Judge Dismisses Cell Phone Antitrust Suits

from the deeeenied dept

Wed, Aug 31st 2005 12:43pm — Carlo Longino

A federal judge has dismissed several lawsuits alleging US mobile operators had illegally tied the sales of handsets and service. The plaintiffs, which originally filed a few years back, tried to make the argument that bundling service and devices together created an anti-competitive monopoly, but the judge wasn't buying it, saying that the celluar market remains extremely competive in the FCC's view. It's hard to understand the line of thinking here: while most carriers do bundle the purchase of a handset with service, hardly any require users to purchase a phone from them to buy service. Most of the bundling is done to justify subsidies that reduce the price people pay for phones, so anything eliminating that might not find a lot of favor among consumers.

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secret squirrel, 31 Aug 2005 @ 2:36pm

eliminating subsidies
I don't buy the argument that inconveniencing the consumer to make a market work is something that is desirable. If the cell company can make a buck forcing particular bundled packages on people, they'll do it. At the time that the original suits were filed, there were not as many choices, nor competitive reasons to support them, and subsidising a phone set and tying to their service was a way to bind customers to them.

That is the main thing that these companies want anyway.
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Anonymous Hero, 1 Sep 2005 @ 7:00pm

The price people pay for service
...while most carriers do bundle the purchase of a handset with service, hardly any require users to purchase a phone from them to buy service
While you may not have to take actual delivery of a phone from most providers, you'll pay for it any way as it is still included in the cost of the available "plans". And the phone, if you do accept it, will be locked to that one provider anyway. Forget about using it with another provider when your contract expires. As a result, the phones available in the U.S. are inferior to those available elsewhere.

The FCC's idea of a competitive market is two providers in a market.
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Rochelle Gordon, 9 Sep 2006 @ 7:50am

equipment choice
I think it is obvious that the current model the cell phone providers follow is a mirror image of the old phone company days - you bough only models offered by the company.

I do not have a choice about the type of phone I want. I am limited to the phone the cell phone service provider offers. I like the service offered by US Cellular but they do not offer the phone I would prefer. If I elect to obtain cell service from a company offering the phone of my choice, then again, I am deprived the right to obtain service from US Cellular. Either way, the consumer is forced to spend money on something they do not want.

I am a labor lawyer and confess that my knowledge of the anti-trust laws is superficial at best. That being said, I do not understand how the the current cell phone/service provider model does not violate the anti-trust laws. Can someone explain this?
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d. konar, 13 Oct 2006 @ 11:18am

Re: equipment choice
In response to Rochelle's inquiry, I have seen only one antitrust claim that addressed her concern. From the media accounts, it seemed that a class action claim was filed a few years ago in the Southern District of NY alleging that cell phone manufacturers and service providers "tied" their products to one another. The claim was dismissed.

My understanding is that a "tying" claim requires the plaintiff to show that the defendant has monopoly power in the primary market. Without monopoly power in that primary market, courts have been hesistant to acknowledge that the defendant might have the power to "tie" the secondary product.

I haven't read the court's opinion, but I would think that one problem is that it seems the service provider market and the phone mfg. market both appear to be oligopolies. Thus, no particular market participant has the monopoly power necessary to "tie" products together.

And even if a plaintiff could show monopoly power (I would think a case could be made from the service providers' long-term, high penalty contract terms), the "tying" claim would still suffer because most service providers offer a "choice" (albeit limited) between various cell phone mfg.s' products.

I don't disagree with you that the ultimate effect of these arrangements is anticompetitive (a restraint on competition), but it does not seem that U.S. case law offers a paradigm to construe this restraint as unlawful.
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c. rout, 23 Aug 2007 @ 5:43pm

Re: equipment choice
This is an excellent topic and one that I have been wondering about a lot since I tried to travel with my globetrotting-jetsetting smartphone. The phone even came with its own adapter for different sockets, however I found out that if I wanted to use my phone in England I would be charged 4 litres of blood per minute to use the phone. I thought, that's ridiculous, they are simply taking advantage of the fact I can't put another phone chip in my "global" phone.

In this case, luring a consumer with a subsidised phone cost cannot be ethically offset by bundling. That's like saying "For an extra charge, get a free phone".

The subsidized cost of my phone (still several hundreds of dollars) is a lure and the locked phone chip is a hook. The bill is the sinker.

I spent some time in Tanzania and was pleased by the fact that everyone had several sim cards. Why? because some were cheaper for long distance, some were better for text messaging, some were better for daytime... etc.
This may sound like sacrilege to those execs who design the phone plans but I don't think you could argue with the healthy growth of the telecom sector in east africa. When compared to the North American market stifled with Anti-trust-smelling phones, the market ethics are obvious.
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