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Telecoms Face Antitrust Threat

The Department of Justice has begun looking into whether large U.S. telecommunications companies such as AT&T and Verizon are abusing the market power they have amassed in recent years.

The review, while in its early stages, is an indication of the Obama administration’s aggressive stance on antitrust enforcement. Justice Department antitrust chief Christine Varney says she wants to reassert the government’s role in policing monopolistic practices by powerful companies. The law that regulates such behavior, the Sherman Antitrust Act, has been used in the past against companies ranging from Standard Oil to Microsoft. Although dormant through the Bush years, antitrust law is now being applied, as the telecom industry is among several sectors under high scrutiny.

Harold Feld, of the consumer advocacy group Public Knowledge, says it is most definitely possible for more than one company to exercise monopoly-like power in sectors like telecom. He argues that Verizon and AT&T have thrown around their weight in a variety of ways, from gobbling up radio frequencies to charging high fees for other companies to connect to their networks.

Major telecom companies say the industry is very competitive, both in land lines and in the wireless sector (where only four major carriers exist). They argue that regulation of specific areas of telecom will harm innovation.

The debate over exclusive deals continues to escalate. The Federal Communications Commission has committed to a full investigation, as small carriers are claiming to be shut out of the market. AT&T, with the iPhone deal, isn’t alone in exclusive arrangements. Verizon is the exclusive provider of the BlackBerry Storm and Sprint Nextel will be the only carrier with the Palm Pre until next year.

The major players benefit from exclusive partnering by sharing the carrier’s marketing and sales resources. Andy Castonguay, a wireless analyst at Yankee Group, explains that “If you are launching an absolutely new product to the market, partnering up with a Tier 1 carrier gives you instant visibility, buzz and a first-rate marketing campaign.”

After negotiating deals with a few small rural carriers, Verizon feels that “In the absence of regulation and political interest, we are showing that we’re willing to change our business relationship with rural carriers.”

Whether the four giants are making an attempt to negotiate or not, there is a clear need for increased competition in today’s mobile world.

Read more in the WSJ.com article.

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