Is exclusivity synonymous with innovation?

In my past two years covering telecommunications, Apple's iPhone has been at least somewhat responsible for driving most of the trends I have written about. As such, it is unsurprising that this single mobile device — and AT&T's lock on it — is also the main reason the federal government is probing into the wireless industry with more scrutiny than ever.

At the request of the small U.S. carriers, the Federal Communications Commission is investigating if and how exclusive handset deals limit competition. Exclusivity isn't the only issue being reevaluated — application approval, text messaging rates, early termination fees and spectrum allocation are all on the table — but each with three considerations in mind. New FCC Chairman Julius Genachowski has stated these keys for reviving the telecom industry as “consumers, competition and innovation.” It's a worthwhile and necessary mission, but with innovation and competition at the core, he is also charged with determining if they are actually one and the same.

Even Verizon has praised the iPhone for its game-changing, market-expanding influence. The carrier also showed in its earnings report that it doesn't need the iconic device, while at the same time AT&T's earnings proved why it did.

But the small iPhone-less carriers clearly see it differently. Without access to the most appealing, advanced devices, they are at a disadvantage. On the other hand, having an exclusive claim to a compelling mobile phone is typically the competitive differentiator that leads a consumer to pick one carrier over the other.

Verizon took the first step toward compromising, agreeing to limit all of its exclusive handset deals for six months, at which time it will open them up to small carriers.

But the fight is not over, nor is a solution clear. With the split between AT&T and T-Mobile on GSM networks and Sprint and Verizon as CDMA carriers, handset-makers aren't likely to target both — at least not easily. Further regulation of exclusive deals could also do away with carrier subsidies — so no contracts required, but a much more expensive handset. Consumers' best interests aren't clear, while carriers' interests are clearly split.

Continuous, and often dramatic, innovation has defined the wireless industry in the short time I've been watching it. It is an industry undergoing waves of consolidation, transitioning from voice to data, and warding off non-traditional competitors while simultaneously taking on new markets and specific verticals.

Competition has changed, too, as has the pace of innovation and the criteria for it. If a resolution comes in the form of regulation, what it decides will determine the balance between innovation and control — and if the two are ultimately at odds.

MORE @ TELEPHONYONLINE about the evolving handset market in Sarah Reedy's story, “Q2 handset wrap-up: Adapt or decline.“ Just visit our Mobile Apps one-stop today. → telephonyonline.com/mobile-apps