Feds Reportedly Eyeing Telecom Probe

(Reuters) - The U.S. Justice Department has begun looking at big telecom companies such as AT&T Inc and Verizon Communications to try to determine if they have abused their market power, the Wall Street Journal reported in its online edition on Monday.

The journal, which cited people familiar with the matter, said the Antitrust Division's review was in its very early stages and was not yet a formal probe of any specific company.

The report said that a probe could concern exclusive agreements between phone companies and handset makers or whether phone operators are "unduly restricting" services third parties companies can offer on their network.

The Department of Justice declined comment and the country's biggest operators, AT&T and Verizon, said they had not been given notice of any formal probe.

Lawmakers have recently raised questions about whether large wireless carriers were hurting smaller rivals by entering into exclusive agreements with the makers of popular phones. Deals like AT&T's pact with Apple Inc for exclusive rights to U.S. iPhone sales are at the center of some lawmaker concerns.

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AT&T spokesman Mark Siegel said he was not aware of any formal probe by the Department of Justice but declined comment on any informal proceedings. Siegel defended the practice of exclusive agreements between carriers and phone makers, saying they spurred competition and development of new features.

Verizon Wireless spokesman Jeffrey Nelson said that his company, which is the biggest U.S. mobile service, had no notice from the Justice Department about any probe into handset exclusivity. Verizon Wireless is a venture of Verizon Communications and Vodafone Group Plc.

The Justice Department's top antitrust official Christine Varney had said in May that the DoJ would be "aggressively pursuing" companies that abuse their power to crush competition.

Consumer groups said on Monday that they were hopeful that Varney's comment and the latest report were positive signs the government was looking at their concerns.

"There are definitely some things in the marketplace that we believe as consumer advocates should trigger scrutiny from the anti-trust authorities," said Ben Scott, policy director for consumer advocacy group Free Press referring to handset deals and the blocking of certain applications from phones.

It has been a long standing practice for carriers to forge exclusive deals with phone makers giving them a head start in luring customers with a particularly attractive handset.

The iPhone has made this trend a bone of contention among consumers because of the devices' widespread popularity and the fact that AT&T has been the sole U.S. provider selling it since 2007. Exclusivity deals often end after about a year.

However, network operators argue that consumers could end up losing out if they were unable to forge exclusive agreements with phone makers. Such deals give carriers incentives to shoulder a hefty part of the price of a cellphone in exchange for getting consumers to sign on to a longer term contract.

John Taylor, a spokesman for Sprint Nextel, the No. 3 U.S. mobile service which has an exclusive agreement to sell Palm Inc's high-profile Pre phone, declined comment on the reported probe.

But he also defended exclusive handset agreements as pro-competitive. "We think that without these exclusivity arrangements carriers are less likely to risk the investment necessary to develop and promote devices like these," he said.

The new chairman of the Federal Communications Commission, Julius Genachowski, plans to review the deals.

According to a copy of the written responses to questions from Senator John Kerry obtained by Reuters in mid-June, Genachowski said he would "promote competition and consumer choice." Senator Kerry encouraged the idea of a review.

"This is the kind of healthy oversight we want to see." Kerry said in an emailed statement. "As the future of communication continues to move out of the ground and into the airwaves it is important that we ensure the wireless market remains competitive and consumers are protected."

Other lawmakers have also raised questions about the pricing of text messages.

"The federal government seems to be taking these complaints seriously and looking for a way to give consumers relief," said Joel Kelsey policy analyst for Consumers Union advocacy group.

(Reporting by Diane Bartz in Washington and Sinead Carew in

New York; Editing by Tim Dobbyn, Bernard Orr)