Large US telecom carriers are being investigated by the antitrust regulators who are scrutinizing whether these companies are abusing their market power and are involved in anticompetitive practices.
The US Department of Justice (DOJ) has reportedly initiated legal proceedings on the issue (falls under the purview of “Sherman Antitrust Act”) to examine if major national carriers, such as AT&T (T), Verizon (VZ) and Sprint Nextel (S) are unduly restricting services through exclusive distribution agreements with manufacturers, especially for high-end cellular handsets.
Exclusive handset agreements with manufacturers for smartphones allow large wireless carriers to sell popular handsets at subsidized prices to lure customers. Currently, most of the leading U.S. carriers have their own long-term distribution arrangements for smartphones.
AT&T has sealed a multi-year distribution deal with Apple Inc (AAPL) for the iPhone while Verizon is the exclusive provider of Research In Motion’s (RIMM) BlackBerry Storm. Additionally, Sprint Nextel recently obtained exclusive rights to market Palm Inc.‘s (PALM) Pre smartphone. These carriers have succeeded in accumulating subscribers in recent times driven by these premium handset offerings.
However, small rural wireless operators have appealed to the Federal Communications Commission (FCC) for a ban on such practice as the inability to sell these devices negatively affecting their bottom-line and margins.
These carriers have argued that exclusive smartphone deals have deprived the rural customers in the U.S. from accessing the latest technologies enabled by these state-of-the-art handhelds. In fact, most of the recent subscriber gains achieved by the leading wireless operators came at the expense of their smaller counterparts.
High-end smartphones offer greater contribution to average revenue per user (ARPU) than regular cellular handsets, which encourages larger wireless operators to heavily invest in promotions and improving network and services that support them.
In this scenario, any unfavorable action by the antitrust authority or a potential regulatory overhaul may substantially affect these carriers as they contend with accelerated erosion in legacy landline business. We continue our Hold recommendations for AT&T, Verizon and Sprint Nextel.
Read the full analyst report on “T”
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Read the full analyst report on “S”
Read the full analyst report on “AAPL”
Read the full analyst report on “RIMM”
Read the full analyst report on “PALM”
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