Legality of locked iPhone in Australia?

News reports today that network locking of Apple’s iPhone might be illegal in Australia. That surprised me but the newspaper cited the following:

“The iPhone is breaking new ground in using technology to restrict customer’s choice in technology markets,” said Queensland University of Technology (QUT) law researcher Dale Clapperton.

The finding comes from an analysis of the iPhone under Australia’s competition laws by Dr Clapperton and fellow QUT law expert Professor Stephen Corones, published in the QUT Law and Justice Journal.

So I looked up the article (click here for it). And right in the abstract it said:

The new Apple iPhone contains technological locks which tie the iPhone to the mobile telephony services of a particular third-party mobile carrier, a new development in technological tying, and much more likely to be unlawful in Australia.

“More likely than what?” Apparently, the iPod and tying to the iTunes Music Store. So much for concerns about the iPhone’s legality. The news.com.au site should have said: “little concern about iPhone’s legality.”

What the Clapperton-Corones article argues is that there might be an economic issue with locking (not a legal one):

Where the carrier has not subsidised the cost of the phone, there seems to be no legitimate pro-competitive justification for locking the phone to the services of that carrier, especially where that locking is permanent and not just for the duration of the initial contract.

Well, the jury is out on that piece of economic analysis. All of the current intelligence about the iPhone suggests that carriers are subsidising its cost and paying Apple some revenue share. What the authors are confusing that with are phone subsidies to consumers — although these are recovered through network charges so the subsidy is largely an illusion.

The only serious legal issue might come in relation to Third Line Forcing which says that one company cannot sell a product that makes it a condition of sale that the consumer purchase a product from another company. However, Apple need only sell the iPhone through a carrier’s retailers and it is likely to be fine. In any case, it can obtain permission from the ACCC for any arrangement it might propose.

The article indicates that there might be other anti-competitive issues associated with the iPhone. But someone would have to ask if this arrangement were to lessen competition in any market. There are other smart-phones so Apple isn’t a monopolist there. There is lots of network competition and in the US the iPhone hasn’t given AT&T something that has weakened competition in mobile competition.

Personally, I think locking the iPhone is a poor business decision but it doesn’t look like it is one that will violate competition laws.

8 thoughts on “Legality of locked iPhone in Australia?”

  1. I think the ‘more likely to be unlawful in Australia’ in the abstract is meant to mean more likely than other countries. The authors’ key argument is 3rd-party forcing – which in Australia, unlike other places, is presumed to harm competition – and they argue that selling exclusively through Telstra stores won’t save the iPhone as it will still be ‘supplied’ by Apple with a ‘condition’ that purchasers buy into Telstra’s mobile network. Beats me if any of this is an accurate statement of the law, but I don’t think you’re accurately summarising the article.

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  2. Let me react to Ken Parish here: I think the news report was overblown but you are right the paper it is based on does raise issues of legality. They just don’t seem particularly strong ones to me.

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