Yesterday in the U.S. Senate the Commerce Committee held a hearing entitled “The Consumer Wireless Experience.” Given all we know about the “consumer wireless experience” one might have expected something just shy of jubilation. Indeed, the real question should be how can the dynamism and innovation of the wireless industry be transferred to other, more moribund industries? Competition in wireless is undeniable, with hundreds of handsets and many different plans available from a variety of service providers covering thousands of markets, and there are scant signs of anything that could be construed to be “consumer harm.” U.S. consumers have roared into the mobile communications space, with 273 million subscribers as of last summer, an 84 percent penetration rate.
But instead, in true DC fashion, what resulted was hand-wringing about all of the problems in the wireless market. The real purpose of the hearing, or at least one purpose of the hearing, was to air complaints about wireless companies gaining exclusive rights to compelling new handsets, with AT&T's contract with Apple for the iPhone being Exhibit #1.
Let’s be clear about this—contract rights are a direct extension of property rights. And exclusive contracts are common in every industry. There is nothing remarkable or atypical about a particular wireless company gaining temporary exclusive access to a new handset.
Yet activists are pushing the government to intervene and prohibit or vitiate contracts between handset makers and service providers. And they’re getting results. A letter sent earlier this week by some in the Senate asked the FCC to review exclusive arrangements regarding mobile handset technology between wireless carriers and cell phone makers and to discover how they affect competition and choice in the marketplace.
In our mind, the question should be: Is there a key economic principle involved, or is this just the case of opponents “ganging up” on a particular exclusive contract for a particular highly-desirable product. If a principle is involved, it should it be extended across the entire economy. And if not, we would suggest that no principle is involved, but rather standard “rent-seeking” behavior which, according to Congress’ own Joint Economic Committee, “hobbles the American economy.”
Facing tough competition, or even outright failure, the answer should not be turning to the government for the favors of regulatory rents. The wireless industry is an example of incredible innovation, competition, and consumer benefit. Government agencies should recognize this rather than interrupt it.