European Union

What Apple did to trigger a European antitrust inquiry

March 22, 2013: 7:57 AM ET

The focus is on the commitments carriers must make if they want to carry the iPhone.

E.U. headquarters

E.U. headquarters

FORTUNE -- In an SEC report filed last month, Leap Wireless (LEAP) disclosed that it had signed a contract with Apple (AAPL) in May 2012 in which the carrier, in exchange for the right to sell the iPhone, agreed to buy $800 million worth of the devices over the next three years.

As it turned out, it was a bad deal for Leap, which was selling iPhones in the U.S. on a novel, pay-as-you-go basis. With five months left in its first year commitment Leap was going to have -- by one analyst's estimate -- about 160,000 unsold iPhones on its hands.

The European Union doesn't care about Leap, a U.S. company based in San Diego. But it is concerned about the kind of the deal it struck with Apple.

According to a report in Friday's New York Times, European regulators are examining similar contracts that Apple signed with European cellphone carriers for possible antitrust violations.

Apple, despite its user-friendly public face, has always been a tough, aggressive negotiator in its business dealings. Its contracts with smaller cellphone carriers are reported to be unusually strict, demanding price guarantees and sales commitments it knows it can get because, as the Times put it:

"Carriers are petrified at the thought of not having the smartphone because it remains a huge hit with the public, driving waves of customers to their stores, especially in the months after the latest models are introduced and heavily advertised."

Whether the terms Apple insists on violate antitrust laws is another matter. A spokesman for the European Commission was careful to say that at this point it was merely examining Apple's contracts, and that no formal antitrust investigation had begun.

But the E.U. would not have acted if someone hadn't complained. According to the Times, the accusations focused on Apple's contracts with French carriers, although other countries could be involved.

Apple, for its part, told the Times: "Our contracts fully comply with local laws wherever we do business, including the E.U."

The European Union has a history of stricter antitrust enforcement than the U.S. Department of Justice. Only two weeks ago the E.U. fined Microsoft (MSFT) $732 million for failing to respect an antitrust settlement that had already cost the company, over the past decade, $3.4 billion. In the U.S., a similar Microsoft antitrust probe resulted not much more than a slap on the wrist.

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