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US: DOJ Opens Review of Telecom Industry

by Amol SharmaWall Street Journal
July 6th, 2009

The Department of Justice has begun an initial review to determine whether large U.S. telecom companies such as AT&T Inc. and Verizon Communications Inc. have abused the market power they've amassed in recent years, according to people familiar with the matter.

The review of potential anti-competitive practices is in its very early stages, and it isn't a formal investigation of any specific company at this point, the people said. It isn't clear whether the agency intends to launch an official inquiry.

Among the areas the Justice Department could explore is whether wireless carriers are hurting smaller competitors by locking up popular phones through exclusive agreements with handset makers, according to the people. In recent weeks lawmakers and regulators have raised questions about deals such as AT&T's exclusive right to provide service for Apple Inc.'s popular iPhone in the U.S.

The Justice Department may also review whether telecom carriers are unduly restricting the types of services other companies can offer on their networks, one person familiar with the situation said.

The scrutiny of the telecom industry is an indication of the Obama administration's aggressive stance on antitrust enforcement. 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 statute that governs such behavior the Sherman Antitrust Act was used by the government in cases against giants ranging from Standard Oil to Microsoft Corp. But it lay essentially dormant during the Bush years, with the agency bringing no major case.

Now Ms. Varney plans to revive that area of U.S. law, and the telecom industry is among several sectors including health care and agriculture that are coming under scrutiny, the people familiar with the matter said. She is already tackling one high-tech area by investigating Google Inc.'s settlement with authors and publishers over its Book Search product.

Through a spasm of consolidation and organic growth, AT&T and Verizon have become the two dominant players in telecommunications, with the largest networks and major clout over equipment makers. Combined, they control 90 million landline customers and 60% of the 270 million U.S. wireless subscribers. They also operate large portions of the Internet backbone, ferrying data across the country and overseas.

A Justice Department spokeswoman declined to comment.

Some antitrust experts said the government would have a tough time opening a Sherman Act case against telecom providers if it chooses to do so. To bring a case, the government must show that a company is abusing its market power.

"It would be a very hard case to make," said Donald Russell, a Washington attorney who reviewed a number of major telecom mergers as a DOJ antitrust lawyer in the Clinton Administration. "You don't have any firm that's in a dominant position. Usually, you need to show a firm has real market power."

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