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Will Apple be forced to make more money?


Antitrust rules go against Apple and AT&T


'Net Insider By Scott Bradner , Network World , 10/07/2008


I still have not bought an iPhone. I expect I will do so soon though now that there is at least one good SSH client available through the Apple App Store. But I will say that I've been put off by reports about the poor quality of AT&T's wireless network and, to some degree, by the apparent capriciousness of Apple's decision-making process regarding what applications can be made available through the App Store.


For me, these issues have delayed my purchase. But I expect that they have been a deal killer for quite a few people.


At first the lock-in deal with AT&T made sense to me. Apple's agreement with AT&T includes Apple receiving a share of the revenue the carrier gets from iPhone subscribers -- a nice deal indeed. But Apple does not have any such deal about iPods and seems to be doing just fine selling a much cheaper device. Now I'm not so sure that the iPhone lock-in is a good thing for Apple - it clearly is not a good thing for anyone else: Customers cannot chose the carrier that provides the best service, and AT&T's competitors cannot sell the iPhone.


It is true that because the iPhone is a GSM device it is not compatible with Verizon's or Sprint's networks, but just having a T-Mobile option could help some customers. What's more, having an option of swapping SIM cards with a local provider when traveling out of the country would be a very big win considering AT&T's unconscionable international roaming charges.


Apple could sell a lot more iPhones if they were not tied to specific carriers.


The value of the iPhone would also be higher if Apple did not block some of the applications it has from the App Store. Some filtering is needed to be sure that applications will not kill the iPhone or the phone network. But blocking applications that compete with Apple's own does no one good in the long run -- customers do not get alternatives and Apple has less of an incentive to produce better applications.


Speaking of unconscionable, that is just what a court has ruled that some of the terms of the AT&T iPhone user agreement may be. The same court has ruled that Apple and AT&T may have violated the Sherman Antitrust Act when they had a secret agreement that locked customers in for five years, three years past the two-year agreements that customers thought they were signing. The court ruled as well that Apple may have violated the same law by limiting the market for iPhone applications to those available through the App Store. In addition, the court ruled that Apple's decision to permanently disable unlocked iPhones with its Version 1.1.1 update may have also violated the law.


I say "may have" because what the court did was refuse to rule that the charges made by the people suing Apple and AT&T should be dismissed. The next step will be discovery, where Apple and AT&T will have to produce mountains of documents detailing just what they have been doing.


This case has hardly started, but one possible outcome could be that Apple is told that it cannot have the kind of restrictive agreement it now has with AT&T and has to open up the iPhone for more third-party applications. I expect that Apple, but not AT&T, will benefit considerably if this happens -- as will consumers (and, of course, the lawyers).


Disclaimer: Lawyers making money is good for the endowment of the Harvard Law School but I know of no Law School position on the iPhone case or if it's a good idea to force Apple to make more money. So the above is my own opinion.


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