Report: Regulation would commoditize wireless industry

The authors say regulation is only needed when a market has failed. The wireless market, they say, is thriving and competitive and that no  one carrier has more market power over another. And they say the market depends on product differentiation—through content and handset  partnerships, for example—to compete for customers. Such “efficiency-enhancing” practices, the report says, reduce the risks and costs associated with innovation and introducing new products.

The authors use the exclusive arrangement between AT&T and Apple’s iPhone to illustrate why they think such contracts should not be banned. Apple sought an exclusive distributor for the iPhone so that it could maintain strict control over the applications, branding and service issues. It was able to do so by partnering with a single distributor and, as a result, pulled off “one of the most successful product launches in U.S. history.”

And AT&T was able to offer customers a handset they couldn’t get with any other carrier. Firms that provide differentiated products—the fastest network or the coolest new handset—can charge a higher price and better compete in the market. The report points out that AT&T is not the only carrier making such exclusive arrangements. Sprint’s network solely powers Amazon’s Kindle and Palm’s Pre handset. T-Mobile powers Google’s G1 phone. Therefore, the report reasons, no one carrier has so much market power that it can provide all of the hottest new devices.

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Proponents of regulations regarding net neutrality—including provisions that would allow consumers to attach any non-harmful device to any wireless network—say it benefits consumer by providing more choice.

The counter argument, as stated in the report: “Having every provider offer the same set of services does away with this competition and substitutes the judgment of the “neutrality” advocates, who would do away with diversity and replace it with commoditization. Rather than response to a non-competitive market, it is a prescription for turning a competitive market into an uncompetitive one.”