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Thursday, January 8, 2009

Regulators in France End Apple's Exclusive iPhone Pact

As posted by: Wall Street Journal

PARIS -- Antitrust authorities ruled that Apple Inc.'s deal to sell the iPhone in France exclusively through France Télécom SA posed an unfair barrier to consumer choice, which could pave the way for other operators to sell the iPhone.

The decision from France's Competition Council suspends a five-year contract that the companies signed last year. The ruling came in response to a complaint filed by one of France Télécom's competitors, Bouygues Telecom.

France Télécom said it would appeal the decision. Apple declined to comment.

The decision is a blow to France Télécom, which has bet that the iPhone would help attract high-tech savvy customers who tend to spend more on their monthly communication bills.

It also complicates Apple's marketing plans in one of Europe's biggest markets. But the decision isn't likely to have immediate repercussions for Apple outside France. European Union regulators have so far chosen to let individual countries decide how to handle competition issues arising from Apple's iPhone.

The result is a patchwork of different situations in Europe. In Belgium, for example, consumers can buy an iPhone and use it on any operator. In Germany, a similar legal challenge filed in 2007 by Vodafone Group PLC to derail Deutsche Telekom AG's exclusive contract with Apple failed.

Even before Wednesday's ruling, French consumers could buy an iPhone, have it unlocked for a €100 fee ($141) and then use it on any operator. Such an approach had drawbacks though: the consumer has to pay a much steeper price for the phone itself and doesn't get full functionality and updates on iTunes, for example. Based on such usage, SFR -- France's mobile phone operator jointly owned by Vivendi SA and Vodafone -- had 45,000 subscribers on the iPhone.

A spokeswoman for Bouygues Telecom, a unit of French diversified construction group Bouygues SA, said the company would try to sign its own contract with Apple.

A spokesperson for SFR said the firm hopes to be able to start selling the iPhone "very soon."

The Competition Council said France Télécom's deal with Apple was "clearly excessive" and risked "serious and immediate damage to competition on the mobile market and to consumers." The Council said it would do an "in-depth examination" of the case and the appeal, which could take 12 to 18 months.

France Télécom said the decision would have the unwanted effect of stifling innovative services for consumers, such as mobile video, by causing operators to think twice before investing in network upgrades. The operator said it had "heavily invested" to upgrade its network to handle and optimize the iPhone. It has sold about 600,000 iPhones.

Although the Competition Council's decision applies only to the iPhone, the regulators mentioned two other deals recently signed by SFR for exclusive rights to distribute certain devices made by Research In Motion Ltd. and HTC Corp. The SFR deals "confirmed the risk" that such contracts would become a norm, the Council said.