Telecommunications Companies Face Possible Antitrust Action

The Department of Justice is looking into whether telecommunications companies such as AT&T and Verizon  are abusing the market power. The Wall Street Journal reports:

One area that might be explored is whether big wireless carriers are hurting smaller rivals by locking up popular phones through exclusive agreements with handset makers. Lawmakers and regulators have raised questions about deals such as AT&T’s exclusive right to provide service for Apple Inc.’s iPhone in the U.S. Big carriers say limiting exclusive deals would hurt innovation.

The department also may 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. Public-interest groups have complained when carriers limit access to Internet calling services such as Skype.

Through a spate of consolidation and organic growth, AT&T and Verizon have become the two dominant players and have a great deal of clout with equipment makers. Combined, they have 90 million land-line customers and 60% of the 274 million U.S. wireless subscribers. They operate large portions of the Internet backbone.

Past antitrust regulation played a major role in shaping the telecom sector. The U.S. pursued a landmark antitrust case against AT&T, resulting in the 1984 breakup of the “Ma Bell” telephone monopoly into regional carriers. One of those, SBC Communications Inc., later led a merger roll-up, and by 2006 had reconstituted the giant now known as AT&T Inc.

Verizon, created in 2000 in a merger of GTE Corp. and Bell Atlantic Corp., bulked up through deals such as its 2006 acquisition of MCI Inc. Its wireless unit, a joint venture with Vodafone Group PLC, acquired Alltel Corp. early this year.

Some antitrust experts said the U.S. would have a tough time opening a Sherman Act case against telecom providers and showing a company was abusing market power. “It would be a very hard case to make,” said Donald Russell, a Washington attorney who reviewed a number of telecom mergers as a DOJ antitrust lawyer in the Clinton administration. “You don’t have any firm that’s in a dominant position.”

“Investigations don’t necessarily lead to court cases,” said Ketan Jhaveri, an attorney with Simpson Thacher & Bartlett LLP who once worked on the Justice Department’s telecom antitrust task force. He noted that antimonopoly litigation consumes a lot of resources…

The debate over exclusive handset deals has been escalating. The Federal Communications Commission said last month it will investigate them. That followed a congressional hearing that spotlighted the complaints of small carriers that said they are being shut out.

“This is the outcome of indifference on the part of the government to the concentration of power in the hands of a few,” said Jack Rooney, chief executive of Chicago-based U.S. Cellular, in a recent interview. U.S. Cellular has 6.2 million customers, mostly in rural areas.

AT&T, with the iPhone deal, isn’t alone in striking exclusive arrangements. Verizon is the exclusive provider of Research In Motion Ltd.’s touch-screen BlackBerry Storm in the U.S. Sprint Nextel Corp. will be the only carrier with the Palm Inc. Pre until early next year.

The carriers say such exclusives enable them to take risks on expensive new smart phones and bring them to market at discounted prices. The deals limit the ability of manufacturers such as Palm, Apple and HTC Corp. to distribute their devices widely. But some analysts say those companies benefit by getting a significant share of a carrier’s marketing and sales resources.

“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.

I doubt that it would have been a risky move to bring the iPhone to market without the exclusive deal with AT&T.

While antitrust action might not be the way to accomplish this, I wish that Verizon wouldn’t do things to cripple their phones and force users to pay more to use Verizon services. Verizon replaces the software which originally comes with phones with their own software. In the past I was able to connect my Palm to a cell phone to go on line with the Palm’s browser and email programs as opposed to using the more limited programs on their phones. For the past several years they have changed the phone to prevent this. They also prevent transfers of music clips from the data card to the phone to use them as ring tones to attempt to force users to purchase the ring tones from Verizon. Should you change phones it is then necessary to purchase a new set. (Of course there are some ways around this such as sending a ring tone attached to a text message and programs available on some boards to directly load ring tones onto the phone.)

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1 Comment

  1. 1
    Eclectic Radical says:

    There are some inherent weaknesses in antitrust legislation as it exists now, for the simple reason that most of the changes in the law since Sherman have been in favor of corporate interests and mergers rather than the other way around. Sherman was a carefully phrased bill intended to target only clearly corrupt monopoly interests on the theory that a ‘good’ trust might be better for the consumers than a damaging free for all among competing business interests. Teddy Roosevelt, whose presidency was partially defined by a crusade against ‘bad’ trusts, was particularly impressed by the potential for efficient service and economic advantage offered by ‘good’ trusts. Like many progressives of the day, Teddy was a big fan of ‘managed efficiency.’
     
    While Teddy’s succesor, William Howard Taft, was much more aggressive in pursuing enforcement of the Sherman act, pursuing every corportate entity that violated the letter of the law, there were still clear holes in the act that have never been appropriate filled.  Nor has criminal enforcement of corporate law ever been effectively pursued in other areas. Much of corporate law is dismissed as ‘regulation’ that is evil and economically damaging when the fact is that corporate law exists to deter corporations from committing criminal frauds on the public. Many of the practices of wireless providers WOULD be criminal fraud if they were committed by individuals rather than corporate business entities. Yet nothing is done.
     
    The free market is only free if consumers have full freedom to make meaningful choices and producers are forced to compete fairly for the customer’s business. For all the neoconservative propaganda to the contrary, this cannot be effected without meaningful corporate law and effective enforcement. If corporations have all the freedom and consumer and entrepreneurs have little or none, the market is a long way from ‘free.’ This is why John Stuart Mill, Jeremy Bentham, and the British Radicals railed against laissez faire in the Victorian era. It’s why the Sherman Act was passed.
     
    American business and the political leadership of both parties have used this plain fact of capitalism as toilet paper, one in the name of profit and the other  in the name of ‘economic growth.’

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