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EU regulator monitors Apple iPad and iPhone distribution

Apple iPad tabelts and iPhones are displayed inside the newest Apple Store in New York City's Grand Central Station December 7, 2011, during
Apple iPad tabelts and iPhones are displayed inside the newest Apple Store in New York City's Grand Central Station December 7, 2011, during

By Foo Yun Chee

BRUSSELS (Reuters) - The European Union is looking into potential antitrust violations involving the distribution of Apple Inc's iPhones and iPads, after receiving what sources said were informal complaints from telecoms operators.

The complaints involve handset subsidies and marketing that the world's most valuable technology corporation sign-off with operators that carry its smartphones and tablets, and also includes subsidies that carriers pay to Apple, one of the three sources told Reuters on Friday.

The source insisted on anonymity because contracts with carriers are business secrets.

"Apple insists on a certain level of subsidies and marketing for the iPhone," said the source, who declined to identify the companies that had approached the Commission.

U.S. and European operators pay hefty subsidies to smartphone makers including Apple, offering customers an attractive discount on devices in exchange for tying them into lucrative two-year wireless contracts.

Historically, Apple has been able to command higher fees for its devices because of its market dominance. It also tended to tightly regulate launch prices for its devices, while rival handset makers with less market share tended to defer to operators on pricing announcements.

Since 2012, however, Samsung Electronics unseated Apple as the world's most-used smartphone brand, which industry experts say will erode the U.S. corporations' ability to negotiate the best subsidies and marketing support.

U.S. regulators are unlikely to launch their own investigation into Apple's industry practices because of a different regulatory approach, and also recognition that the company's own market clout is diminishing.

"They're one failure to innovate away, or one innovation by somebody else away, from being in a very different spot," said a U.S. telecom industry lobbyist close to both carriers and device manufacturers, but who asked not to be named due to a lack of authorization to speak to the media.

"Apple is an important, powerful and innovative company but I don't think they've got the kind of market power that maybe some in Europe are alleging where it would rise to the level of running afoul of the antitrust laws," the person said.

CONCERNS

A Commission spokesman on Friday said that EU competition regulators had been informed about concerns over Apple and its distribution practices. Three people familiar with the matter said that several telecoms companies had aired their grievances to the Commission.

Their concerns focused on the commercial terms in contracts with Apple, said one of the sources, who declined to be identified because of the sensitivity of the matter.

"There have been no formal complaints, though," Antoine Colombani told a regular Commission briefing. "Generally, we are actively monitoring developments in this market. We will, of course, intervene if there are indications of anticompetitive behavior to the detriment of consumers."

Apple spokeswoman Natalie Kerris said: "Our contracts fully comply with local laws wherever we do business, including the EU."

A second source said that the companies expressed their concerns to the Commission late last year.

It is not the first time Apple has come under the scrutiny of the EU antitrust regulators. The company was the target of an investigation nearly three years ago over its iPhone business practices.

It subsequently allowed cross-border repair services and eased restrictions on applications for the iPhone, which resulted in the Commission dropping its investigation.

"Historically, carriers have looked at themselves as being at the center of the ecosystem, and if there was a party in the relationship ... that held the power, it was them," the industry lobbyist said.

"The dynamic is a little different with respect to Apple, but I don't think that's a problem because Apple has rivals."

The New York Times first reported that the EU was looking into complaints about Apple.

(Additional reporting by Leila Abboud in Paris and Sinead Carew in New York; Editing by Rex Merrifield, David Goodman and Bernard Orr)

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