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iPhone: AT&T deal under scrutiny by government, Verizon

Apple's multi-year iPhone contract with AT&T has become the poster child for the ills of the cellphone industry in a US House committee debate, with Verizon also casting its own doubts on the device.

Although the debate on Wednesday was officially held to discuss the possibility of forbidding individual states from setting their own laws for wireless use, the focus quickly shifted towards what many believe are abuses of the open market that prevent genuine competition.

Representatives from Congress specifically accused exclusivity deals, like AT&T's agreement for the iPhone, of trapping customers. These terms have forced users to stay with their providers as long as they want to use certain devices, no matter the conditions. Subscribers using the iPhone can't switch once their contracts expire or if they are unhappy with network quality, members of Congress said.

The iPhone highlights this problem through multiple restrictions, none of which are explicitly required for it to operate elsewhere. While it would be technically compatible with T-Mobile, the phone's SIM card cannot be replaced with anything but another AT&T card.

And regardless of hardware limits, any AT&T customer is required to pay for two years of service and will only have the option of switching to T-Mobile once AT&T's deal with Apple is at an end. Any cancelations also forced an early termination fee, the politicians noted.

"You're stuck with your iPhone and you can't take it anywhere," said committee chairman and Massachusetts Democratic Party representative Edward Markey.

Private firm SkyDeck's chief Jason Devitt underscored how this protectionism created a "deathgrip" on what cellphones were an option. While Verizon's parent company Vodafone was mandated to allow unlockable phones in its European home and would support as many as 800 different handsets, Verizon itself would only allow 30 — none of which could be ported to Sprint or other compatible networks, Devitt observed.

Senior officials from the major carriers were expectedly defensive of their policies and said the cellphone business was more competitive today than it would be with unrestricted phones and contracts, which they claimed would lift prices by taking away guaranteed revenue streams.

AT&T's primary challenger in the wireless industry, Verizon, indirectly used the iPhone as proof that exclusive models were no guarantee of success. A high-profile launch aside, the long-term future of the iPhone was still in doubt and Verizon felt no qualms about turning down the iPhone deal because it wasn't the "right opportunity" at the time, said the carrier's legal counsel Steve Zipperstein.

"Despite the hype about the iPhone in the media over the last couple of weeks, the product has only been available for the last 10 days," he said. "The jury is still out and we will have to see how the market reacts."