Exclusive Smartphone Agreements an Antitrust Violation?
I was intrigued to read the front page banner headline of the July 7th issue of The Wall Street Journal. “Telecoms Face Antitrust Threat“.
Apparently the Obama administration has taken an aggressive position on antitrust enforcement in a variety of industries, but the focus of this article is the telecom industry.
The two dominant carriers in the US are AT&T and Verizon. As such, they are the primary subject of scrutiny by the Department of Justice. That’s not surprising. Taken together, they hold about 60% of the US wireless market with 164.8M subscribers. They also control large portions of the Internet backbone and have about 90 Million land-line subscribers.
The DoJ is exploring whether these companies are abusing their market power in the wireless handset market. The issue at question is the practice of locking up popular smartphones through exclusivity agreements with the handset manufacturers; a practice that was wildly successful with the iPhone. You’ve got to admit, AT&T and Apple really hit one out of the park with that deal.
The big carriers say their industry is extremely competitive and that regulating these exclusive handset deals would “harm innovation”. They go on to say that these exclusive deals enable them to take risks on these new phones and bring them to market at discounted prices. Meanwhile, smaller carriers are complaining that they are being shut-out of the market for these hot new phones.
Jon Muleta, a former FCC bureau chief, said that the government will have a hard time pursuing antitrust charges on these exclusive deals unless the handset manufacturers say they’re being forced into these deals. “The equipment providers enter into these deals willingly.” Mr. Muleta said.
Wireless industry analysts say that the handset manufacturers benefit from these exclusive agreements. Partnering with a Tier 1 carrier gives the manufacturers high visibility and a first-class marketing campaign.
It was interesting to note that the WSJ article didn’t interview any of the handset manufacturers. I guess nobody from Apple, RIM, LG, Samsung, or Palm was near a phone on July 7th, 2009.
Tags: Antitrust, AT&T, Obama, Verizon, Wall Street Journal
July 8th, 2009 at 4:38 pm
This is an interesting topic that I don’t have a strong opinion on. On one hand, I enjoy getting an inexpensive handset through a 2 year contract with my carrier. On the other, I wonder if my service would be significantly cheaper if the phone wasn’t subsidized. One claim that seems a bit dubious to me, however, is that this model encourages innovation. While on its face the argument makes sense, it hasn’t been true empirically. Why have the European and Asian markets, which don’t usually offer subsidized phones, historically (the iPhone aside) enjoyed much more advanced handsets than the US?