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DOJ Opens Antitrust Review On US Carriers

The new administration in Washington is flexing its antitrust muscle and one of the industries the Department of Justice is looking at is carriers in the US, specifically as to whether device exclusivity agreements are anti-competitive.

According to the Wall Street Journal, the DOJ is concerned that smaller carriers may be hurt by agreements between carriers and manufacturers to exclusivity agreements. The classic case is the agreement between AT&T and Apple with the iPhone, but other well publicized agreements exist too, such as Verizon's lock on the Blackberry Storm and Sprint's hold on the Palm Pre.

The carriers defend this practice saying it encourages innovation. I am really curious to know how much less innovative the Apple iPhone would be had there not been an exclusivity agreement with AT&T. I am sure Steve Jobs & Co., with knowledge of the agreement with AT&T, cranked out a far superior device than they otherwise would have had they been burdened with selling it to Verizon, T-Mobile and other US carriers.

AT&T defends their stance though.

The carriers say such exclusives enable them to take risks on expensive new smart phones and bring them to market at discounted prices..."If you are launching an absolutely new product to the market, pairing up with a Tier 1 carrier gives you instant visibility and buzz and a first-rate marketing campaign," said Andy Castonguay, a wireless analyst at Yankee Group...Paul Roth, AT&T's president of retail sales and service, told Congress last month that the billions of dollars the company invests in its network and services would be put at risk if government were to "impose intrusive restrictions on these services or the way that service providers and manufacturers collaborate on next-generation devices." Mr. Roth said there is plenty of competition and innovation in the wireless industry.

Uhm... yeah. Discounted prices. This is why the iPhone launched at $499 and $599 pricing in 2007, only to be cut $200 within a few months. That is innovative. How many times have you seen a hot new product come out and then the price slashed as much as 40% within 90 days of the launch?

I know. Apple is more in control of the pricing here than AT&T is, which just makes the comment by the carriers defending this practice a bit specious.

The other area the DOJ is investigating is the restriction on services to the consumer. For example, to use AT&T again, Skype is blocked from making calls via the 3G network. Instead, you must use a WiFi connection. The reason is, of course, that calls allowed over 3G would be unlimited and the user could buy a lower minute plan. By forcing the user to use WiFi only for these calls, the user is severely limited as to where they can make calls from.

The article points out that a review may not necessarily lead to an official investigation, but the review itself may be enough pressure on the carriers to modify their practices to avoid an investigation.

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