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Electronics Retailer Sues AT&T Over Exclusivity Deals

10/01/2009 03:42:39 PM Eastern

Fort Worth, Texas - Electronics retailer Progressive Concepts (PCI) is seeking $100 million in damages from AT&T over allegations that the carrier prevented it from selling the iPhone and other AT&T-exclusive products and services in violation of their contract.

AT&T declined comment.

PCI, which does business as Hawk Electronics, initiated a binding arbitration proceeding that also alleges AT&T's practices are "actively inducing" PCI customers to leave PCI for AT&T. In an agreement dating back to the early 1980s, PCI directly bills consumers for AT&T service plans and receives a share of each subscription's revenue. The company fears AT&T's inducements will eventually cause its subscriber base to decline to zero.

PCI estimates AT&T's inducements caused it to lose 12,000 subscribers to AT&T stores and other AT&T-direct channels and that its subscriber base would have hit 100,000 by now. PCI arrived at its $100 million damage calculation by pointing to a contract provision requiring AT&T to pay $1,000 for each customer induced to churn. The company's current subscriber base is 72,000.

The contract applies to 18 storefronts consisting of a mix of Hawk-branded storefronts operated by PCI, Hawk-branded sub-agents owned by third parties, and Teletouch-branded stores, the company said.

The proceeding could take six to 12 months.

PCI's contract states simply that "if AT&T gets to sell it, we can sell it," said Robert McMurrey, chairman of PCI parent Teletouch Communications. The contract obligates AT&T to make the iPhone available to PCI, he claimed, even though AT&T contends that its contract with Apple gives Apple control over marketing, pricing and distribution practices. When the phone launched in June 2007, it was available only through AT&T-owned stores, other AT&T direct channels, and Apple stores. It later became available through Best Buy and Wal-Mart.

PCI also contends that AT&T is violating its contract by prohibiting PCI from selling other "exclusive" products and services, such as wireless-embedded netbooks and such wireless services as AT&T's family/child location service and a cellular parental control feature. PCI is also prohibited from selling AT&T's residential broadband service and U-verse HDTV service, which AT&T bundles with wireless, McMurrey said.

Because PCI can't retail the iPhone or these other AT&T services, existing Hawk subscribers are churning to AT&T stores, McMurrey said. "AT&T induced our customers to go to their stores, and we lost the right to bill those customers and receive their revenue flow," he contended. Many consumers who dropped Hawk to get the iPhone or other AT&T services, he noted, were on family plans, causing additional subscriber losses because family members of the iPhone purchaser also switched, he said. PCI also lost corporate accounts because it couldn't offer the iPhone, he added.

When the iPhone was being launched, PCI began negotiating in good faith to settle the dispute, but "it became very clear in the past six to eight months" that AT&T was interested in inducing subscribers to churn rather than negotiate a resolution, McMurrey claimed.

Around the time of the original iPhone launch, AT&T exercised its right to let the contract expire on Sept. 1, 2009. The expiration prevents PCI form signing up new subscribers but allows the company to continue billing existing customers and offer them upgrades.

PCI also operates a wholesale division that distributes cellphones and mobile electronics nationally, but the wholesale operation isn't covered by the contract.

Parent Teletouch operates Teletouch-branded stores that sell cellular, two-way radio, GPS-telemetry, wireless messaging, and public safety/emergency response products and services.

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