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Five Reasons Apple’s Private Antitrust Risks Are Minimal

Tech business news these days is dominated by headlines about the trial of United States v. Apple, Inc., where the U.S. Department of Justice (DOJ) is charging Cupertino with masterminding a massive conspiracy among publishers to increase prices for e-books. Apple’s defense lawyers and CEO Tim Cook call the allegations “bizarre.” What is really bizarre, though, is the plethora of private treble-damages lawsuits seeking to hold Apple liable under the antitrust laws for its vertical integration strategy with iTunes, iPhone and the App Store.

Just a bit more than a decade ago, Apple Computer (having since changed its corporate name) was decidedly stuck in the backwater of the PC industry. Its introduction of the USB-only iMac in 1998 failed to change the marketplace dynamics, where Apple’s closed Macintosh design and refusal to license its Mac OS to other manufacturers was viewed as the source of diminishing relevance. Apple was such a non-entity that its presence was flatly rejected by the federal courts as part of the relevant market in the Microsoft monopolization cases. Pundits predicted that like the fabled Betamax, Apple’s proprietary strategy would lead to its ultimate competitive demise.

But then along came the “iLife” software suite and the first generation iPod. What differentiated these products was not that Apple invented the technologies — after all, MP3s had been around for years and digital cameras as well — but rather that they all worked well together. Since then, the same business model has been applied to iPads and iPhones: native sync integrated with the Mac OS and Apple’s iCloud service, plus software content, whether media or apps, available easily through Apple’s online stores, with the company taking a 30% cut of retail prices for third-party content.

A Billion AppsWhen the iPod and iPhone proved to be winners, big ones, Apple’s financial fortunes turned around dramatically. iTunes now is the largest digital music retailer, accounting for some 60% of all downloads, and the various iPhones are the most popular smartphones globally. Apple’s annual revenues soared from $5 billion in 2001 to $108 billion last year. But what short memories we have. The plaintiffs’ antitrust bar accuses Apple of unlawfully monopolizing these markets and has filed a series of sometimes confusing consumer class actions challenging Apple’s vertical integration and closed product systems. (Nine separate lawsuits have been unified into one action in California focusing on the tight grip Apple exerts on the iPhone’s services and applications; other individual and class suits are pending elsewhere.) The EU reportedly has investigated Apple’s App Store restrictions, and more recently its deals with European wireless carriers, to determine whether the company “abused” a “dominant position.”

Continue reading Five Reasons Apple’s Private Antitrust Risks Are Minimal

AT&T, T-Mobile & Behavioral Remedies


The world of communications has been dominated for three decades, since United States v. AT&T, by a rather unusual confluence of antitrust and regulation. This has led to several noteworthy cases over the years addressing the interplay of the two regimes and whether the Communications Act overrides or immunizes certain communications companies or practices from antitrust scrutiny.

Luckily that’s been settled. In today’s environment, the consequence is that AT&T’s multi-billion dollar proposed acquisition of wireless rival T-Mobile will be reviewed both by the Justice Department’s Antitrust Division and the FCC. While there are some differences — DOJ must sue to block the deal, while affirmative FCC approval is required — the reality is that both agencies will apply similar competition analysis to the transaction.

That’s where things get a bit dicey. For one (although beyond the scope of this post), there’s been a long-running policy debate over whether FCC review and approval adds anything or is now redundant.  More significantly, though, both DOJ and the FCC have shown a remarkable symmetry when it comes to “vertical” issues.  That is, when competitive concerns arise from the relation between a firm and “downstream” rivals — for instance, as in AT&T, local and long-distance telephone providers — both agencies have increasingly opted for behavioral rather than structural remedies.  (The latter go to the number and size of firms in a market, for instance by divestitures, while the latter direct the integrated post-merged firm what it can and cannot do in specified markets.)

Although the AT&T/T-Mobile deal has both horizontal and vertical elements, most media and analyst discussion to date has focused on direct competition for wireless subscribers, the classic horizontal concentration question. Regardless of the result there, observers can expect behavioral injunctions, whether by DOJ consent decree or FCC “conditions” to approval, addressing the deal’s vertical factors, for instance backhaul provided by landline telecom special access services and access to content (Web, television/video, etc.) from unaffiliated providers.

Behavioral conditions have been a growing feature of competition review in communications transactions in the U.S. for years, from AT&T/McCaw Cellular in 1993 to AOL/Time Warner in 2000 to Google-ITA earlier this year. Whether they work well, or not, is a different story for a different post. The record of their relevance and effectiveness is most decidedly mixed.