As widely reported, AT&T and Deutsche Telekom AG have entered into an agreement under which AT&T will acquire T-Mobile USA in a cash-and-stock transaction valued at approximately $39 billion.  Countless critiques and assessments of the deal have been published.  The FCC recently set the pleading schedule  in connection with its review of the  proposed transaction. 

Handset exclusivity is among the more important issues raised by the proposed takeover, as noted in Cecilia Kang’s article AT&T Agrees to buy T-Mobile USA.

The merger was a surprise, as Wall Street speculated in recent weeks that Deutsche Telekom would sell its T-Mobile USA unit to Sprint Nextel. Those two companies are struggling to retain subscribers as giants AT&T and Verizon Wireless pick up customers attracted to exclusive partnerships to carry Apple’s iPhone and Motorola’s Droid.

Exclusive handset arrangements are highly problematic when the largest carriers can lock up the most advanced handsets, smart phones and tablets for months or years.  A wireline service analogy highlights these concerns. Imagine if, in order to buy the latest Cisco routers, major businesses and the Federal government must purchase dedicated Internet access service exclusively from Verizon. Unthinkable.

While these arrangements were not on the horizon when the FCC permitted the bundling of handsets and wireless service, exclusive arrangements were seen as problematic even in 1992.  Skype raised the issue several years ago, but the FCC has declined to act on Skype’s petition.  Ironically, in 2007 the FCC agreed with AT&T and Verizon in banning another form of exclusive contracts—exclusive access agreements  in which a cable company secures from an apartment owner the exclusive right to provide video service to the apartment’s residents.

Clearly, the FCC should limit exclusive handset arrangements, preferably banning the practice generally or, at least, barring these arrangements as a condition in any decision approving AT&T’s takeover of T-Mobile.