Apple escapes punishment from Japanese regulator over iPhone carrier agreements
Apple has come under fire from Japan's Fair Trade Commission for agreements it made with the country's carriers, concluding the company may have breached antitrust rules by forcing mobile networks to subsidize the cost of the iPhone to consumers, causing firms to charge higher monthly fees.
Apple store in Omotesando. | Source: Apple
The Japanese FTC's investigation of suspected violations of the Antimonopoly Act by Apple examined its dealings with NTT Docomo, KDDI, and SoftBank, three of the country's carriers. Running since October 2016, the investigation has closed, but while Apple isn't found to be guilty of violation, the regulator still suggests there are some borderline elements that may be considered anti-consumer.
The carriers were obliged to sell iPhones to consumers with a low upfront cost that undercuts competitors, the FTC told Reuters, allowing it to have an advantage over Samsung. To cover the cost, the carriers locked consumers into two and four-year contracts, while also effectively preventing the carrier from offering lower-cost plans.
"Obliging carriers to offer subsidies could have prevented the carriers from offering lower monthly charges and restricted competition," claims the FTC.
After advising to Apple the issue could be a violation, Apple agreed to amend its iPhone agreements, allowing carriers to provide alternative cheaper plans without the subsidy, with consumers paying the full cost of the iPhone, alongside existing iPhone plans. This was enough of a change for the FTC, which advised the amendments "eliminate the suspicion of the violation of the Antimonopoly Act."
The investigation also examined requirements in agreements for carriers to buy a minimum quantity of iPhones, as well as how carriers handle traded-in iPhones, but the FTC concluded Apple's conduct to be within the law.
Japan is the latest country to examine the agreements made between Apple and carriers over iPhone sales, following earlier investigations made by South Korea and the European Commission, among other probes. Another two-year investigation by Canada's Competition Bureau found none of the terms in agreements between Apple and Canadian wireless carriers resulted in a "significant effect" to competition.
Apple store in Omotesando. | Source: Apple
The Japanese FTC's investigation of suspected violations of the Antimonopoly Act by Apple examined its dealings with NTT Docomo, KDDI, and SoftBank, three of the country's carriers. Running since October 2016, the investigation has closed, but while Apple isn't found to be guilty of violation, the regulator still suggests there are some borderline elements that may be considered anti-consumer.
The carriers were obliged to sell iPhones to consumers with a low upfront cost that undercuts competitors, the FTC told Reuters, allowing it to have an advantage over Samsung. To cover the cost, the carriers locked consumers into two and four-year contracts, while also effectively preventing the carrier from offering lower-cost plans.
"Obliging carriers to offer subsidies could have prevented the carriers from offering lower monthly charges and restricted competition," claims the FTC.
After advising to Apple the issue could be a violation, Apple agreed to amend its iPhone agreements, allowing carriers to provide alternative cheaper plans without the subsidy, with consumers paying the full cost of the iPhone, alongside existing iPhone plans. This was enough of a change for the FTC, which advised the amendments "eliminate the suspicion of the violation of the Antimonopoly Act."
The investigation also examined requirements in agreements for carriers to buy a minimum quantity of iPhones, as well as how carriers handle traded-in iPhones, but the FTC concluded Apple's conduct to be within the law.
Japan is the latest country to examine the agreements made between Apple and carriers over iPhone sales, following earlier investigations made by South Korea and the European Commission, among other probes. Another two-year investigation by Canada's Competition Bureau found none of the terms in agreements between Apple and Canadian wireless carriers resulted in a "significant effect" to competition.
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"The FTC, which began looking into Apple’s sales practices in 2016, did not punish Apple as the U.S. company had agreed to revise its contracts with the carriers, it said."
Reading back to when the investigation was first opened it was claimed that regulators hoped to avoid filing suit against Apple and/or carriers and pressure the two into reconstructing contracts that did not violate their antitrust laws rather than having to resort to a lawsuit to force the issue. Apparently they were successful which is far better than a courtroom taking care of it from the viewpoint of the involved parties.
Other sources say that Apple mandates some of those same contractual requirements from US carriers, but perhaps US antitrust laws permit it?
I’m not going to pretend I understand the details of the Japanese FTC ruling but, it doesn’t make any sense.
Apple’s iPhone never held a monopoly position in Japan. The carriers could have told Apple to go pound sand if they didn’t like the terms. And forcing all phone makers to use the same business model stymies any chance for market innovations and it stratifies competition, leaving incumbents with the upper hand against smaller competitors trying to enter the market.
The part of the AI article you're jumping on is 100% correct, as it is related to Apple setting order quantities for the network providers.
The FTC found that Apple was not in breach because while they set a minimum order quantity for the phone, they don't actually penalise any of the network services if they don't meet the minimum requirement. I used to work for a supplier of development tools that did much the same thing. They would set a minimum order so that their partners knew (roughly) where they should be aiming.
Clear now?
Glad you follow me tho, thanks for reading.
FWIW you might go back and reread it yourself as you missed the explanation for why they decided that the used iPhone issue was going to be ignored for now. Tip: Only one of the three including the potentially illegal clause regarding the sale of older model phones so consumers still had options from the other carriers. Had it been included in all of them it may well have been found in violation.
Yes, it's a tricky one that I'm trying to get my head around. If you read the document from the FTC, they are clearly stating that Apple MAY be in breach of monopoly laws if something happens later as a result of something they're doing now. I don't think it was really a question of Apple escaping anything; in fact it all seems rather civilised as far as these things go.
As you say, no one is forcing them to accept Apple's deal, and no one is stopping other phone manufacturers from making the same deal, but here's the problem, and you're probably going to disagree, but I think we may be gearing up to bigger problems for Apple later on.
Apple has the smaller share of the market. We can all agree on that.
But the share that Apple has compromises of the customers that the carriers actually want: people who will go for the top end services at the higher prices.
If you read back through the past few weeks of AI articles, we can see the same pattern in streaming, phone sales, tablet sales …
So, Apple does have a monopoly … sort of. It has a monopoly on the most desirable customers in the market place. It pretty much has all of them. Now, what this means is that the company is in a much stronger position to negotiate deals such as this, and the companies with less desirable customers have less clout. That is the problem we're seeing here, I think
Look at it this way; who would you prefer if you were a network provider? Two Android users on bottom-rung contracts, or one iPhone user who's happy to pay for the top end contract so he can get the very best out of his phone? Aside from the fact that you can probably earn more from the iPhone user than the two Android users, you're also looking at lower support costs from a single individual using a relatively trouble-free phone.
Monopoly law is a strange beast. It isn't actually illegal to have a monopoly, but you have to be damn careful how you go about building one. Apple has to be careful how it is perceived by various watchdogs, and I think this notion of a 'Monopoly on desirables' is the next battleground for companies trying to take Apple down a peg.
Right, so if this had happened, then something else may well have happened.
Seriously? That's kinda desperate.
Hey, here's the judgement, in bold, to help you. Nothing more to say.
The writer said the FTC didn't think Apple had a case to answer, and that's what the document says, so the writer is entirely correct. Your attempts at alternative-reality speculation have no bearing on what the FTC actually decided, which was that Apple's minimum order requirement wasn’t a problem as far as they were concerned. Now if you have a problem with it, that's a different matter, though I think it's possible anything you say carries slightly less weight than the FTC.
You're pointing to something I wasn't disputing.
I said, quoting:
"Your interpretation of the FTC failing to call anything illegal in the trade-in / minimum buy clauses therefore making it legal is not necessarily so. Not that it really matters either way since the FTC decided not to look into those two items further, but still putting Apple and the carriers on notice that depending how those requirements are handled might affect the legality of it."
Rather than making up your own pretend story for IMO petty personal reasons to claim what I was saying, what part of what I actually said in that quote do you find so erroneous and egregious?
I really liked your opinion post in #6. Well thought out.
It's when you try to stretch for some angle to do one of your "gotcha" personality driven posts that they fall short. You're very obviously a smart guy and sell yourself short when you make things into a vendetta.