Apple escapes punishment from Japanese regulator over iPhone carrier agreements

Apple store in Omotesando. | Source: Apple

Apple has come under fire from Japan's Fair Trade Commission for agreements it made with the country's carriers, concluding the company may have breached antitrust rules by forcing mobile networks to subsidize the cost of the iPhone to consumers, causing firms to charge higher monthly fees.

The Japanese FTC's investigation of suspected violations of the Antimonopoly Act by Apple examined its dealings with NTT Docomo, KDDI, and SoftBank, three of the country's carriers. Running since October 2016, the investigation has closed, but while Apple isn't found to be guilty of violation, the regulator still suggests there are some borderline elements that may be considered anti-consumer.

The carriers were obliged to sell iPhones to consumers with a low upfront cost that undercuts competitors, the FTC told Reuters, allowing it to have an advantage over Samsung. To cover the cost, the carriers locked consumers into two and four-year contracts, while also effectively preventing the carrier from offering lower-cost plans.

"Obliging carriers to offer subsidies could have prevented the carriers from offering lower monthly charges and restricted competition," claims the FTC.

After advising to Apple the issue could be a violation, Apple agreed to amend its iPhone agreements, allowing carriers to provide alternative cheaper plans without the subsidy, with consumers paying the full cost of the iPhone, alongside existing iPhone plans. This was enough of a change for the FTC, which advised the amendments "eliminate the suspicion of the violation of the Antimonopoly Act."

The investigation also examined requirements in agreements for carriers to buy a minimum quantity of iPhones, as well as how carriers handle traded-in iPhones, but the FTC concluded Apple's conduct to be within the law.

Japan is the latest country to examine the agreements made between Apple and carriers over iPhone sales, following earlier investigations made by South Korea and the European Commission, among other probes. Another two-year investigation by Canada's Competition Bureau found none of the terms in agreements between Apple and Canadian wireless carriers resulted in a "significant effect" to competition.

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9 Comments

gatorguy 13 Years · 24627 comments

About 6 years ago

AppleInsider said:
The investigation also examined requirements in agreements for carriers to buy a minimum quantity of iPhones, as well as how carriers handle traded-in iPhones, but the FTC concluded Apple's conduct to be within the law.
I haven't seen that claimed anywhere else. The source articles (both Reuters and JFTC) strongly suggests that the investigation was dropped after Apple agreed to change their carrier contracts to eliminate requirements that might put them in violation of competition laws, not suggesting anywhere that what they were doing prior was all perfectly legal AFAICT, including the trade-in and minimum-buy terms. Your interpretation of the FTC failing to call anything illegal in the trade-in / minimum buy clauses therefore making it legal is not necessarily so. Not that it really matters either way since the FTC decided not to look into those two items further, but still putting Apple and the carriers on notice that depending how those requirements are handled might affect the legality of it.

"The FTC, which began looking into Apple’s sales practices in 2016, did not punish Apple as the U.S. company had agreed to revise its contracts with the carriers, it said."
Reading back to when the investigation was first opened it was claimed that regulators hoped to avoid filing suit against Apple and/or carriers and pressure the two into reconstructing contracts that did not violate their antitrust laws rather than having to resort to a lawsuit to force the issue. Apparently they were successful which is far better than a courtroom taking care of it from the viewpoint of the involved parties.

Other sources say that Apple mandates some of those same contractual requirements from US carriers, but perhaps US antitrust laws permit it?

nunzy 6 Years · 662 comments

About 6 years ago

Of course it was dropped. Apple did nothing wrong. But they always pick on Apple.

JWSC 7 Years · 1203 comments

About 6 years ago

I’m not going to pretend I understand the details of the Japanese FTC ruling but, it doesn’t make any sense.

Apple’s iPhone never held a monopoly position in Japan. The carriers could have told Apple to go pound sand if they didn’t like the terms. And forcing all phone makers to use the same business model stymies any chance for market innovations and it stratifies competition, leaving incumbents with the upper hand against smaller competitors trying to enter the market.

Rayz2016 8 Years · 6957 comments

About 6 years ago

gatorguy said:

lots of stuff without actually reading the article properly.

The part of the AI article you're jumping on is 100% correct, as it is related to Apple setting order quantities for the network providers.

(1) Provisions regarding Order Quantities of iPhones
i. Facts
In the iPhone Agreements with 3 MNOs, the specific quantity of iPhones an MNO
orders from Apple Japan in a year (“Order Quantity”) was set out in advance for
certain years.
a. In the iPhone Agreement with one of 3 MNOs, a specific Order Quantity was
not set out, except for a limited year. Also, it stipulated that an Order Quantity
was only a target for the MNO and that a failure to meet an Order Quantity would
not be a breach of contract.
b. In the iPhone Agreement with one of 3 MNOs, a specific Order Quantity was
not set out, except for a limited year.
c. In the iPhone Agreement with one of 3 MNOs, a specific Order Quantity was
set out for several years. However, in most of the years, a stipulated Order
Quantity was not met, and no disadvantage was imposed for a failure to meet an
Order Quantity.
Also, after the JFTC’s investigation started, Apple Japan stipulated that an
Order Quantity was only a target for the MNO and that a failure to meet an Order
Quantity would not be a breach of contract.

The FTC found that Apple was not in breach because while they set a minimum order quantity for the phone, they don't actually penalise any of the network services if they don't meet the minimum requirement. I used to work for a supplier of development tools that did much the same thing. They would set a minimum order so that their partners knew (roughly) where they should be aiming.

Apple Japan’s obligating an MNO to order a specific Order Quantity of iPhones
can be a problem under the Antimonopoly Act if, for example, it reduces the sales
opportunities of other smartphone makers.
However, considering the fact that a specific Order Quantity was not set out in
the iPhone Agreements except for limited years, the fact that a stipulated Order
Quantity did not appear to obligate an MNO to order the quantity, and other facts, it
was not recognized that Apple Japan restricted an MNO’s business activities.

Clear now?

gatorguy 13 Years · 24627 comments

About 6 years ago

Rayz2016 said:

gatorguy said:

lots of stuff without actually reading the article properly.

The part of the AI article you're jumping on is 100% correct, as it is related to Apple setting order quantities for the network providers.

(1) Provisions regarding Order Quantities of iPhones
i. Facts
In the iPhone Agreements with 3 MNOs, the specific quantity of iPhones an MNO
orders from Apple Japan in a year (“Order Quantity”) was set out in advance for
certain years.
a. In the iPhone Agreement with one of 3 MNOs, a specific Order Quantity was
not set out, except for a limited year. Also, it stipulated that an Order Quantity
was only a target for the MNO and that a failure to meet an Order Quantity would
not be a breach of contract.
b. In the iPhone Agreement with one of 3 MNOs, a specific Order Quantity was
not set out, except for a limited year.
c. In the iPhone Agreement with one of 3 MNOs, a specific Order Quantity was
set out for several years. However, in most of the years, a stipulated Order
Quantity was not met, and no disadvantage was imposed for a failure to meet an
Order Quantity.
Also, after the JFTC’s investigation started, Apple Japan stipulated that an
Order Quantity was only a target for the MNO and that a failure to meet an Order
Quantity would not be a breach of contract.

The FTC found that Apple was not in breach because while they set a minimum order quantity for the phone, they don't actually penalise any of the network services if they don't meet the minimum requirement. I used to work for a supplier of development tools that did much the same thing. They would set a minimum order so that their partners knew (roughly) where they should be aiming.

Apple Japan’s obligating an MNO to order a specific Order Quantity of iPhones
can be a problem under the Antimonopoly Act if, for example, it reduces the sales
opportunities of other smartphone makers.
However, considering the fact that a specific Order Quantity was not set out in
the iPhone Agreements except for limited years, the fact that a stipulated Order
Quantity did not appear to obligate an MNO to order the quantity, and other facts, it
was not recognized that Apple Japan restricted an MNO’s business activities.

Clear now?

Thanks but you're trying to explain something I already understood having read in it's entirety all of the sources including the FTC statement of fact before finalizing my post.
Glad you follow me tho, thanks for reading.

FWIW you might go back and reread it yourself as you missed the explanation for why they decided that the used iPhone issue was going to be ignored for now. Tip: Only one of the three including the potentially illegal clause regarding the sale of older model phones so consumers still had options from the other carriers. Had it been included in all of them it may well have been found in violation.