This is good news for Apple if the DOJ acts on their findings

crossing via Briefing.com

12:24   DOJ has begun initial Antitrust Review of U.S. Telecom industry, according to sources - WSJ

DOJ telecom review to focus on potential Sherman Act violations by telecom giants

more on anti trust

13:22   Additional detail on earlier headline about DOJ has begun initial Antitrust Review of U.S. Telecom industry

WSJ reports the Department of Justice has begun an initial review to determine whether large U.S. telecom companies, such as AT&T (T) and Verizon Communications (VZ), have abused the market power they’ve amassed in recent years, according to people familiar with the matter. The review of potential anti-competitive practices is in its very early stages, and it isn’t a formal investigation of any specific company at this point, the people said. It isn’t clear whether the agency intends to launch an official inquiry. Among the areas the Justice Department could explore is whether wireless carriers are hurting smaller competitors by locking up popular phones through exclusive agreements with handset makers, according to the people. In recent weeks, lawmakers and regulators have raised questions about deals, such as AT&T’s exclusive right to provide service for Apple’s (AAPL) popular iPhone in the U.S. The Justice Department may also review whether telecom carriers are unduly restricting the types of services other companies can offer on their networks, one person familiar with the situation said. The scrutiny of the telecom industry is an indication of the Obama administration’s aggressive stance on antitrust enforcement. The Justice Department’s antitrust chief, Christine Varney, has said she wants to reassert the government’s role in policing monopolistic and anti-competitive practices by powerful companies.

So my initial reaction is that enforcement would be bad news for AT&T and great news for Apple.  Once Apple has its iPhone on the market and at least one carrier has coded for things like visual mail the barn door is open and the horses can run.  If the exclusive contract is killed then every other carrier will want the iPhone.  Radio chip sets are cheap and I’m sure the iPhone can be made to run on many networks.  Carriers who try to sell iPhones without supporting things like visual mail would have a tough go of it.  I see a net benefit here for Apple if AT&T gets its hand slapped.

Zeke - 06 July 2009 02:37 PM

So my initial reaction is that enforcement would be bad news for AT&T and great news for Apple.  Once Apple has its iPhone on the market and at least one carrier has coded for things like visual mail the barn door is open and the horses can run.  If the exclusive contract is killed then every other carrier will want the iPhone.  Radio chip sets are cheap and I’m sure the iPhone can be made to run on many networks.  Carriers who try to sell iPhones without supporting things like visual mail would have a tough go of it.  I see a net benefit here for Apple if AT&T gets its hand slapped.

Subsidy per iPhone would drop.  Does gain in subsidy from more carriers compensate for the subsidy drop from AT&T?

Mace - 06 July 2009 02:52 PM

Zeke - 06 July 2009 02:37 PM

So my initial reaction is that enforcement would be bad news for AT&T and great news for Apple.  Once Apple has its iPhone on the market and at least one carrier has coded for things like visual mail the barn door is open and the horses can run.  If the exclusive contract is killed then every other carrier will want the iPhone.  Radio chip sets are cheap and I’m sure the iPhone can be made to run on many networks.  Carriers who try to sell iPhones without supporting things like visual mail would have a tough go of it.  I see a net benefit here for Apple if AT&T gets its hand slapped.

Subsidy per iPhone would drop.  Does gain in subsidy from more carriers compensate for the subsidy drop from AT&T?

Yes IMO. The sooner Apple gets critical mass adoption of the iPhone the bigger the future of not only the platform but lock in due to Apps. Apple’s current margins are obscene (thankfully) so a drop in subsidies would be a short term negative

SNIPUS - 06 July 2009 03:05 PM

Mace - 06 July 2009 02:52 PM

Zeke - 06 July 2009 02:37 PM

So my initial reaction is that enforcement would be bad news for AT&T and great news for Apple.  Once Apple has its iPhone on the market and at least one carrier has coded for things like visual mail the barn door is open and the horses can run.  If the exclusive contract is killed then every other carrier will want the iPhone.  Radio chip sets are cheap and I’m sure the iPhone can be made to run on many networks.  Carriers who try to sell iPhones without supporting things like visual mail would have a tough go of it.  I see a net benefit here for Apple if AT&T gets its hand slapped.

Subsidy per iPhone would drop.  Does gain in subsidy from more carriers compensate for the subsidy drop from AT&T?

Yes IMO. The sooner Apple gets critical mass adoption of the iPhone the bigger the future of not only the platform but lock in due to Apps. Apple’s current margins are obscene (thankfully) so a drop in subsidies would be a short term negative

Mace does have a point. The subsidies are quite high and the exclusive deal provides AT&T with a value added it can’t achieve on its own or to the same level from other handset makers - very high customer satisfaction.

Subsidies would drop if the iPhone were available through multiple carriers.

However, there is a point at which the exclusive arrangement is a hindrance to overall market acceptance and Apple will eventually make the iPhone available to multiple carriers. Keep in mind it’s not only an issue of features, but multiple carriers creates more issues from a customer experience standpoint. Apple loses some control of the end user experience when multiple carriers are involved.

The 3G iphones can only be used with T-mobile or AT&T (GSM) and other networks (CDMA) can not run them until/if the 4G phones are released in 2012. If that is the case, it would seem attacking the exclusive arraignment between T and AAPL would not be very productive. Any reduction in the AT&T subsidy due to a loss of exclusivity would probably be measured against the amount of customers lost to T-Mobile - not likely a huge number.
I cannot see the feds demanding AAPL design and release a CDMA phone before 2012.

DawnTreader - 06 July 2009 09:50 PM

SNIPUS - 06 July 2009 03:05 PM

Mace - 06 July 2009 02:52 PM

Zeke - 06 July 2009 02:37 PM

So my initial reaction is that enforcement would be bad news for AT&T and great news for Apple.  Once Apple has its iPhone on the market and at least one carrier has coded for things like visual mail the barn door is open and the horses can run.  If the exclusive contract is killed then every other carrier will want the iPhone.  Radio chip sets are cheap and I’m sure the iPhone can be made to run on many networks.  Carriers who try to sell iPhones without supporting things like visual mail would have a tough go of it.  I see a net benefit here for Apple if AT&T gets its hand slapped.

Subsidy per iPhone would drop.  Does gain in subsidy from more carriers compensate for the subsidy drop from AT&T?

Yes IMO. The sooner Apple gets critical mass adoption of the iPhone the bigger the future of not only the platform but lock in due to Apps. Apple’s current margins are obscene (thankfully) so a drop in subsidies would be a short term negative

Mace does have a point. The subsidies are quite high and the exclusive deal provides AT&T with a value added it can’t achieve on its own or to the same level from other handset makers - very high customer satisfaction.

Subsidies would drop if the iPhone were available through multiple carriers.

However, there is a point at which the exclusive arrangement is a hindrance to overall market acceptance and Apple will eventually make the iPhone available to multiple carriers. Keep in mind it’s not only an issue of features, but multiple carriers creates more issues from a customer experience standpoint. Apple loses some control of the end user experience when multiple carriers are involved.

It’s not a given that subsidies would drop or that control of the user experience would change with multiple carriers.  The account losses have been pretty severe for both Verizon and Sprint.  Were Apple to make it available to others under the same terms (minus exclusivity) that they offer ATT the other carriers would have little choice but to accept or or be prepare to accept that the customer exit will continue.  Keep in mind that Verizon may only have a small window of superiority as ATT continues to improve their network.

BillH - 06 July 2009 10:44 PM

It’s not a given that subsidies would drop or that control of the user experience would change with multiple carriers.  The account losses have been pretty severe for both Verizon and Sprint.  Were Apple to make it available to others under the same terms (minus exclusivity) that they offer ATT the other carriers would have little choice but to accept or or be prepare to accept that the customer exit will continue.  Keep in mind that Verizon may only have a small window of superiority as ATT continues to improve their network.

I suggest exclusivity commands a high price. AT&T has debased near-term results (mentioned publicly on more than one quarterly conference call) in favor of longer-term rewards from data fees and the favorable customer satisfaction inherent in Apple products. For that exclusive deal AT&T pays a hefty subsidy on each phone sold. Due to that exclusive arrangement AT&T invests more heavily in its Apple-related activity than for competing products.

Absent exclusivity, the focus returns to one of selling the highest-margin products and/or the highest volume products. In short, Apple brings the customer to AT&T. In an non-exclusive arrangement AT&T will have to fight harder for customer acquisition and retention. The higher subsidy is due in part to the reduction in customer acquisition and retention costs Apple brings to the deal.

Second, if there’s a problem with my iPhone and its voice or data services, the problems are due to one of three easily determined sources: The handset, the OS or AT&T. This provides Apple (and to a lesser extent AT&T) more control or influence over the user experience.

While multiple service carriers might be an economic benefit to Apple at some time in the future, diagnosing and resolving issues involving multiple carriers becomes a bit more problematic. 

Third, while other carriers might want the iPhone in an effort to slow or eliminate customer defections, there’s no guarantee the store staff at other carriers won’t work to move potential customers to more profitable handsets (lower subsidy phones) once they are in the door.

If I can help it I will not buy another iPhone directly from AT&T. The customer service problems and lack of, let’s call it “forthrightness,” on the part of AT&T personnel at the stores will drive my business to Apple stores for iPhone purchases. I can’t imagine the hassles involved in giving the customer a uniform purchase experience and multiple carrier retail outlets.

Perhaps a better avenue would be to control the points of purchase (Apple retail stores, Apple online stores, select retail outlets, etc.) while allowing the customer to choose their carrier, making the purchase and the sales experience as uniform as possible in a carrier neutral sales environment.

There’s no shortage real shortage of outlets at which to purchase an iPhone. It’s uniformity and satisfaction in the purchase experience that I think need to be a priority.

I find all this fascinating because I remember back prior to the launch of the iPhone when all the speculation was that Apple was going to launch their phone on their own network.

Now THAT would have instantly triggered a DOJ investigation for sure. What is curious is why the Feds wait 2 years into the exclusive contract to suddenly investigate? Is there not foresight? Do they not understand an ounce of prevention is worth more (and saves a LOT more) than the cure? Has the DOJ never heard the term proactive? Two years is a really long time to wait and let a business go and then yank it backward.

Or, perhaps they were fine and complicit with the arrangement until other carriers suddenly started exclusive arrangements too. The Pré is exclusive to Sprint and there are others too.

Somebody somewhere suddenly has a bee in their bonnet and this is now an issue….one that smacks of inconvenience and lost dollars.

Seems to me that “user experience” with the phone service itself (AT&T, Verizon, Sprint, whatever) may remain pretty much the same across the board (unless good ol’ competition does what it should: bring improvement). Whatever service experience prevails, I feel sure that most iPhone users will stick with that equipment and interface.

I agree with DT that the user experience is vitally important to Apple, and not just the buying experience.  Does anyone think AT&T would have made the large iPhone centric investment in its network without the expected benefit of exclusivity?

If this were a free country, Apple could choose how it sold its own products without interference from corrupt politicians who got complaints from big “contributors”.  What is really being contested here is whether the carriers will continue to be in control of the industry.  Apple has upset the cart.  The carriers are looking to Washington to restore status quo pre-iPhone.