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4G Weekly Digest July 15th, 2009 - Volume 4, Issue 35

Telecom Antitrust Issues
By Robert Syputa, Senior Analyst and Partner
Contact the author at robert@maravedis-bwa.com

The US Justice Department under the Obama administration is reportedly taking a tougher stance on antitrust issues, including closer scrutiny of large telecommunications companies and tighter control over international patent enforcement. Reports have circulated that they are looking into various aspects of telecommunications including exclusive devices sold through AT&AT, Verizon and Sprint.

The possibilities include rulings that the exclusive sale of Apple iPhone, RIM Pre and similar market-driving phones are in violation. They could also rule that the sale of “locked” devices that are only allowed to become functional when a customer subscribes to a multiple service package amounts to product tying, a violation of antitrust laws.

At this stage the rulings are speculative but if they come to fruition this will have a major impact on the way incumbent operators conduct their business and transition to 3.5G-4G open IP service. What we have seen occur over he past 2 years is the rise of the IP phone tied to apps stores and packaged services. While more open than “walled garden” apps, mobile service and SmartPhones, this still falls short of the open device and open service model.

Just how far could an antitrust ruling go? It could go all the way to force an end to exclusive sales of the iPhone by AT&T in the US (http://www.nytimes.com/2007/09/19/technology/19iphone.html), as well as the Pre and Smartphones from Samsung, LG and others. It could also end requirements that users must purchase packages such as buying of a 3.5G device with WiFi that must include a 3.5G broadband service agreement, even though users have purchased unlocked phones without a service agreement.

This would have a dramatic impact on how operators could expect to generate revenues going forward. It might be a mixed blessing for WiMAX operators: it would allow hot devices used on 3G networks to more easily be used on other networks, possibly including Clearwire-Sprint’s multimode WiMAX network. It could also remove some of the open access advantage that WiMAX offers. However, that open access advantage has not grown to become much of a mass market phenomena... there are no “hot” WiMAX devices or real “hot” networks. Clearwire and other 2.5 GHz networks are just starting to develop momentum and are still far from developing the clamor for “hot” devices. For at least another year or two WiMAX has more to gain by being able to use iPhone or other devices because 3.5G is forced to become more open.

The FCC and Dept. of Interior may also get tough on how Verizon implements the open network access and device rules for its LTE network. Statements from the FCC continue to indicate strict enforcement. The fact that the antitrust department is strengthening actions under Obama will give the FCC more muscle.