Is the Deal Between Apple and AT&T Anti-Competitive?

Yes, of course it is. And the Justice Department should be looking into these exclusive agreements. But the administration should go much farther than a Justice Department review.

Mobile phone companies should be required by law to sell an unlocked version of their phones at a price that is equal to the locked price plus whatever subsidy is being paid by the carrier that sells a locked version.

I don't know exactly what that unlocked price would be for the iPhone, but today, AT&T (T) and Apple (AAPL) sell the iPhone 3GS for $199 (16gb). I believe the AT&T subsidy is about $200 per phone. So Apple should be required by law to sell an unlocked GSM iPhone for $399.

I've been a T-Mobile (DT) customer for over ten years and I never sign a plan with them. I buy my Blackberries (RIMM) at full retail value and never get the subsidy. That's because I don't believe phones should come with obligations to use a certain carrier (and I've used the same carrier for over 10 years).

Most people will gladly take the subsidy and buy the locked phone. AT&T will still be able to buy market share through a partnership with Apple. But there is a small (and growing) market of people like me who will pay a premium for an unlocked phone. And the government should let that market grow and flourish. It's in the long term interest of the mobile tech business here in this country.

Just like it is the law of the land that phone numbers are portable from carrier to carrier, it should be the law of the land that phones should be portable from carrier to carrier. Anything else is anti-competitive.

Comments

[Beluga:]

You realize of course that in that case subsidies woud disappear or be greatly reduced? That would mean that people who depend on the carrier subsidy will be locked out of the smart phone market altogether.

And what about different carrier technologies, would every phone have to include the ability to handle every carriers network?

Not sure you thought this through…

Jul 08 02:48 AM

[peter02l:]

"I believe the AT&T subsidy is about $200 per phone. So Apple should be required by law to sell an unlocked GSM iPhone for $399."

And what if you believed it to be $1?

"I've been a T-Mobile (DT) customer for over ten years and I never sign a plan with them. I buy my Blackberries (RIMM) at full retail value and never get the subsidy."

For real? You could have saved at least $1000 by your estimate with no skin off your back. But that's because you believe something else - no obligations right?

"... there is a small (and growing) market of people like me who will pay a premium for an unlocked phone."

It must be the start of an epidemic.

"And the government should let that market grow and flourish."

Yes of course, by forcing companies to make products that support every available technology.

"Just like it is the law of the land that phone numbers are portable from carrier to carrier, it should be the law of the land that phones should be portable from carrier to carrier. Anything else is anti-competitive."

Never mind that a phone number has no physical attributes. How about requiring McDonalds to sell In-N-Out burgers? Sometimes you have to drive too long to find one.

Ok, free time is up, everyone get back to your room.

Jul 08 06:34 AM

[442953:]

The point you missed was that ATT spent Milloins in research helping APPLE develope this phone. The big cell phone companies are paying out large amounts of money to bring these new phones to the market. You want an unlocked IPHONE? Buy one and hack it.

Jul 08 08:24 AM

[vt marketin...:]

With all due respect, some of you people need to stop blogging and get out there and work in the real world of channels and logistics. "Exclusive" agreements happen all the time....One supplier will pick another and so on....Happens every day. If you're gonna strike down this deal as "anti-competitive" then, you better get busy on a whole slew of others....The list is enormous.

Jul 08 10:39 AM

[califfilm:]

i don't understand the three responses above. they seem more inclined to keep the status quo than open markets. granted my college level experience, at least so far, may not be as in depth in understanding market economies, but logic tells me there is something going on besides pure logic here.
@beluga..not sure why subsidies would be reduced or elminated as i have not seen actual stats based on research that says more people would pay more to have phone unlocked. my buds with locked are perfectly happy to pay less and some hack if they want unlocked, but most wouldn't pay more for it.
@peter..i guess im always skeptical of someone who takes a "i'm smarter than you..so play time is over" attitude. my closest friends who know this stuff backwards and forwards never have attitude..so people listen. it really sounds like an att employee..i just dont get the logic..if it cost $1 to subsidize then add $1 for unlocked. if he wants to pay more for unlocked, he pays more. i dont get the $1000 comment. thats what he wants, you want something else, fine..go for it. he wants freedom of unlocked and pays more because it serves his needs. maybe it's not because of his "beliefs" but because of the practicalities of his work/life needs. i dont think he said or even implied all phones must have access to all carriers. that's his (or my) problem if we don't use att. and i have taken two econ courses studying in depth att and some other financial powerhouses and have absolutely no knowledge that their "contribution" to the iphone has done anything but bring them enormous profits. lots of other carriers would jump at it...that's good. i personally find their policies hegemonic to the extreme. i do summer film work in europe when i get the gigs and unlocked would suit me fine.

Jul 08 10:48 AM

[Frank Castle:]

I think the main issue is the amount of people willing to pay full retail for a smartphone would cut the market in half. iPhone at $199 looks a lot more appealing then iPhone at $699. Almost every major smartphone in the last year would retail above $500 so unsure how many people would be lining up to pay that AND still have the same carrier plan rates.

Do you honestly think carriers would drop prices due to unlocked phones? Maybe when LTE is here but that's still a couple years away and still no word on how roaming will be handled (likely still fees). I'm sure most devices will have to have backward compatible radio to still function on GSM/CDMA etc so putting all that into one device is going to push the cost up even more.

All these thoughts are not reality until there is an open cheap / free WiFi blanket across the country. I doubt that will happen anytime soon so you need the carriers bandwidth for these devices to be useful when mobile.

Jul 08 10:57 AM

[Louis G Whe...:]

Is the deal between Apple and AT&T anti competitive? Of course not. There was too little competition in the Smart Phone market, before.

What Apple's competitors are complaining about is that Apple is competing too well. It's been two years and Apple's competitors have little to vie with what Apple offers -- not even on price. They are always a day late and a dollar short.

The reason that their response was so pathetic is that the phone companies were already local monopolies. Ma Bell once had a total monopoly. When it was broken up the government gave the local Bell companies territorial monopolies. This corrupted them; it turned them into bureaucrats.

Naturally, those bureaucrats attempted to maintain their monopolies against all comers. When the mobile phone business picked up, those local Bell companies intentionally used incompatible technologies and frequencies. Then, the big Telecoms began gobbling up the smaller ones, so that the big winners are AT&T and Verizon, which use different mobile phone standards. Apple's deal was with Cingular, before AT&T bought them.

The cell phone markets was stagnating before Apple's entry. Almost every cell phone was locked to an ISP then. Apple's entry shook up the mobile phone market; it is breaking up those monopolies. It is forcing the phone companies to compete.

Apple is leading toward a phone that can use all technologies and frequencies, but this is about three years away. It is unlikely that these new technologies would have been used under the old monopolies. In five years, all cell phones will be able to use any carrier.

Apple can, then, sell its iphone without an ISP, but not now. The technology isn't ready.

Jul 08 01:17 PM

[Kijug:]

Cell phones are optional. Cable TV is optional. Windows OS is optional (there are alternatives). iPhone/AT&T is optional (there are alternatives). The government should not get involved in areas where there are non-required purchases. Gas, electricity, etc., are required for safe living. Cable TV is not. If you don't like the "iPhone/AT&T" product (yes, together it is one product) then buy something else. Mac+MacOSX is "one product" not two. If you don't like it buy Windows or Linux. There is no logical reason to break things up just because of desirability by some folks. Sure iPhone is cool. Perhaps T-Mobile is a better network. But that isn't reason to punish Apple/AT&T because they have a 1/2 a cool product and 1/2 an OK network. No, so long as options exist, there is no monopoly. I can't believe I'm spending tax dollars so the SEC can investigate a 2% iPhone market share as being a problem.

Jul 08 04:14 PM

[Friske:]

I've been an iphone 2G user for 2 years now and i'll tell you that the phone is great. However, I too, would like to see unlocked phones simply for the fact that I dont want to be tied down for 2 years everytime i get a new phone. Although they subsidize the phone, you end up paying for it in the plan anyways, just over the contract period.
I started not enjoying the iphone when I realized that AT&T overcharges for the worst antenna network and Apple does the same thing with their apps. Hands down, the best phone out there, but perhaps not the best phone for the dollars. Android is definitely worth a try.

Jul 09 12:34 AM

[442953:]

Urbanbard-- FYI ATT didi not but Cingular. Southwestern Bell purchased ATT Wireless and combined it with Cingular. After Southwestern Bell purchased ATT Corp about 9 months later. It turned around almost immediately and purchased Bell South and changed the name of Both to ATT.

Jul 09 08:36 AM

[itodder:]

Most European carriers have solved this problem by competing for customers with quality coverage and service. A customer can buy a phone from anywhere and pick the network that is right for them. If they really love a carrier, they can buy subsidized phones which lock them into contracts as well, but that is at the customers choice. It is a system which values competition, quality, and consumer rights.

The US Telecom system has become increasingly monopolistic and exclusive agreements such as the multi-year lock of the iPhone to AT&T does nothing to encourage AT&T to improve their network, services, or rates. Which is exactly why they weren't ready with teathering and MMS when the new iPhone came out a few weeks ago. They didn't have to be. Customers who want an iphone are forced to choose AT&T.

However, if customers were able to buy an iPhone and then choose the carrier, you can bet that AT&T would be falling all over themselves to make newer services available on their network at prices which are much more reasonable to the customer.

There is little doubt that the new FCC will take a very close look at this issue and begin pushing carriers toward more open networks, products, and access for all customers.

The current situation simply isn't good for capitalism and it is the government's job to ensure a competitive business environment. Let's hope the get the job done soon.

Jul 09 05:01 PM

[Bugs:]

T-Mobile is a German company. Verizon Wireless is a joint venture between Verizon, ( Bell Atlantic , Nynex, GTE, MCI is Verizon ), and a British Phone company that serves around the world. Only AT&T is a complete American company. It fits with Apple.

Jul 11 08:40 PM

[Bugs:]

Oh Sprint has just become a foreign network

Jul 11 08:46 PM