French watchdog cancels iPhone contract
France’s competition authority on Wednesday cancelled with immediate effect Orange’s exclusive contract to provide Apple’s latest iPhone to French consumers.
The Competition Council ruling is the first time an exclusive iPhone sales agreement has been struck down in Europe and is bound to raise the prospect of legal challenges in the other countries where Apple has exclusive deals: Germany, the UK and the US.
However, the council said its decision was partly shaped by specific concerns about the French mobile market, which it believes is less competitive than others. These concerns led it to the conclusion that Orange’s five-year monopoly on selling the iPhone 3G was, as one official put it, “way too long”.
All existing and future exclusive sales agreements between Apple and Orange must also expire after a maximum of three months, the council said.
The decision is a blow for Orange, the brand name of France Telecom, the former monopoly operator, which had regarded the iPhone as a valuable asset for conquering a larger slice of the market.
Orange has sold 450,000 iPhone 3G handsets and 150,000 models of an earlier version. Half of these sales were to customers who had switched from rival operators.
Orange said it would appeal against a “serious” ruling that “cast great doubt over the economics of the market”.
The three-month limit on exclusivity would not allow it to justify the investments needed to upgrade the network to support mobile internet.
However, while the council said that exclusive sales agreements could be justified to help finance investments in new product or service launches, Orange could not justify a period as long as five years.
The council estimated that Orange’s sales of the iPhone 3G amounted to €222m ($320m) from its launch on July 18 to the end of September.
But it said that only €16.5m of investments by Orange could be attributed directly to the iPhone’s launch.
The ruling is a victory for Bouygues Telecom, France’s third largest operator, which lodged a complaint in September against the sales agreement between Orange and Apple.
Bouygues had argued that “smartphones” like the iPhone were now driving the growth of the mobile market and that Apple’s deal in France excluded other operators from that growth.
The ruling means that iPhones sold in France can no longer be “locked” to the Orange network.
The Competition Council also concluded that an exclusive sales agreement was against consumer interests because competition between operators was likely to encourage them to provide bigger subsidies for handsets.
Vodafone last year tried and failed to break an exclusive sales agreement in Germany between Apple and T-Mobile, owned by Deutsche Telekom.