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Do wireless carriers play unfairly? Regulators aren't sure, but they're going to investigate. Last week, the Federal Communications Commission voted to launch an official inquiry into the state of innovation in the U.S. wireless market.
Yes, good. Carriers such as AT&T (NYSE: T ) , Sprint Nextel (NYSE: S ) , Verizon's (NYSE: VZ ) wireless group, and T-Mobile have been followers, rather than leaders, in the march towards mobile innovation.
Handset markets and software developers have led the revolution, most notably Apple (Nasdaq: AAPL ) , Research In Motion (Nasdaq: RIMM ) , Palm (Nasdaq: PALM ) , and Nokia (NYSE: NOK ) . Every one of them has pushed the boundaries of what a phone can do, forcing carriers to play catch-up.
Consider the iPhone. Users have downloaded more than 1 billion apps from its App Store. AT&T has suffered through dropped calls and disappearing voice mail, among other problems, as it adjusts to the massive data traffic the device creates. The company is investing at least $17 billion this year to upgrade its network.
And it can do so without much risk. No other carriers here in the U.S. are able to resell the iPhone. Sprint still has a few more months left in its exclusive distribution deal with Palm for its Pre smartphone. Fair or not -- that's for the regulators to decide -- exclusive distribution agreements in the wireless world are like no-bid contracts elsewhere.
But that sounds worse than it is. Also, there's a danger to interfering with how the carriers and handset makers shake hands nowadays. Phone subsidies would almost certainly end, were smartphone makers free to carry any software they wanted, and work within any network.
What's more, smartphones aren't exactly cheap to make. Would Apple have sold more than 20 million iPhones since 2007 if customers had to pay $549 per handset? I doubt it. Innovators need cash to spur innovation.
This means that the FCC has to toe a fine line. Carriers aren't exactly flush with profits. Push them, and they'll shift the burden to consumers. Yet there's no reason for iPhone users to not have tethering and Google Voice; AT&T is strangling innovation on the platform it distributes exclusively, and that's wrong.
You've got a big stick to wield, Uncle Sam. Use it carefully.
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