WASHINGTON-A federal judge in New York last week threw out lawsuits alleging the nation’s top mobile-phone companies violated antitrust laws by improperly tying the sale of handsets to the purchase of wireless service, keeping intact a widespread marketing practice that has helped drive U.S. subscribership to 195 million.
“Because the plaintiffs have not presented sufficient evidence to prove that any one defendant has the degree of market power necessary to sustain a tying claim or to show that any of the defendants’ alleged tying arrangements has an actual adverse effect on competition in the U.S. market for wireless handsets, defendants motion is granted,” wrote U.S. District Judge Denise Cote in a 64-page ruling.
Cingular Wireless L.L.C., Verizon Wireless, Sprint Corp. and Nextel Communications Inc. (before their merger) and T-Mobile USA Inc. moved for summary judgement on Feb. 25. The lawsuits dated back to 2002.
Cote said the Federal Communications Commission consistently has characterized the wireless services market as competitive.
Lawyers for the plaintiffs said they were reviewing the decision and declined to comment.
The plaintiffs argued, among other things, that packaging wireless handsets and service was part of an industry strategy to prevent customers from switching carriers by programming handsets to only work on the existing wireless network.
One result, according to the plaintiffs, was that the alleged tying arrangements had an anticompetitive effect on the handset market.
Cote responded: “Given that market power and anticompetitive effects serve as separate elements of a tying violation, courts are not always explicit about the interaction between these two concepts. Nevertheless, the Supreme Court has long recognized the relationship between market power and anticompetitive effects.”
The ruling is a major victory for the mobile-phone industry, given the litigation took aim at arguably the most fundamental aspect of cellular marketing: packaging handsets and service. Wireless carriers typically subsidize the cost of phones, making the purchase of equipment and service economically attractive for consumers.
The wireless industry cheered the decision. “We are grateful that the court reached what we believe is the right decision. The court recognized that the wireless marketplace is robustly competitive. Cingular believes that consumers across the country continue to benefit from this competition,” said the No. 1 mobile phone carrier.
Sprint Nextel Corp. echoed Cingular’s reaction. “We are pleased that the court ruled in our favor. We believe there is robust competition in the wireless industry, and that customers are benefiting as a result with the wide variety of service plans and handsets that are offered,” said a Sprint spokeswoman.
CTIA, the cell-phone trade association, said the antitrust litigation was frivolous from the get-go.
“It was laughable to suggest there is a lack of competition in the handset business and that carriers had market power,” said Michael Altschul, general counsel of CTIA.
While dismissing the wireless antitrust lawsuits, Cote’s opinion also is noteworthy for what it did not rule on.
In discussing differences between the parties over the extent to which carriers, in addition to overseeing direct handset sales, also allegedly dominate third-party distribution of handsets, Cote said: “This opinion does not reach the legal issue most closely associated with these disputes: whether as a condition of receiving wireless services from a particular defendant, consumers are required to purchase a handset from that defendant as well.”
In their pleadings, Cote said the plaintiffs referred to the mobile-phone industry as an oligopoly. But she brushed the description aside. “It is unnecessary to decide whether or if the wireless service market can be properly labeled an oligopoly,” said Cote. “The plaintiffs have not presented evidence to raise a question of fact that any of the features of this alleged oligopoly on which they place special emphasis has actually conferred market power on any one of the defendants.”
During the case, many of industry’s filings were submitted under seal. Cote ordered the parties to unseal documents. Lawyers for wireless companies told Cote documents would be resubmitted by Sept. 9.
Meantime, a separate lawsuit alleging tying of wireless phones and service is pending before Cote.
