Apple 2.0

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Antitrust: Apple and AT&T in DOJ's sights

July 6, 2009: 2:18 PM ET

DOJ iPhoneThe U.S. government agencies in charge of policing antitrust violations -- long dormant under the Bush administration and newly revitalized under Barack Obama's -- seem to be circling closer to Cupertino.

According to a report Monday in the Wall Street Journal's online edition, the Department of Justice has begun an initial review of the U.S. telecommunications industry to determine whether the two dominant players -- AT&T (T) and Verizon (VZ), which together control 90 million U.S. landlines and 60% of the country's 270 million wireless subscribers -- are abusing the market power they have amassed in recent years.

Although not a primary target of the probe, Apple (AAPL) could get ensnared in it, according to the Journal's report.

"Among the areas the Justice Department could explore," writes the WSJ's Amol Sharma, "is whether wireless carriers are hurting smaller competitors by locking up popular phones through exclusive agreements with handset makers, according to [people familiar with the matter.] In recent weeks lawmakers and regulators have raised questions about deals such as AT&T's exclusive right to provide service for Apple Inc.'s popular iPhone in the U.S."

The same sources suggest that the DOJ could also review whether telecom carriers are unduly restricting the types of services other companies can offer on their network. The features provided by the iPhone's 50,000 apps are a key competitive advantage over its rivals.

"Antitrust problems with telecom consolidation have been evident for a while -- it's not just wireless," says Gary Reback, an antitrust attorney at Carr & Ferrell in Palo Alto, Calif., and author of the famous "white paper" that laid out the antitrust case against Microsoft (MSFT) in the 1990s.  "There has been a lot of public opposition to the consolidation, but the Bush Administration just shrugged it off."

This is the second time this spring that Apple's name has come up in a federal antitrust probe. In May the New York Times reported that the Federal Trade Commission had begun an inquiry into whether the ties between the boards of directors at Apple and Google (GOOG) could violate antitrust laws.

The companies share two directors -- Eric E. Schmidt, chief executive of Google, and Arthur Levinson, former chief executive of Genentech.

Apple has also caught the eye of the Securities and Exchange Commission, which investigated -- and ultimately exonerated -- Steve Jobs for his role in the options backdating case. The SEC is also reported to be looking into whether Apple was sufficiently forthcoming earlier this year about the severity of Jobs' health problems.

Asked for comment on the report of a DOJ probe, an AT&T spokesman wrote:

"We are not aware of any formal investigation by the Department of Justice, nor have they asked us to provide any information. The U.S. wireless industry is highly competitive and, as a result, delivers terrific innovation, many choices and attractive pricing for all customer segments."

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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