Democrats criticize AT&T's exclusive iPhone deal

Editor's note: This story was updated at 1:35 p.m. PDT.

WASHINGTON--AT&T's exclusive right to sell the Apple iPhone drew complaints on Wednesday from Democratic politicians, though it was unclear whether they were planning to do anything about it.

"The problem with the iPhone is that the iPhone with AT&T is kind of like a 'Hotel California' service," Massachusetts Rep. Ed Markey said--in a nod to the Eagles hit, of course--during a hearing. "You can check out any time you like, but you can never leave."

Special coverage
iPhone: The wait is over

News.com tracks handset's
long-anticipated arrival.

Even though the hearing before the House of Representatives subcommittee on the Internet was supposed to be about "wireless innovation and consumer protection," the iPhone popped up among Democrats as a subject of criticism--and, among Republicans, as an example of the free market and consumer choice in action.

Neither Apple nor AT&T testified at the hearing.

To be clear, there are no proposed laws, or even talk of proposed laws, that would forcibly divorce Apple from AT&T. The wireless carrier reportedly has an exclusive deal to sell the iPhone in the United States for the next five years.

Rep. Ed Markey brandishes an iPhone while discussing the device at a Wednesday Capitol Hill event.

(Credit: U.S. House of Representatives)

Michigan Rep. Fred Upton, the top Republican on the subcommittee, said of the iPhone: "Its early success is an indication that the wireless market is in fact working. That iPhone is the newest mousetrap and now other carriers will be working to top it."

A more likely possibility is for federal regulators to require an open network standard (that would permit all sorts of mobile devices from all kinds of companies to operate) when some of the valuable slice of spectrum known as the 700 MHz band is auctioned off early next year.

"I think it's time that a consumer become the decider of what their phones do, not their cell provider," said Rep. Mike Doyle, a Pennsylvania Democrat.

Google has been lobbying the Federal Communications Commission to permit just that, and FCC Chairman Kevin Martin seemed to confirm the agency was headed in that direction in an interview published Monday in USA Today.

On Wednesday, Markey applauded that approach. The FCC "should seize this opportunity to create open access opportunity for wireless service," he said, and brought up the agency's 1968 Carterfone decision, which allowed non-AT&T devices to be connected to the telephone network.

Update: Just to be clear, despite their gripes about the AT&T exclusivity and the $175 fee that accompanies ending the mandatory two-year contract early, Markey and some of his Democratic colleagues appeared perfectly smitten with the iPhone itself.

Markey said it "demonstrates the sheer brilliance and wizardry of the new technologies which are available in wireless today" and commented that its Wi-Fi capabilities were a "welcome addition."

The Massachusetts Democrat even gripped the gadget in his right hand while he delivered the iPhone-related portion of his opening statement, although it became evident upon later questioning from his fellow politicos that it wasn't actually his property.

"It's just to hint to my wife as to what I do want for my birthday," quipped the congressman, who turned 61 Wednesday.

Perhaps it belonged to the chairman of the full House Energy and Commerce Committee, Rep. John Dingell (D-Mich.). (A Markey aide said she wasn't sure.) Dingell--who, at 81, also happens to be the House's most senior, albeit not quite its oldest, member--remarked that he was still BlackBerry-reliant but was also "enjoying my new iPhone."

"Is there any reason why, if technical questions can be addressed, that consumers ought not have the ability to determine the devices they're going to have on the network?" he asked.

Consumers vs. carriers
Most Republicans present said they believed the wireless market is a competition "success story" and thus warrants no additional rules. "When we micromanage, when we regulate, we discourage capital flow," said Rep. John Shimkus (D-Ill.)

By contrast, most Democrats and at least one Republican said the FCC may need to take steps during the upcoming 700 MHz auction that they feel would better promote consumer choice.

Rep. Chip Pickering (R-Miss.) and Jane Harman (D-Calif.) said they urged the FCC in a recent letter to force the operators of at least some of the soon-to-be-auctioned-off airwaves to allow customers to hook up whatever devices they please and to offer that band at wholesale prices to companies that want to get into the wireless broadband space.

Those ideas drew renewed resistance from the two wireless carrier representatives on the panel--Ed Evans, the head of a start-up called Stelera Wireless, and Verizon Wireless general counsel Steven Zipperstein.

Both executives said there's nothing wrong with allowing the auction winners to institute open access rules if they please, but they argued that forcing such a business model is inappropriate when there's no evidence of consumer discontent.

Of the thousands of phone calls and e-mails that Verizon Wireless's 60 million customers place to the company each day, "we have not heard from our customers very much about the desire to bring other devices onto our network or the desire to enable Wi-Fi," Zipperstein said.

Pressured later by Rep. Lois Capps (D-Calif.), Zipperstein denied that Verizon Wireless offers its U.S. customers "fewer" features on their phones than does the European carrier Vodafone, which owns almost half of his firm. "We offer different features," he said.

But Jason Devitt, a Silicon Valley entrepreneur who founded the wireless applications start-up Skydeck, argued there's a significant difference in the freedom granted to wireless product developers in the United States vis-a-vis in Europe. He belongs to a coalition that wants the FCC to set aside a chunk of spectrum as an open "sandbox" where innovators could experiment with new wireless technologies without having to secure permission first from carriers.

"If I want to produce a GSM device that will work on Vodafone's network, I don't have to ask Vodafone's permission," which he claimed has led to some 800 devices that could work on that network, he told the politicians. By contrast, "if I want to produce a CDMA device that works on Verizon's network, I have to ask Verizon's permission."

CNET News.com's Declan McCullagh contributed to this report.