Report: DOJ Probing Telecom Dominance

This story was written by CNET's Marguerite Reardon.

The newspaper cited unnamed sources who said that the DOJ is reviewing potential anti-competitive practices. No formal investigation has been launched, and the review is in its early stages, the Wall Street Journal article said. It's not clear yet if a formal investigation will follow.

Part of the inquiry is likely to focus on whether wireless carriers are harming smaller competitors by striking exclusive deals with handset makers. AT&T has such an arrangement with Apple to sell the popular iPhone for its network alone in the U.S.

Other phone companies have struck similar deals with handset makers. For example, Sprint Nextel has an exclusive arrangement with Palm to sell the Palm Pre. And T-Mobile is the exclusive carrier for the first two Google Android phones made by HTC that are on the market.

Recently, lawmakers and regulators have raised questions over the practice. Doug Hutcheson, CEO of Leap Wireless, a small regional prepaid wireless provider, believes that these deals are not good for the industry.

"I don't think those exclusive deals are good for competition," he said in a recent interview with CNET News. "If it's a good phone, we generally think it should be available on anyone's network. Carriers should compete on the basis of their service plans, which is why people buy these services."

Andrew Sherrard, a vice president at T-Mobile, said that most of its phones that it sells are not exclusive, but that having a few exclusive deals is actually reasonable. He doesn't see the practice as harmful and thinks that despite the recent government inquiries, it will continue to be a normal practice.

"I think that some devices will be exclusive to certain carriers," he said. "But the vast majority of phones, especially those below a smartphone, are pretty wide open. In the long run, we have a strong commitment to open platforms and will expand choice for our customers."

The Justice Department may also review whether telecom carriers are restricting certain services that can be offered on devices that run on their network, the Wall Street Journal reported. Some carriers disable features on certain phones. And they also restrict different services. For example, the mobile version of Skype, a voice over IP calling service, is restricted from use by most U.S. operators.

Also, AT&T has been criticized for limiting the use of certain applications, such as the SlingPlayer for the iPhone. This application, which allows people to watch streaming TV from their cable service at home on their phones, is only allowed to work in Wi-Fi hotspots using the iPhone. AT&T argues it must limit usage to Wi-Fi because allowing the service to operate over its 3G wireless network violates its terms of service and would degrade service for other wireless customers.

But the carrier offers similar functionality over its 3G wireless service for other iPhone Apps, including one from Major League Baseball that allows people to stream live baseball games onto their phone.

The DOJ's investigation of the telecom industry could be an indication of a heavier hand from the Obama administration on enforcing anti-trust issues. The Wall Street Journal said that "the Justice Department's antitrust chief, Christine Varney, has said she wants to reassert the government's role in policing monopolistic and anti-competitive practices by powerful companies."

The Obama administration's interest in antitrust violators is in contrast to that of the former Bush administration, which had not pushed forward with any major antitrust case. It was also under the Bush administration that many of the major telecom mergers were approved, starting with Sprint's acquisition of Nextel in 2005. Later local phone company SBC Communications bought long distance provider AT&T. And then the new company bought BellSouth. During this time, Verizon Communications also bought long distance operator MCI.

While these mergers have not created a single dominant phone company in the U.S., like there had been decades ago with the old AT&T, it has concentrated the power of the communications industry into the hands of only a few. Over the years, the industry has consolidated down to two major forces: the new AT&T and Verizon Communications. These two phone companies control 90 million landline customers and 60 percent of the 270 million U.S. wireless subscribers. These companies also control and operate most of the nation's Internet backbone, which shuttles Internet traffic as well as phone calls throughout the country and throughout the world.

The Justice Department declined to comment for the Wall Street Journal article, and was unable to be reached for comment from CNET News.

It would likely be difficult to prove that telecom providers have violated the antitrust Sherman Act, experts say. Newer technology and new competitors like cable companies are now competing against traditional phone companies. But it is true that the phone companies wield a great deal of power, both in terms of the assets they own and the political clout they wield.

One thing seems clear, halfway into President Obama's first year in office, it seems apparent that major phone companies may be scrutinized a bit more than they had been during the previous administration.

By Marguerite Reardon