The Cell Carriers' Worst Nightmare: FCC Investigation Of Handset Deals

The partnerships between handset companies and cellular carriers in the US are too good to be true. The FCC has discovered that and the wireless industry may never be the same again.

AT&T (T) has derived tremendous benefits from its exclusive sales arrangement with Apple (AAPL) to sell the iPhone in the US. The telephone company regularly talks about how well the deal works in helping it get new customers and subscribers who used to do business with AT&T Wireless competitors.

The government has even expressed some concerns that a Google (GOOG) voice application was blocked from Apple’s site for iPhone software downloads. Some analysts thought that the Google product would undermine AT&T’s wireless subscription revenue. Apple may be overly zealous in protecting its partner.

Sprint (S) has indicated that its exclusive deal with Palm (PALM) to distribute the new Pre has helped sales at the No.3 US cellular carrier. It is that kind of information that troubled the FCC. The agency has announced that it will hold a meeting on August 27 to discuss exclusive deals between carriers and handset companies. The FCC wants to determine whether customers are hurt by paying the price that the iPhone costs at AT&T and whether that cost would be as high if the same product was available through more than one carrier. The FCC is also curious about whether the Palm deal with Sprint and the Apple deal with AT&T keeps smaller companies with alternate handset products from making it to market with their inventions.

It is far too early to say how the FCC hearings will play out, but that should not keep analysts from making educated guesses. The government is ever looking for monopolies. AT&T found that out in 1984 when the Department of Justice prevailed in getting the phone company broken into pieces. Microsoft (MSFT) has faced harsh penalties for creating businesses identified as monopolies. Lawyers who follow the internet industry believe that Google’s 70% share of the US search business could draw scrutiny.

The FCC hearings next week are bound to be part of a painful process for the big American cellular carriers and, if history is any indication, the process is going to be a very long one.

Douglas A. McIntyre