exclusivity is prohibited, but the phone does not work well in rural areas, then the prohibition will not 

deliver the intended benefits. 

Over the past year, some large carriers have walked away from universal service 

funding in rural areas. They have decided that they would rather not be obligated 

to deliver high-quality wireless services in rural areas, and instead construct cell 

sites only where it is profitable. They have the right to do that, however some of 

these same carriers continue to advocate for a return to monopoly-era regulatory 

structures that will raise barriers to competitive entry in rural areas by carriers 

such as U.S. Cellular. I object to these efforts. Rural citizens deserve competitive 

options in telecommunications services and the universal service mechanism was 

written with the intention of breaking down barriers to competitive entry, not erecting them. 

In sum, Congress must continue to ensure that universal service funding is being 

used to build mobile wireless networks in rural areas where our citizens desperately 

need access to modern and high-quality service that they can depend on. These 

high-quality networks are critical to rural consumers having the ability to make 

useful the devices that we are attempting to make available to them. 

Question 2. Why should consumers be forced to purchase new phones when 

switching carriers? 

Answer. As a general matter, consumers should not be forced to purchase a new 

phone when switching carriers. Let me discuss a couple of specific limitations, however. AT&T and some other carriers use a technology called GSM. Verizon and some 

other carriers (including U.S. Cellular) use a technology called CDMA. In either 

case, a consumer can call any other phone in the world that is connected to the public switched telephone network. However a GSM phone cannot place a call when it 

is in an area where the only network providing signal is CDMA, and vice versa. Accordingly, for example, when an AT&T subscriber wishes to switch to Verizon, they 

must purchase a new handset because their GSM phone will not work on Verizon’s 

network. I note here that there remain millions of consumers still using Nextel’s IDen network, which was acquired by Sprint some years ago and those phones do 

not work on either a GSM or CDMA network. 

A second limitation involves software. Each carrier loads specific software into a 

handset to optimize it for that carrier’s network. In addition, the software oftentimes includes applications that work solely on that carrier’s networks. When a person changes carriers, the new carrier must wipe clean the software and attempt to 

load software that works with the new carrier’s network. 

When a new customer brings a device to us that is the same model as one we 

sell, activating it is usually achievable. However, when a person brings in a handset 

from a manufacturer that we do not buy handsets from, it can be difficult if not 

impossible to adapt that device to our network. Carriers should however be prohibited from ‘‘locking’’ devices such that they cannot be activated on another network 

even though they would otherwise function well from a technical perspective. 

GSM/CDMA limitations are unfortunate, but they are primarily the result of our 

Nation’s decision to not mandate a single standard for wireless telephony. In the 

future, when most networks will operate on a technology called Long Term Evolution (‘‘LTE’’), these problems will be reduced, but not eliminated. Moreover, there 

are today a few devices that work on both CDMA and GSM networks, however no 

carrier has made them active on both networks. 

82 

1See Federal Communications Commission, In re Implementation of Section 6002(b) of the 

Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market 

Conditions With Respect to Commercial Mobile Services, Thirteen Report, DA–09–54, Table A– 

4: Top 20 Mobile Telephone Operators by Subscribers, 138 (Jan. 16, 2009)(using 2007 data); 

available at: http://hraunfoss.fcc.gov/edocslpublic/attachmatch/DA–09–54A1.pdf (2007 data). 

See also, Leslie Cauley, iWeapon: AT&T Plans to Use its Exclusive iPhone Rights to Gain the 

Upper Hand in the Battle for Wireless Supremacy, USA TODAY, May 22, 2007, at 1B. The top 

four carriers market share exceeds the FCC’s 2007 calculation, because of further industry consolidation including Verizon’s acquisition of Alltel. 

In an ideal world, wireless consumers would be able to plug their device into any 

network. Given the limitations expressed above, that ideal is not currently achievable in many circumstances. That said, it is important to note that whenever a consumer brings a compatible device to our network, we allow them to use it without 

purchasing a new device whenever that is technically possible. 

Question 3. Should public policy mandate that wireless networks allow any new 

handset to connect to it, similar to the existing situation with wireline service since 

the Carterfone decision? 

Answer. In light of the technical limitations set forth above, I do not believe that 

such a policy mandate is achievable at this time. I agree with the general proposition that a consumer should be able to purchase a device and connect it to the 

telephone network through their carrier of choice, as the FCC long ago decreed in 

the Carterfone decision. If you eliminate handset exclusivity and are vigilant in not 

allowing the largest carriers to dominate the handset supply chain, I believe you 

will go a long way toward improving the ability of all citizens to choose a device 

that best suits their needs and connect it to the telephone network on their carrier 

of choice. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. TOM UDALL TO

ROBERT M. FRIEDEN

Question 1. New Mexico is a rural state where most areas have just one or two 

cell phone providers. This situation already limits consumer choices. People in rural 

areas with few wireless companies to choose from have even fewer options for phone 

handsets due to exclusivity arrangements between carriers and phone manufacturers. This exacerbates the digital divide between urban and rural areas. 

With traditional wireline service, one can take any telephone to any home or office 

and just plug it in to make calls—no matter who the service provider is. Yet if one 

changes wireless carriers, one often has to buy a new phone. This seems wasteful 

and unnecessary. What policies should be implemented that will increase the availability of smartphones to consumers, particularly those that live in rural states? 

Answer. In the United States, the vast majority of wireless subscribers acquire 

handsets in a transaction with a wireless carrier, or its sales agent, that combines 

a subsidized phone with a one or two year service commitment. This business model 

reduces subscriber churn by locking consumers into a multi-month service term during which time the carrier recoups its handset subsidy through monthly rates and 

early service termination fees. In most nations, consumers can acquire handsets 

through a variety of distribution channels, including the ability to take service using 

an existing handset. U.S. subscribers, who forego the option of acquiring a subsidized handset, do not qualify for cheaper service rates. Wireless carriers apply the 

same rates they charge customers using subsidized handsets on a month-to-month 

basis. 

The top four wireless carriers have a market share of approximately 90 percent.1

Because they combine handset sales with telephone service, these carriers also 

dominate the market for handset purchases directly from manufacturers. With the 

exception of Apple, wireless handset manufacturers have an inferior bargaining position with the major wireless carriers. The manufacturers perceive the need to ensure that they have shelf-space at the major carriers’ retail outlets. Wireless manufacturers accept exclusive distribution agreements for their most attractive 

handsets, primarily to maintain favorable relations with a wireless carrier. 

Consumers may not enjoy all the potential benefits from wireless telecommunications and information services when carriers control how subscribers acquire 

handsets and what services these devices can perform and access. Bundling 

handsets and service, and securing exclusive distribution agreements, have an adverse impact on the aggregate level of innovation in both handset design and wireless services. Carriers’ interests in recouping handset subsidies and manufacturers’ 

interests in accommodating the interests of the Big Four wireless carriers combine 

to restrict what subscribers can do with their handsets. 

83 

2 In re Use of the Carterfone Device in Message Toll Tel. Serv., 13 F.C.C.2d 420 (1968), recon. denied, 14 F.C.C.2d 571 (1968). See also, Rob Frieden, Wireless Carterfone—A Long Overdue Policy Promoting Consumer Choice and Competition (New Am. Found., Wireless Future Program, 

Working Paper No. 20), available at http://www.newamerica.net/files/WirelesslCarterfonel Frieden.-pdf. Rob Frieden, Hold the Phone: Assessing the Rights of Wireless Handset Owners and 

Carriers, 69 U. PITT. L. REV. 675, 720–25 (2008). 3 ‘‘Local number portability (LNP) refers to the ability of users of telecommunications services 

to retain, at the same location, existing telecommunications numbers when switching from one 

telecommunications carrier to another. Thus, subscribers can port [i.e., interconnect and hand 

off traffic] numbers between two CMRS carriers (intramodal porting) or between a CMRS and 

wireline carrier (intermodal porting).’’ Implementation of Section 6002(B) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions 

With Respect to Commercial Mobile Services, Eleventh Report, 21 FCC Rcd. 10947, 11005 

(2006). 

Carriers restrict subscribers from accessing services and software applications 

that might reduce carrier revenues. For example, AT&T blocks subscribers from 

launching the Skype voice over the Internet Protocol (‘‘VoIP’’) application and using 

the service via the AT&T network. AT&T wants to preserve its ability to restrict 

international long distance calling options, thereby ensuring that most calls trigger 

the high rates AT&T charges subscribers as opposed to the pennies Skype would 

charge. Wireless carriers regularly lock out subscribers from using features already 

installed in handsets, or available by downloading software. For example, AT&T 

does not make it easy for iPhone subscribers to use their phones as a modem for 

accessing the Internet via another device such as a personal computer. 

Wireless carriers can stifle innovation in handsets, because the carriers dominate 

the distribution chain for these devices. I do not believe Congress should prevent 

carriers from offering consumers the option of acquiring subsidized handsets. However, I do believe Congress should ensure that the FCC’s venerable Carterfone policy 2 apply to wireless carriers. Over forty years ago, the FCC determined that subscribers of wireline service had the right to attach any device, and access any service, that does not cause technical harm. This fundamental consumer freedom should 

also include the right to attach any wireless device to carrier networks, subject to 

easily managed spectrum and other technical interface issues. Wireless Carterfone 

would authorize consumers to attach any handsets and access any software application and service subject to a similar technical harm standard. 

Question 2. Why should consumers be forced to purchase new phones when 

switching carriers? 

Answer. Subscribers need to acquire new handsets when switching carriers for a 

number of reasons. Because U.S. wireless carriers do not all operate on the same 

frequencies and do not use the same transmission formats, a switch in service provider will necessitate acquisition of a new device compatible with the new carrier’s 

operating frequency and transmission format. For example, AT&T uses the Global 

System for Mobile communications (‘‘GSM’’) transmission format while Verizon uses 

Code Division Multiple Access, incompatible with GSM. When consumers shift between AT&T and Verizon, they will have to replace their existing handset that will 

not work on the replacement network. 

However, the need to have a compatible handset does not absolutely obligate subscribers to acquire a new device, one that has a financial subsidy, or one exclusively 

available from the new carrier. A subscriber could acquire a used handset, and manufacturers could offer handsets compatible with many carriers’ networks. However, 

both scenarios have little likelihood of occurring in the current marketplace, because 

subscribers would not qualify for lower service rates if they forego the option of acquiring a subsidized, new handset. While wireless handset manufacturers do make 

devices that operate on different frequencies and transmission formats, so called 

dual-, tri- and quad-mode phones, wireless carriers do not want to offer handsets 

that can access the networks of competitors. Unlike the wired telephone marketplace, where subscribers can use the same phone when changing carriers, the FCC’s 

failure to apply the wireless Carterfone policy all but guarantees that subscribers 

will have to purchase a new phone, or have every incentive to acquire a new one 

even if not absolutely required by carriers to do so. 

Ironically, the FCC has implemented a policy that was supposed to promote easy 

switching of carriers. The Commission requires both wireline and wireless carriers 

to support number portability,3 the right of telephone subscribers to keep an existing telephone number when switching carriers operating in the same locality. The 

FCC concluded that without number portability consumers would have greater reluctance to switch carriers even if doing so would qualify consumers for better rates, 

terms, and conditions. 

84 

Question 3. Should public policy mandate that wireless carriers comply with the 

Carterfone policy? 

Answer. I believe that the FCC’s implementation of its longstanding Carterfone 

policy for wireless carriers would stimulate innovation and create market-driven incentives for carriers to promote network accessibility, both in terms of handset access and subscribers’ opportunities to download software applications. Wireless devices, such as smartphones, have become the functional equivalent to personal computers. Personal computer users rightly assume that they have an unfettered right 

to attach their devices to any network and to download any type of legal software 

and content. Senators and Representatives would hear from many constituents if 

computer manufacturers, or Internet access providers tried to stifle such freedom. 

Yet currently wireless carriers can do just that. Computer users have access to millions of software applications and services, not the 30,000 selected jointly by Apple 

and AT&T. 

Requiring the FCC to apply its Carterfone policy to wireless carriers would not 

impose new regulations and costly burdens. The policy remedies carriers abuses 

that have worked to lock out innovations and stifle consumer freedom. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. TOM UDALL TO

BARBARA S. ESBIN

Question 1. New Mexico is a rural state where most areas have just one or two 

cell phone providers. This situation already limits consumer choices. People in rural 

areas with few wireless companies to choose from have even fewer options for phone 

handsets due to exclusivity arrangements between carriers and phone manufacturers. This exacerbates the digital divide between urban and rural areas. 

With traditional wireline service, one can take any telephone to any home or office 

and just plug it in to make calls—no matter who the service provider is. Yet if one 

changes wireless carriers, one often has to buy a new phone. This seems wasteful 

and unnecessary. 

What policies should be implemented that will increase the availability of 

smartphones to consumers, particularly those that live in rural states? Why should 

consumers be forced to purchase new phones when switching carriers? Should public 

policy mandate that wireless networks allow any new handset to connect to it, similar to the existing situation with wireline service since the Carterfone decision? 

What policies should be implemented that will increase the availability of 

smartphones to consumers, particularly those that live in rural states? 

Answer. For the most part, we currently have the correct public policies in place 

to ensure the timely diffusion of smartphones to consumers, including those that 

live in rural states. Although exclusive handset arrangements between some wireless service providers and some handset manufacturers may mean that residents of 

some areas do not have immediate access to a particular handset, that does not 

mean that they are bereft of adequate choices of service plans and equipment. Today 

there are numerous vendors of smartphones, and many types and models of these 

handsets. Thus, there is less an unbridgeable ‘‘digital divide’’ between urban and 

rural areas, than there is a lag in diffusion of certain technologies and equipment. 

This lag is due in part to the economic characteristics of serving sparsely populated 

areas, in part to the duration of exclusivity arrangements, and in part to other factors, include the size of the provider’s customer base and the type of wireless 

broadband network offered by the provider. It is not different, in essence, from the 

lack of availability in rural areas of products and services typically found in densely 

populated urban areas. 

Prohibiting exclusive handset arrangements, as some rural carriers have requested, might speed the availability of some current generation of smartphones to 

some rural subscribers in the short term, but it would do so at a cost. Such a policy, 

by effectively mandating that handset manufacturers must design their products for 

use on all wireless networks, would mean that wireless service providers can no 

longer differentiate themselves and compete on the basis of handset offerings. Over 

the long term, this would lessen competition to design and market the next ‘‘hot’’ 

handset. No one company or carrier has a monopoly on innovation, and there is 

nothing to prevent smaller and rural carriers from forming a buying consortium of 

sufficient scale to contract with handset manufacturers to produce innovative products. In fact, at least one such group exists, and rural carriers have through it successfully developed and marketed such exclusive products in the past. 

Industry-led solutions to this problem are far more likely to provide consumer 

benefits than regulatory mandates. For example, by acting together, a group of 24 

small wireless providers last year negotiated directly with Verizon Wireless for acVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00088 Fmt 6601 Sfmt 6621 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
85 

cess to handsets exclusive to that carrier. More recently, Verizon Wireless has announced that ‘‘for small wireless carriers (those with 500,000 customers or less), any 

new exclusivity arrangement [it] enter[s] with handset makers will last no longer 

than 6 months—for all manufacturers and all devices.’’ The carrier has also indicated that it will negotiate similar arrangements for larger, regional carriers on an 

individual basis. There is obviously a calculation made by the carrier and the 

handset manufacture as to the length of the exclusivity period necessary for each 

to earn the benefit of the risk and investment involved in bringing the device to 

market. A similar balancing of interests has been recognized by T-Mobile USA, according to Kathleen Ham, VP of Regulatory Affairs, who has stated that the carrier 

‘‘for the most part utilizes limited exclusivity arrangements that don’t apply to the 

smallest carriers, but do incent us to invest, innovate and provide an alternative 

wireless experience to our consumers.’’ Calculations concerning the size of carrier 

against whom the exclusivity arrangement will apply and length of time required 

to recoup the value of the investment in the subject device will necessarily differ 

among the wireless carriers, who, together with the handset manufacturers, are in 

the best position to make such determinations for any given device. 

Market-based solutions such as these are preferable to regulatory prohibitions on 

the exclusive arrangements because they preserve the wider societal benefits of such 

arrangements—intense competition between the largest carriers and handset manufacturers to develop the next ‘‘must have’’ device—while speeding the availability of 

more advanced handsets to customers living in rural areas served by regional and 

smaller competitors. Public policy should encourage such industry-led solutions by 

saving the use of regulatory intervention for cases of demonstrable market failure 

and consumer harm. 

Question 2. Why should consumers be forced to purchase new phones when 

switching carriers? 

Answer. Unlike in Europe, where a single wireless interface technology—GSM— 

is employed, in the U.S. there are two predominant technologies used by wireless 

carriers: CDMA2000 and GSM. As a result, not every handset is designed to work 

on every network. The Apple iPhone, for example, was designed to work with a 

GSM network and cannot function on a CDMA2000 system. Thus, a subscriber 

switching from a GSM carrier to a CDMA carrier will have to purchase new equipment that is compatible with that carrier’s network. 

Additionally, wireless network operations reflect not only technology choices 

(CDMA vs. GSM), but also spectrum band utilization differences (cellular vs. PCS), 

together with individual service and feature choices by the operator. In these respects, wireless handsets are unlike traditional landline phones. They are optimized 

for use on a given provider’s network and designed to work on the spectrum that 

provider has available and the features and services that provider offers. For example, wireless providers have made various choices for provisioning E911 service, and 

the handset must be compliant with that choice to ensure the effective operation of 

the E911 service. 

Question 3. Should public policy mandate that wireless networks allow any new 

handset to connect to it, similar to the existing situation with wireline service since 

the Carterfone decision? 

Answer. As stated above, there are two predominant spectrum interface technologies used by U.S. wireless carriers: CDMA and GSM. Given this, a public policy 

mandate that wireless networks allow any new handset to connect to it would be 

impractical, if not impossible to implement without additional changes to the design 

of many wireless handsets. More importantly, imposition of Carterphone-like rules 

would require a radical shift for the wireless industry. Carterphone requires a 

standardized network, whereas the Federal Communications Commission has encouraged technology diversity among wireless networks in recognition that it is procompetitive, pro-innovation and beneficial to consumers. 

Nor do market conditions warrant such a radical departure from established policy. The market conditions giving rise to the FCC’s Carterphone decision couldn’t be 

more different than those of the wireless market today. The Carterphone decision 

was rendered at a time when telecommunications services were provided on a monopoly basis by a landline telephone provider and the telephone monopoly was also 

vertically integrated in the telephone equipment business. Since 1992, when there 

were only two cellular carriers per market, the FCC has permitted wireless carriers 

to control the devices attached to their networks and offer bundled transmission and 

equipment services in recognition of the fact that the wireless handset market was 

vibrantly competitive and the wireless carrier market sufficiently competitive that 

bundling service and equipment would benefit, rather than harm, consumers. And 

the market today is even more intensely competitive with 95.5 percent of the popuVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00089 Fmt 6601 Sfmt 6621 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
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lation of the U.S. living in areas served by three or more commercial mobile radio 

service providers and hundreds of handsets available from other 30 handset manufacturers. Significantly, wireless service providers do not own and are not otherwise 

vertically integrated with handset manufacturers. Since 1992, we have seen a 

steady trend of rising wireless minutes of use, a steady decrease in wireless service 

prices, and a steady increase in wireless service and equipment offerings. These are 

the indicators of a healthy and competitive market, where no single provider has 

and is abusing market power, rather than a failed market. 

Thus, from the perspective of economic theory, the competitiveness of the U.S. 

wireless market does not justify Carterphone-like regulation. Moreover, the goal of 

the Carterphone requirements was to introduce innovation in the consumer premises equipment market by permitting third-party manufacturers entry: a goal already achieved many times over by today’s flourishing wireless handset market. 

This is not to suggest that wireless carriers should be free to impose any and all 

restrictions on equipment suppliers, application providers and end user customers, 

but it does suggest that calls for legislative and/or regulatory intervention be tested 

to determine if in fact, particular carrier practices are on balance anticompetitive 

and that consumers will be better served by before-the-fact regulation. Markets may 

be inefficient and imperfect in some respects, but regulation can be more so. Accordingly, in the absence of demonstrable consumer harms, regulatory intervention into 

effectively functioning markets should not be undertaken lightly and must rest on 

solid empirical evidence, rather than supposition or surmise. It is doubtful that such 

a factual basis for regulatory intervention into the wireless service market exists 

today. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. TOM UDALL TO

VICTOR H. ‘‘HU’’ MEENA

Question 1. New Mexico is a rural state where most areas have just one or two 

cell phone providers. This situation already limits consumer choices. People in rural 

areas with few wireless companies to choose from have even fewer options for phone 

handsets due to exclusivity arrangements between carriers and phone manufacturers. This exacerbates the digital divide between urban and rural areas. 

With traditional wireline service, one can take any telephone to any home or office 

and just plug it in to make calls—no matter who the service provider is. Yet if one 

changes wireless carriers, one often has to buy a new phone. This seems wasteful 

and unnecessary. What policies will you implement that will increase the availability of smartphones to consumers, particularly those that live in rural states? 

Answer. Cellular South currently serves large portions of rural areas in all or part 

of five southeastern states. We are proud of our history of serving these areas with 

the philosophy of providing rural Americans with the same types of wireless services 

as those that are enjoyed by Americans in urban areas. 

Consumers in rural portions of Cellular South’s service area have access to the 

same devices as consumers in other portions of our service area. Unfortunately, device exclusivity agreements limit the Smartphones and PDAs that we can provide 

to our customers. 

In many rural areas, Cellular South provides the most reliable and robust wireless service. Consumers in these areas often have to choose between having a device 

from Cellular South that works when and where they need it, or having a cuttingedge device offered exclusively through another carrier that does not always have 

coverage where the customer needs it. 

Question 2. Why should consumers be forced to purchase new phones when 

switching carriers? 

Answer. Cellular South believes that a consumer should have the ability to switch 

carriers without having to purchase a new device. Unfortunately, differences in 

technology can make this legitimately impossible today when a consumer switches 

between CDMA and GSM carriers. However, today’s consumers should be allowed 

to use their existing devices when switching between carriers that utilize the same 

technology. 

When the largest carriers get exclusive agreements for devices, they typically 

‘‘lock’’ those devices to their networks so that they cannot be used on other technologically-compatible networks. In most cases, consumers cannot ‘‘unlock’’ these devices without taking steps that will void the device’s warranty. 

It is important to address this problem now because, as carriers deploy 4G technologies, the early indications are that most will choose LTE as their 4G technology. 

This will result in a common platform for most carriers which will allow the potenVerDate Nov 24 2008 09:24 Jun 07, 2010 Jkt 054918 PO 00000 Frm 00090 Fmt 6601 Sfmt 6621 S:\WPSHR\GPO\DOCS\54918.TXT SCOM1 PsN: JACKIE
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tial for customers of these carriers to move their device from one network to another 

more freely than they are able to do today. 

Question 3. Should public policy mandate that wireless networks allow any new 

handset to connect to it, similar to the existing situation with wireline service since 

the Carterfone decision? 

Answer. Cellular South believes that a consumer should be able to attach an FCCcertified wireless device to the wireless network of his or her choice, provided that 

the device does not harm the network. There is no compelling reason why consumers should be forced to buy wireless devices through wireless service providers. 

In fact, Cellular South would welcome an environment where wireless providers 

simply provide service and are not also device suppliers. 

While it may be some time before U.S. wireless consumers buy devices separately 

from wireless providers, Congress could make significant progress in this area by 

eliminating the use of exclusivity agreements between wireless device manufacturers and wireless service providers. 

Æ