World Economy

Japan Watchdog Considers Action Against Apple, Carriers

iPhone 7 and Samsung’s Galaxy S7.iPhone 7 and Samsung’s Galaxy S7.

Japanese regulators are considering taking action against Apple Inc over possible antitrust violations that may have helped it dominate the nation’s smartphone sales, government sources said, a move that could hit the company’s profit margins in one of its most profitable markets.

In a report published last month, Japan’s Fair Trade Commission said that NTT Docomo, KDDI Corp and Softbank Group were refusing to sell older surplus iPhone models to third party retailers, thereby hobbling smaller competitors, Reuters reported.

Apple was not named in that report, but two senior government sources told Reuters that regulators were also focusing on Apple’s supply agreements with all three carriers.

Under those deals, surplus stock of older iPhones is kept out of the market and sent to overseas markets, such as Hong Kong, according to industry sources.

The carriers, locked in a costly battle to win consumers who covet iPhones, also bulk purchase the Apple smartphones and sell them at a discount, which gives the US company an advantage over rivals such as Samsung Electronics Co, according to the two government officials and an industry source.

Both iPhone 7 and Samsung’s Galaxy S7 edge model sell for 93,960 yen ($932) under Docomo’s main service package without any contract, but the cost for the iPhone drops sharply to 38,232 yen with a two-year contract, while the Galaxy falls to 54,432 yen.

When asked about the antitrust concerns, Apple forwarded a link to a webpage published at the time of the Aug. 2 FTC report that says it has created or supports 715,000 jobs in Japan with Japanese-based developers raking in more than $9 billion in revenue from Apple apps since 2008. It did not comment further.

The strategy has helped Apple sustain demand for new iPhones, making Japan one of its most profitable markets. The US company accounts for almost one in every two smartphones sold in Japan, its largest share in a major market.

It also kept new mobile service providers such as messaging app firm Line Corp and online retailer Rakuten Inc from selling iPhones, and helped the top three carriers control more than 90% of the mobile phone market.

“The actions of the three operators alone do not account for the state of the market,” said one of the officials, who confirmed that the August report was also directed at Apple. “We are getting closer to taking action.”