When is it not good to be good at business? Well, when the federal antitrust regulators come your way; and if you’re in the American mobile carrier business. This is something I’ve been following for a while now, and it began when a few senators – lead by failed presidential hopeful John Kerry – called for the Federal Communications Commission to investigate exclusive carriers for select handsets.
This week, The Wall Street Journal reported that a review by the U.S. Department of Justice is now in its early stages. This could be a sign that the Obama administration is going to be extremely aggressive on antitrust laws, and thus might be a warning to not be too successful (least not in a recession it seems).
At the center of all this is the fact that mobile carriers have “exclusive” handsets, which those aforementioned honorable senators felt gives unfair advantage to carriers. Of course if this were true, maybe those in Washington could explain why AT&T never captured the first place among United States. carriers. Presently, AT&T is the sole carrier of the Apple iPhone and AT&T has remained in second place ever since becoming the exclusive carrier in 2007.
Likewise, Sprint Nextel Corp., which has seen a number of customers drop the service, has rebounded slightly from being the exclusive carrier for the Palm Pre smartphone. And Verizon, which is the number one carrier in the U.S., has done well with the BlackBerry Storm. Carriers continue to maintain that these exclusive deals allow them to provide consumers with discounted prices on the handsets, which further provide development of these devices. The companies have indicated that government intervention and interference could limit their ability to invest in other things, namely network infrastructure.
And as I’ve highlighted previously, there isn’t one standard mobile network, so mobile device makers work out the exclusive deals to further optimize their handsets for a select network. Trying to make product that works on all networks could result in a product that doesn’t work quite as well as if it were on a single network.
Is it Breaking the Law?
Of course at this point the Department of Justice is merely reviewing the situation. Remember that it took the DoJ a decade to bring a case against the original AT&T. And even with Microsoft during the Clinton administration (a case the DoJ lost), it took years to build a case as well. So nothing will happen, at least not quickly.
And that’s if anything happens at all. At the present time AT&T and Verizon have about 60 percent of the 247 million mobile customers in the U.S. This doesn’t really put either carrier in a dominant position. And other than the iPhone, most carrier exclusivity deals don’t run for years. The Palm Pre for example is a Sprint exclusive now, but will likely head to other carriers sometime next year.
So part of boils down to the whether carriers are “unduly restricting the types of services other companies can offer on their networks,” a claim that is already being made by the FCC, and whether the larger carriers are hurting smaller competitors by having these long-standing exclusives.
If the DoJ does move forward, it would probably quote the Sherman Act, which was first passed in 1890, and named after its author Senator John Sherman (R-OH), who was chairman of the Senate Finance Committee. This was the first U.S. Federal statute to limit cartels and monopolies. More importantly, it remains the basis for almost all antitrust litigation by the federal government. This isn’t to say it is a bad law, and given the dealings of the 1890s it was a good thing.
But does one carrier offering a phone really violate the terms of the Sherman Act? The key words here are “cartels” and “monopolies.” This would imply that Verizon and AT&T somehow are dividing up the market between them, but anyone who has followed the world of mobile knows that the competition is as fierce as ever. This is a case where the best carrier with the best products wins. It is true free market capitalism at work.
It almost makes this reporter wonder if some certain senators or members of the FCC are just mad that they can’t get a particular handset on their preferred carrier. But that would be crazy, almost like trying to break up the phone companies all over again.