• by Mark Walsh  @markfwal, July 19, 2009

Facing increased government scrutiny of exclusive handset deals, Verizon Wireless Friday proposed offering smaller carriers access to any Verizon phone, including those it sells exclusively.

Under its plan, wireless operators with less than 500,000 subscribers would be able to gain access to phones after only six months, according to a letter sent by Verizon to Rep. Rick Boucher, (D-Va.), chair of the House Energy and Commerce Subcommittee on Communications, Telecommunications and the Internet.

The offer is similar to one Verizon made in February to a group of 24 small CDMA wireless carriers with a total of about 2.5 millions subscribers, promising to end long-term exclusive agreements with LG and Samsung phones.

The move comes as Congress and the Federal Communications Commission have begun looking into the practice of the major wireless carriers getting exclusive access to the hottest handsets for a set period. The issue gained prominence through AT&T's exclusive deal with Apple for the iPhone, which consumer groups and rural carriers seized on to push lawmakers and the FCC to investigate such arrangements.

On top of that, the Department of Justice reportedly has initiated a review to determine whether the largest U.S. telecommunications companies are inhibiting competition. The inquiry is exploring possible antitrust violations in areas from landline voice and broadband service to wireless.

Wireless carriers have maintained that competition within the industry is already intense and that the exclusive deals promote innovation and investment. Even as it offered a concession to smaller carriers, Verizon advocated for the practice in its letter from Verizon Wireless CEO Lowell McAdam:

"Exclusivity arrangements promote competition and innovation in device development and design. When we procure exclusive handsets from our vendors we typically buy hundreds of thousands or even millions of each device. Otherwise manufacturers may be reluctant to make the investments of time, money and production capacity to support a particular device."

That view echoes the sentiments of a letter AT&T sent earlier this month to Senate Judiciary Antitrust Subcommittee Chairman Herb Kohl, (D-Wis.), which argued that blocking exclusive deals would degrade rather than enhance competition. AT&T was responding to a July 6 letter Sen. Kohl had sent to the Justice Department and the FCC raising his concerns about the state of competition in the telecom industry.

Advocacy group Public Knowledge, however, was dismissive of the Verizon offer on handset exclusivity in a statement issued Friday. "Verizon's gesture should be seen for what it is--an inadequate attempt to influence legislation and regulation. It should not be up to Verizon to decide the terms and conditions under which consumers can have the benefit of wireless handset competition," read the statement from Harold Feld, legal director for the Washington, D.C.-based group.

It urged the Justice Department and FCC to "pursue their inquiries into exclusive handset arrangements with the goal of eliminating the practice altogether." AT&T and Verizon, the two largest U.S. wireless providers, said earlier this month that they had not been contacted by the Justice Department.

There was also speculation Friday that Verizon's offer wasn't aimed at heading off federal pressure, but weakening AT&T's strangehold on the iPhone.

A report from Pali Research this week suggests AT&T would suffer if its exclusive deal with the iPhone were to end because of the superior network offered by Verizon. The research firm estimates that nearly one-third of AT&T's contract customers are being retained by the carrier mainly because of the iPhone exclusivity.

Rep. Boucher could not be reached for comment Friday.