Lock-in isn't as bad as they claim

The Wall Street Journal mentioned this morning that French authorities are ending France Telecom’s 5-year exclusive (with its carrier Orange) for the iPhone in France. The WSJ quoted an analysts as saying the decision could cost Orange €200 million in lost revenues.

I missed the decision (rejecting an Orange appeal) when it came out last month. Some expect it will end the exclusive elsewhere in Europe. US law is different enough that (absent a socialist government in DC) I don’t see AT&T losing its exclusive, while in other countries there are multiple iPhone carriers already.

Beyond my general aversion to government meddling in the free market (except to control monopolies), there are specific reasons that the decision by French authorities is mistake. (No surprise there). Yes, I agree that the bundling increases switching costs and reduces competition between carriers — which is what the carriers are intending.

However, it is quite clear that in the US, such bundling increases competition among device makers — which is sorely needed in the high-end smartphone segment. If Verizon can’t have the iPhone, it has to promote something else, as do Sprint and T-Mobile.

In the US, this imperative for the rival carriers gave Google an entry with the G-1, as well as a channel for RIM and the Korean firms to offer their “me too” smart phones. It may allow Nokia a chance someday to become a factor in the US market. And its undeniable that the Sprint exclusive on the Pre is the only thing keeping Palm alive as a smartphone supplier.

We need competition and innovation in smartphones to spur innovation in mobile networks. Despite their denials, the network operators are just running commoditized pipes between devices and the Internet, and as long as we have enough operators competing for business, it’s worth accepting a little bit of switching costs to maximize device choices.

To be fair to the European interventionists (not sure why), the US has a more fragmented and competitive mobile phone market than in countries where the privatized government ex-monopoly still dominates the mobile telecom landscape. Thus, the concern about ex-PTT domination is a real one in France, Germany and Japan. It seems less plausible in the UK, where the iPhone went to O2, the British Telecom spinoff that is in second place to Vodafone.