From the Los Angeles Times (7/7/09)
By Jim Puzzanghera
Reporting from Washington — Cellphone customers have long complained about exclusive deals between handset makers and wireless carriers — many, for instance, won’t buy the iPhone because it runs only on the AT&T network — and federal authorities now are being prodded to take action.
Concerns have mounted that the power that major carriers have amassed is stifling consumer choice and, perhaps, improperly propping up prices.
Sen. Herb Kohl (D-Wis.), chairman of the Senate antitrust subcommittee, added his voice Monday by urging the Justice Department and the Federal Communications Commission to investigate competition in the cellphone market.
Kohl cited “lock-step price increases” over the last two years for text messages — a doubling to 20 cents apiece — by the four leading wireless carriers. Executives from the two largest, Verizon Communications Inc. and AT&T Inc., denied any coordinated actions during a hearing Kohl held on the topic last month. But he was not convinced.
“I am concerned that the concentrated nature of the cellphone marketplace could lead to future price increases for this and other cellphone services relied upon by millions of Americans,” Kohl said in a letter Monday to Christine Varney, the new head of the Justice Department’s antitrust division, and to recently installed FCC Chairman Julius Genachowski.
Four other senators, including John Kerry (D-Mass.), who chairs a subcommittee on communications and technology, wrote to the FCC last month urging a review of special handset deals, such as the one Apple Inc. has with AT&T to use the carrier’s network exclusively for the iPhone. Smaller wireless companies have complained about the practice as well.
“It is anti-competitive and anti-consumer to allow a single carrier to tie up a device and have the exclusive rights to distribute that device,” said Eric Graham, vice president of government relations for Cellular South Inc., a Mississippi carrier that serves five Southeastern states.
“It allows people to compete on things other than service. You compete on your market share and how well you throw around the weight of that market share,” Graham said.
Consumer groups also have worried that such exclusive arrangements harm competition in the wireless industry, where Verizon, AT&T, Sprint Nextel Corp. and T-Mobile USA Inc. dominate the market.
“The iPhone-AT&T deal really shined a lot of light on this,” said Bob Williams, a policy analyst with Consumers Union.
Genachowski indicated during his confirmation process that the issue of exclusive handset deals “merits the attention of the commission” and the agency is reviewing the practice, FCC spokeswoman Jen Howard said.
The Justice Department also might be looking into the arrangements for possible antitrust violations. The Wall Street Journal reported Monday that the agency had started an initial review to determine whether large telecommunications companies have been abusing their market power.
A Justice Department spokesman would not comment on the report, which noted that no decision had been made to launch a formal antitrust investigation. But Varney, who was appointed this year by President Obama as the department’s antitrust chief, vowed in May that the administration would be tougher on attempts by large companies to stifle competition.
Rebecca Arbogast, a telecom analyst at brokerage Stifel, Nicolaus & Co., said she wouldn’t be surprised if the Justice Department explored antitrust issues in the wireless industry. But it is difficult to win cases alleging abuse of market power, she said.
“They may just be trying to do their homework . . . and look at what they see as some potential problem areas,” Arbogast said. “It’s quite a gap between launching an investigation and actually bringing a complaint.”
AT&T and Verizon said they were not aware of any Justice Department inquiry and had not been contacted by antitrust officials. “The U.S. wireless industry is highly competitive and, as a result, delivers terrific innovation, many choices and attractive pricing for all customer segments,” said Claudia Jones, an AT&T spokeswoman.
Kerry said he welcomed more regulatory oversight of the wireless industry.
“As the future of communication continues to move out of the ground and into the airwaves, it is important that we ensure the wireless market remains competitive and consumers are protected,” he said.