ATandT, Verizon May Be Antitrust Targets

As if a looming regulatory overhaul is not enough to worry the nation's largest telecommunications companies, the Department of Justice is reportedly opening an antitrust investigation into the consumer practices of such powerhouse providers as AT&T and Verizon.

According to the Wall Street Journal, the Department of Justice has began a preliminary probe that is likely centered on exclusive smartphone deals between carriers and cell phone manufacturers like AT&T's arrangement involving Apple's iPhone. The investigation may also cover carriers limiting the types of services that other companies can offer on the telecoms' networks.

The department declined to comment on either the story or a possible investigation.

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The exclusive handset deals offered by carriers have already gained the attention of Congress with the Senate Commerce Committee holding a hearing June 17 questioning the practices of wireless carriers. Unlike wire-line services, which are required by law to allow consumers to connect the legal devices of their choice to carriers' networks, the wireless market is pocked with exclusive deals.

"At the heart of this issue is this question: Is it better or worse for competition, for innovation and for the American consumer if the carrier controls the decision over what devices can and cannot operate on their network?" Sen. John Kerry (D-Mass.) said in his opening remarks at the hearing. "I think the Commerce Committee should consider how the wireless industry is functioning and whether current practices are in the best interest of competition and the consumer."

Paul Roth, president of AT&T's retail sales and services, testified on the merits of exclusive handset deals.

"Exclusive handset distribution arrangements encourage the necessary collaboration that optimizes handset performance and accelerates the delivery of next-generation features," Roth said. "They increase a carrier's incentives to make purchase commitments and to invest in promotions, network improvements and special training of sales staff. They lower manufacturer entry barriers and serve as a key tool to maintain brand value."

Even before the Department of Justice opened its reported antitrust case against the telecoms and the Senate began nosing around in the matter, the major carriers were already facing what appears to be a dramatically different regulatory regime under the Obama administration. Both President Obama and new FCC Chairman Julius Genachowski have said they support network neutrality and open networks, something the telecoms have fought hammer and tongs.

Since Obama's election, the telecoms have gently danced around the possible changes coming in telecom policy. After opposing network neutrality for years, carriers have, if not embraced, at least accepted the FCC's four network neutrality principles in hopes of avoiding federal legislation.

"They won the election," Tom Tauke, Verizon's executive vice president for Public Affairs, Policy and Communications, told reporters in early June, "and they are going to try to correct whatever problem they see is there. We don't see that there is a problem, but we're certainly going to understand what their objective is and try to work with them."