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Some doubt whether DOJ has a case for reforming exclusive phone deals

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

July 7, 2009 02:33 PM ET

Computerworld - There is keen interest in whether the U.S. Department of Justice will investigate large telecom companies for anticompetitive practices -- a move that 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 type 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 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 that 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 added.

Senators recently showed in a committee hearing that they are interested in making Apple Inc.'s 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 can't 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 national competitors, 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 through 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.

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