Justice department reviews phone industry; exclusive carrier deals may come under scrutiny
The Department of Justice has become the latest government body to look at the phone industry. It’s launching a wide-ranging review which may include the legality of exclusive carrier deals.
The issue of deals such as that between AT&T and Apple for the iPhone has already attracted the attention of Congress, which recently held hearings into the potential need for tighter regulation of the industry. A committee headed by John Kerry also asked the Federal Communications Commission to consider investigating exclusive deals.
Today the Wall Street Journal reports that the DoJ is beginning a review of the entire telecommunications industry, including both landline and cellphone services. At the moment it doesn’t involve a formal investigation of any particular companies.
Cellphone manufacturers have argued that exclusivity deals are necessary so that network carriers can subsidize handset costs and make them more affordable. However, a recent report estimating that the iPhone 3G S (which has a ‘full’ retail price of $600) costs just $178.96 to make. While Apple has other costs such as research, marketing and distribution, it seems clear that much of the AT&T “subsidy” is simply funding extremely healthy profit margins.
On the face of it, it could be difficult for officials to argue that network carriers are breaching anti-trust laws. The two largest firms, AT&T and Verizon have only a 60% share between them, so it’s questionable if any one firm has a suitably dominant market position to legally justify tighter regulation.
BusinessWeek also points out that there are technical barriers which mean that even if exclusivity deals were thrown out, not all handsets would work to full capability on all networks.
At the moment it appears the DoJ review may be largely about making a political point that the Obama administration will pay closer attention to potential market abuses than its predecessor. Officials may hope that the scrutiny prompts cellphone firms to curb anti-competitive behavior without the need for formal action.
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