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Apple’s contracts with iPhone carriers under scrutiny

European Union regulators have recently started to examine contracts that Apple stipulates with carriers for its iPhone, after complaints have been received by some European telecommunication companies. Since no formal complaints have been submitted yet, no formal antitrust investigation has started.

The relationship among Apple and iPhone carriers can be though as a vertical producer-retailer one, with retailers bundling the device with their products (data plan) and with customers having also the possibility of purchasing the iPhone from Apple and then go to a mobile operator for the services, which is often the same carrier.

The complaints revolve around the strictness of Apple deals with European carriers that forces them to dedicate a too big share of their budget to Apple, posing at a disadvantage competing manufacturers. Apple for example sets minimum purchase quantities, for which the carrier has to pay regardless of the actual volume sold; hence, the carrier pays also for eventual unsold units.

With no precise information on the various clauses Apple imposes, it is difficult to assess whether such practices are anticompetitive or not. The popularity of Apple devices favour for sure the company in seeking stricter requirements that carriers are in turn more willing (or “obliged”) to accept, rather than not carrying iPhone in their shops. Additionally, for carriers the device is a complementary product to the data plan they sell together with the iPhones, considering the bulk of their margin comes especially from those plan.

However, it must also be said that Apple large market share in the smartphone market puts the company under closer scrutiny and its actions are more likely to trigger complaints or antitrust investigations. The argument of abuse of dominance is however not so consistent, as Apple does not even own the majority of market share in the European smartphone market, which is in fact own by Samsung1.

Additionally, considering iPhones carriers are often out of stock due to very rapid sales, the imposed minimum quantity does not appear such a damaging clause for carriers, neither seems to fall under the definition of anticompetitive practice: if the market demands such product, are not strict deals among manufacturer and retailer that are pushing competition out of the market.

It should also be noticed that Apple might use strict clauses to ensure it recovers production investments; the company sells only one model of smartphone, and to reach some economies of scale it probably needs large production commitments, especially considering the carriers often require the devices in a timely matter, which is likely to increases production cost.

A point in favour of a possible antitrust investigation could be the fact that, by imposing a minimum retail price and by allowing very few discounts, Apple is foreclosing to carriers the possibility of recovering the minimum quantity investment by lowering the price of those units that are eventually unsold. Again, considering the large success of the iPhone in the smartphone market such argument is rather weak. It should also be remembered that carriers are not obliged to carry the iPhone, while customers can still purchase data plan from them after having bought an iPhone directly from Apple. Thus, it is unlikely the case goes further with formal complaints and an antitrust investigation is initiated to the European Commission.

 

Martina Barbanera

 

References

AppleInsider staff, “Apple’s European iPhone sales contracts under antitrust scrutiny by EU”, March 22, 2013 on AppleInsider.com.

http://appleinsider.com/articles/13/03/22/apples-european-iphone-sales-contracts-under-antitrust-scrutiny-by-eu

 [1] http://www.comscoredatamine.com/2013/02/samsung-leads-european-smartphone-market-ahead-of-apple/

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Author: studentnovasbe

Master student in Nova Sbe

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