This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2013/03/22/business/global/iphone-contracts-with-carriers-under-scrutiny-in-europe.html

The article has changed 2 times. There is an RSS feed of changes available.

Version 0 Version 1
Europe Weighs iPhone Sale Deals With Carriers for Antitrust Abuse Europe Weighs iPhone Sale Deals With Carriers for Antitrust Abuse
(about 20 hours later)
European Union regulators are examining the contracts Apple strikes with cellphone carriers that sell its iPhone for possible antitrust violations after several carriers complained that the deals throttled competition.European Union regulators are examining the contracts Apple strikes with cellphone carriers that sell its iPhone for possible antitrust violations after several carriers complained that the deals throttled competition.
Although they have not filed formal complaints, a group of European wireless carriers recently submitted information about their contracts with Apple to the European Commission, according to a person briefed on the communications with the carriers who asked not to be identified.Although they have not filed formal complaints, a group of European wireless carriers recently submitted information about their contracts with Apple to the European Commission, according to a person briefed on the communications with the carriers who asked not to be identified.
This person said the accusations focused on Apple’s contracts with French carriers, though other countries may also be involved.This person said the accusations focused on Apple’s contracts with French carriers, though other countries may also be involved.
In a statement, the European Commission, the union’s administrative arm, which oversees antitrust enforcement in the 27-nation bloc, confirmed that it was examining Apple’s carrier deals. But it said it had not begun a formal antitrust investigation. The commission is not obligated to act until it receives a formal complaint of anticompetitive behavior. That it is already examining the contracts suggests that it is taking the carriers’ concerns seriously.In a statement, the European Commission, the union’s administrative arm, which oversees antitrust enforcement in the 27-nation bloc, confirmed that it was examining Apple’s carrier deals. But it said it had not begun a formal antitrust investigation. The commission is not obligated to act until it receives a formal complaint of anticompetitive behavior. That it is already examining the contracts suggests that it is taking the carriers’ concerns seriously.
“We have been contacted by industry participants and we are monitoring the situation, but no antitrust case has been opened,” said Antoine Colombani, a spokesman for Joaquín Almunia, competition commissioner of the European Union.“We have been contacted by industry participants and we are monitoring the situation, but no antitrust case has been opened,” said Antoine Colombani, a spokesman for Joaquín Almunia, competition commissioner of the European Union.
Elaborating at news conference in Brussels on Friday, Mr. Colombani reiterated that no formal complaints had been brought against Apple, and suggested that regulators would need to judge the relevance of any allegations in such a dynamic sector before taking any steps that could lead to a formal antitrust case.
An Apple spokeswoman, Natalie Kerris, said, “Our contracts fully comply with local laws wherever we do business, including the E.U.”An Apple spokeswoman, Natalie Kerris, said, “Our contracts fully comply with local laws wherever we do business, including the E.U.”
It was unclear how many carriers were in discussions with the European Union. Based on several interviews with people briefed on iPhone contracts, it appears that Apple’s contracts with some smaller European carriers were stricter than those with larger companies.It was unclear how many carriers were in discussions with the European Union. Based on several interviews with people briefed on iPhone contracts, it appears that Apple’s contracts with some smaller European carriers were stricter than those with larger companies.
People briefed on the carriers’ relationships with Apple, who declined to be named because Apple does not permit them to speak publicly about the contracts, said the terms that some European carriers must accept to sell iPhones are unusually strict, making it difficult for other handset makers to compete.People briefed on the carriers’ relationships with Apple, who declined to be named because Apple does not permit them to speak publicly about the contracts, said the terms that some European carriers must accept to sell iPhones are unusually strict, making it difficult for other handset makers to compete.
The issues do not appear to apply to carriers in the United States; an executive at an American carrier said the terms of its contract with Apple were aggressive but not unreasonable. Apple is well known for tightly controlling the design of its products, down to the smallest of details, and closely controlling its manufacturing. Its relationship with carriers, long cloaked by strict nondisclosure agreements, offers a window into the similar levels of control Apple exerts on business partners who want to sell the iPhone.The issues do not appear to apply to carriers in the United States; an executive at an American carrier said the terms of its contract with Apple were aggressive but not unreasonable. Apple is well known for tightly controlling the design of its products, down to the smallest of details, and closely controlling its manufacturing. Its relationship with carriers, long cloaked by strict nondisclosure agreements, offers a window into the similar levels of control Apple exerts on business partners who want to sell the iPhone.
While European carriers quietly grumble about Apple’s muscle in the marketplace, Apple does not force any of them to sell the iPhone — it does not need to. 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.While European carriers quietly grumble about Apple’s muscle in the marketplace, Apple does not force any of them to sell the iPhone — it does not need to. 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.
Apple’s contract differs with every carrier that sells the iPhone. Such sales accounted for 56 percent of Apple’s $55 billion in revenue last quarter. In most cases, Apple sets a quota for how many iPhones the carrier needs to sell over a set period of time, usually three years. If it does not agree to the quotas, it does not receive the iPhone.Apple’s contract differs with every carrier that sells the iPhone. Such sales accounted for 56 percent of Apple’s $55 billion in revenue last quarter. In most cases, Apple sets a quota for how many iPhones the carrier needs to sell over a set period of time, usually three years. If it does not agree to the quotas, it does not receive the iPhone.
If quotas are not met, the carrier is obligated to pay Apple for unsold devices, according to one person who negotiated with Apple while at a European carrier.If quotas are not met, the carrier is obligated to pay Apple for unsold devices, according to one person who negotiated with Apple while at a European carrier.
That remains a largely theoretical risk at this point, however, because demand for the iPhone still exceeds supplies almost everywhere it is sold. Apple’s iPhone 5 was the best-selling smartphone in the world during the fourth quarter of 2012, outselling competing models from Samsung, the biggest maker of mobile devices in the world, according to Strategy Analytics.That remains a largely theoretical risk at this point, however, because demand for the iPhone still exceeds supplies almost everywhere it is sold. Apple’s iPhone 5 was the best-selling smartphone in the world during the fourth quarter of 2012, outselling competing models from Samsung, the biggest maker of mobile devices in the world, according to Strategy Analytics.
But some of Apple’s competitors complain that the big purchases Apple requires from carriers strongly pressure them to devote most of their marketing budgets to the iPhone, leaving little money to promote competing devices, said an executive at one of Apple’s rivals, who declined to be named to avoid jeopardizing carrier relationships.But some of Apple’s competitors complain that the big purchases Apple requires from carriers strongly pressure them to devote most of their marketing budgets to the iPhone, leaving little money to promote competing devices, said an executive at one of Apple’s rivals, who declined to be named to avoid jeopardizing carrier relationships.
Apple’s practice of telling carriers how many phones they must sell and threatening to penalize them shows just how powerful the iPhone has become as a bargaining chip. Other manufacturers typically allocate fewer handsets to each carrier than they estimate it can sell to ensure that there is little, if any, leftover inventory, an executive at one rival handset maker said.Apple’s practice of telling carriers how many phones they must sell and threatening to penalize them shows just how powerful the iPhone has become as a bargaining chip. Other manufacturers typically allocate fewer handsets to each carrier than they estimate it can sell to ensure that there is little, if any, leftover inventory, an executive at one rival handset maker said.
Apple also firmly sets the price for its iPhones. In the United States, every new iPhone model has a starting price of $200 with a contract. But generally, the cost of a new iPhone model to the carrier is higher than the last one, which forces the carriers to pay higher subsidies to Apple every year, said an executive at an American wireless company, who could not be named because he was not permitted to talk about the contract publicly.Apple also firmly sets the price for its iPhones. In the United States, every new iPhone model has a starting price of $200 with a contract. But generally, the cost of a new iPhone model to the carrier is higher than the last one, which forces the carriers to pay higher subsidies to Apple every year, said an executive at an American wireless company, who could not be named because he was not permitted to talk about the contract publicly.
Toni Toikka, a founder of Alekstra, a mobile diagnostics firm, was a former director of mergers and acquisitions at Nokia. He said that when Nokia was the biggest phone maker in the world, it used its market position to exert similar control over its carriers. “When we had some kind of problem, like when the operators didn’t want to use money on TV ads on our new products, we said, ‘If you’re not going to advertise this very heavily, most likely we’ll allocate more phones to those operators who were willing to spend money on marketing,’ ” he said in a phone interview. “By using this leverage, they always did what we asked them to do.”Toni Toikka, a founder of Alekstra, a mobile diagnostics firm, was a former director of mergers and acquisitions at Nokia. He said that when Nokia was the biggest phone maker in the world, it used its market position to exert similar control over its carriers. “When we had some kind of problem, like when the operators didn’t want to use money on TV ads on our new products, we said, ‘If you’re not going to advertise this very heavily, most likely we’ll allocate more phones to those operators who were willing to spend money on marketing,’ ” he said in a phone interview. “By using this leverage, they always did what we asked them to do.”
Publicly, some carriers have painted a picture of a more humble Apple. At a recent mobile industry conference in Spain, Stéphane Richard, chief executive of France Télécom-Orange, told a group of reporters that Apple is “probably a little less arrogant” than the company was under Steven P. Jobs, the company’s former chief executive, who died in 2011. Apple’s growth has slowed in recent quarters, and the company’s stock price is down 37 percent since September.Publicly, some carriers have painted a picture of a more humble Apple. At a recent mobile industry conference in Spain, Stéphane Richard, chief executive of France Télécom-Orange, told a group of reporters that Apple is “probably a little less arrogant” than the company was under Steven P. Jobs, the company’s former chief executive, who died in 2011. Apple’s growth has slowed in recent quarters, and the company’s stock price is down 37 percent since September.
Apple has also lost ground in Western Europe, where its share of smartphone shipments slipped to 24.72 percent during the holiday quarter, from 26.86 percent in the same period a year earlier, according to IDC. Samsung, its most formidable rival in the battle for the mobile market, rose to 40.66 percent of smartphone shipments in the region from 27.58 percent the year before, IDC said.Apple has also lost ground in Western Europe, where its share of smartphone shipments slipped to 24.72 percent during the holiday quarter, from 26.86 percent in the same period a year earlier, according to IDC. Samsung, its most formidable rival in the battle for the mobile market, rose to 40.66 percent of smartphone shipments in the region from 27.58 percent the year before, IDC said.
It is not clear what the European Commission will do next. It often reviews complaints and meets with aggrieved companies before beginning a formal case. This allows the commission to evaluate whether a case is worth pursuing and to educate companies on what regulators need from them to begin a formal inquiry. Stephen Kinsella, a partner with the Sidley Austin law firm who has been involved in some of the biggest antitrust cases in Europe in recent years, including the continuing investigation of Google by the European Commission, said it was valuable for companies and regulators to meet before filing a formal complaint.It is not clear what the European Commission will do next. It often reviews complaints and meets with aggrieved companies before beginning a formal case. This allows the commission to evaluate whether a case is worth pursuing and to educate companies on what regulators need from them to begin a formal inquiry. Stephen Kinsella, a partner with the Sidley Austin law firm who has been involved in some of the biggest antitrust cases in Europe in recent years, including the continuing investigation of Google by the European Commission, said it was valuable for companies and regulators to meet before filing a formal complaint.
  “Companies want to determine whether the commission really has the appetite for a case,” said Mr. Kinsella. “The commission wants real, solid evidence of harm to consumers and wants to be confident that any case it opens involves a problem it can actually solve,” he said.  “Companies want to determine whether the commission really has the appetite for a case,” said Mr. Kinsella. “The commission wants real, solid evidence of harm to consumers and wants to be confident that any case it opens involves a problem it can actually solve,” he said.
 The commission can also open an investigation without a formal complaint. That was the case in a recent investigation of Apple and four major book publishing groups that were trying to fix prices for e-books through selling agreements.   The commission can also open an investigation without a formal complaint. That was the case in a recent investigation of Apple and four major book publishing groups that were trying to fix prices for e-books through selling agreements.  
Mr. Almunia settled the case after Apple and the publishers agreed to stop fixing prices. In that case, the commission pursued the matter without a formal complaint, partly because the United States Justice Department was already pursuing a similar case that also led to a settlement.Mr. Almunia settled the case after Apple and the publishers agreed to stop fixing prices. In that case, the commission pursued the matter without a formal complaint, partly because the United States Justice Department was already pursuing a similar case that also led to a settlement.
The maximum fine in cases where companies have used anticompetitive contracts to block competition can be as high as 10 percent of a company’s most recent global annual sales.The maximum fine in cases where companies have used anticompetitive contracts to block competition can be as high as 10 percent of a company’s most recent global annual sales.
But fines in antitrust cases rarely, if ever, reach that level. In 2009, Intel received the highest-ever fine of 1.1 billion euros, about $1.42 billion, in an antitrust case after the commission determined that it was abusing its dominance in the computer chip market. Intel has appealed that ruling, saying the commission did not follow proper procedure.But fines in antitrust cases rarely, if ever, reach that level. In 2009, Intel received the highest-ever fine of 1.1 billion euros, about $1.42 billion, in an antitrust case after the commission determined that it was abusing its dominance in the computer chip market. Intel has appealed that ruling, saying the commission did not follow proper procedure.

James Kanter and Charles Duhigg contributed reporting.

Charles Duhigg contributed reporting.