Amid complaints by smaller competitors that exclusive agreements by dominant wireless phone companies and handset makers hurt competition, AT&T said on Wednesday that competition in the industry is robust and it will increase over time.

The issue of exclusive agreements among some of the biggest companies like Apple Inc's iPhone and service provider AT&T Inc is at the center of some lawmakers' concerns about whether such practices hinder competition and innovation.

Competition in the wireless marketplace is white hot, Paul Roth, president of retail sales and services at AT&T, said in testimony before a Senate Commerce Committee hearing to examine the wireless market.

AT&T, along with Verizon Wireless , Sprint Nextel Corp and T-Mobile, a unit of Deutsche Telekom , were the targets of criticism at the hearing by smaller competitors who accused them of failing to provide services in rural areas and focusing instead on more profitable densely populated cities.

The smaller competitors argue that exclusivity agreements prevent other carriers from acquiring these devices, hurting competition for wireless customers.

Victor Meena, president of Mississippi-based Cellular South Inc, said that AT&T Wireless, Verizon Wireless, Sprint Nextel and T-Mobile dominate 90 percent of the U.S. wireless market.

The largest carriers use their market power to prevent competitors from having access to devices and roaming, Meena said. If this trend continues, and I believe it will without intervention from Congress, then there will once again be a duopoly in the wireless industry.

John Rooney, president of Chicago-based U.S. Cellular Corp, which provides services in regional pockets throughout the United States, urged the committee to act to allow customers the ability to chose both the handset and the network.

Senator Amy Klobuchar, a Minnesota Democrat, said consumers should be free to choose the plan and phone that best fits their needs.

We need to make sure consumers are getting a fair deal, she said. Right now, some consumers have severe limitations in wireless options and are subject to confusing and anti-competitive business practices like early termination fees and other charges.

AT&T's Roth said the wireless industry is investing several billions of dollars and competing fiercely to offer customers an array of services to access the Internet, listen to music, send emails, among other things.

The wireless industry is just beginning to tap these possibilities, Roth said. Seemingly every month a new and innovative wireless device bursts onto the scene.

Roth said Palm Inc's

new smart phone called the Pre, whose service is provided by Sprint, has resulted in a lower price for the iPhone.

He added that companies will compete even harder in the coming years.

Timothy Karr, campaign director of Free Press, a consumer group, said wireless companies make a lot of promises through the exclusive deals but fall short of those promises.

Wireless companies have stifled innovation, crippled applications, and stuck users with the bill, Karr said.

More than 270 million Americans subscribe to wireless phone services, compared with 3.5 million consumers in 1989, according to the Governmental Accountability Office. About 35 percent of U.S. households use wireless phones as their primary or only means of telephone service, the GAO said.

As the number of subscribers increase, several U.S. senators have urged the Federal Communications Commission to review the exclusive arrangements and how they affect competition and choice in the marketplace.

They want the FCC to act expeditiously if agency officials find that exclusivity agreements unfairly restrict consumer choice or hurt competition in the commercial wireless marketplace.

I think the Commerce Committee should consider how the wireless industry is functioning and whether current practices are in the best interest of competition and the consumer, said Massachusetts Democrat John Kerry, a committee member.

(Reporting by John Poirier; Editing by Phil Berlowitz)