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Brussels Probes Apple’s iPhone Tactics

Alex Barker and James Fontanella Khan
Sunday, 26 May 2013 | 9:21 PM ET
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Brussels is investigating whether Apple is muscling out rival smartphone makers from the European market with anti-competitive iPhone sales tactics and technical restrictions on the handset, according to documents seen by the Financial Times.

The scrutiny adds to the pressure Apple is facing from government regulators, coming in the week that US senators questioned Apple chief executive Tim Cook for the technology company's tax accounting practices.

According to a questionnaire sent last week to several EU mobile network operators, the European Commission's probe is focusing on distribution terms that might favour Apple by ensuring no rival can secure a better sales deal.

(Read More: How Apple May 'Get Its Mojo Back')

The inquiry is spurred by private complaints from mobile operators and remains at a preliminary stage. Before launching a formal abuse probe, the commission will need to be confident that Apple is dominant in the EU smartphone market, a bar that may prove hard to clear given the emergence of Samsung's popular Galaxy handsets. Apple says its contracts fully comply with EU laws.

The nine-page questionnaire sent to telecoms groups primarily relates to sales practices, including whether Apple forces groups to buy a minimum number of iPhones, restrictions on the use of marketing budgets, and clauses that ensure Apple is always offered no worse subsidies and sales terms than other smartphone makers.

(Read More: Apple 'Lows Are In': Larry McDonald)

It also asks whether Apple places technical or contractual restrictions on the iPhone 5 that mean it cannot be used on high-speed 4G networks in Europe.

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"The Commission has information indicating that Apple and Mobile Network Operators ("MNOs") have concluded distribution agreements which may potentially lead to the foreclosure of other smartphone manufacturers from the markets," the questionnaire states.

"There are also indications that certain technical functions are disabled on certain Apple products in certain countries in the EU/EEA. If the existence of such behaviour were to be confirmed, it might constitute an infringement of [antitrust law]".

Apple's uncompromising sales tactics have long been a sore issue for telecoms groups. Some executives have recently raised their specific concerns with the commission, including Apple's tight control over sales and marketing plans for its devices, especially when new products are launched.

Scrutiny from Europe's top competition authority comes at a stage when the smartphone market has opened up dramatically, with Apple's groundbreaking iPhone now facing stiff competition from Samsung and, to a lesser extent, Nokia and BlackBerry.

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When the commission first acknowledged it was "monitoring" Apple's practices, it noted that there are "good reasons to believe competition is strong" in the market.

Yet the questionnaire shows Brussels is more closely examining some distribution tactics.

In a section on "most favoured supplier clauses", the commission asks whether Apple forces operators to grant the iPhone subsidies and sales incentives on "the same or better terms" than all other smartphones. Brussels wants to know if such clauses are still inserted in contracts or whether Apple insists on favourable treatment in "oral or written statements".

The mobile operators are given until June 17 to reply.

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