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Some doubt whether DOJ has case to reform exclusive phone deals

But any kind of reversal of the practice would have wide implications

By Matt Hamblen, Computerworld
July 07, 2009 03:20 PM ET

Computerworld - There is keen interest in whether the U.S. Department of Justice Department will investigate large telecom companies for anticompetitive practices, which could prevent exclusive cell-phone deals such as the multiyear contract AT&T Inc. holds to sell the iPhone.

So far, however, the possibility of limits on exclusive agreements seems to be more in the political realm than the legal world. Experts yesterday questioned how solid the government's legal case would be and whether there is the political will in Washington to push that kind of agenda.

Some kind of U.S. government intervention to prevent exclusive deals "could happen," said Ken Dulaney, an analyst at Gartner Inc. Dulaney noted that the Court of Appeals in Paris in February struck down mobile operator Orange's exclusive deal to sell the iPhone. In that case, competing operators fought the exclusive deal in France. A similar effort in Germany was unsuccessful.

Dulaney joined several analysts in voicing doubts that there is the political will to push for action against exclusive deals in the U.S., considering all the major economic issues facing the government.

"Doesn't our government have more important things to worry about now?" Dulaney asked.

The immediate impact of banning AT&T's exclusive agreement for the iPhone would most likely mean a customer could buy an iPhone to use on the other major GSM network in the U.S., which is from T-Mobile USA, Dulaney said. "But that of course would be unsubsidized and thus [the iPhone would cost] about $500, which would dissuade many from buying it," he said.

Senators recently showed in a committee hearing that they are interested in making the Apple Inc. iPhone available to rural customers who can't gain access to AT&T. A major concern at the Senate hearing and before the Federal Communications Commission was also for rural carriers that cannot sell the iPhone and therefore can't benefit from it.

Analysts also said that Senate committee members probably hear plenty in the halls of the Capitol from the lobbyists of AT&T's major competitors that operate nationwide, rather than from the disenfranchised rural population who may have no options for buying the most popular cell phones.

Does antitrust law apply?

But the bigger legal question is whether the Sherman Antitrust Act applies to exclusive smartphone deals. That law, which was used by the government in its antitrust case against Microsoft Corp., is designed to prevent anticompetitive practices by powerful companies.

Several attorneys and analysts have already questioned whether AT&T, or any other single wireless carrier, has abused its power with use of exclusive handset deals. Part of their reasoning is that even if AT&T has the iPhone, competing carriers will come to market with other smartphones that have popular appeal.

AT&T, indeed, could be dominant for now with the iPhone, but its overall dominance as a wireless carrier is hard to establish when other carriers, such as Verizon Wireless, boast new phones and services. All the major carriers have diverse product and service portfolios that make it hard to pinpoint one as being in such a dominant position that it can abuse its powers, analysts noted.

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