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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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