Apple will probably face a federal investigation into its decision to bar rival Google from iPhone's mobile advertising market, an antitrust expert said last week.
According to reports, the US Department of Justice and the Federal Trade Commission (FTC) are planning to look into whether Apple is unfairly blocking rivals such as Google and Microsoft from the advertising market on the iPhone, iPod Touch and iPad.
The Financial Times was the first to note interest on the part of federal antitrust regulators.
Earlier this week, Apple modified the language in the terms iPhone, iPod Touch and iPad developers must agree to, effectively banning them from using Google's AdMob advertising network. Google acquired AdMob in late May for $750 million after the FTC approved the deal.
The probe would be the third in the last two months. Investigators are also reportedly targeting Apple over the company's ban of third-party development tools for creating iPhone software and its dominance of the US digital music download business .
But an investigation into the mobile advertising market may give the government its strongest case, said Jeffrey Shinder, managing partner at New York-based law firm Constantine Cannon, and a former special counsel to the FTC.
"I would think [the government] would cast a wider net, but mobile advertising is critical," said Shinder, who has 20 years' experience in antitrust litigation. "Apple's conduct strikes me as brazen there."
According to Nielsen, Apple's iPhone accounts for 28% of the US smartphone market. Shinder said antitrust regulators would argue that Apple has an even larger share of a more narrowly-defined market - smartphones with large numbers of available applications for downloading - and that the mobile advertising market is unique and should be given special consideration.
"Apple has a very strong first-mover advantage in the smartphone market, and the sub-market of what I'd call 'app smartphones,'" said Shinder. "A lot of what Apple's doing, including barring AdMob from the iPhone, is an attempt to entrench that dominant position of the iPhone, and then leverage that into a dominant position in mobile advertising."
Shinder called the AdMob ban "potentially exclusionary," and thus of natural interest to the DOJ and FTC antitrust officials.
Clues that the FTC in particular sees the mobile advertising market as separate from advertising overall can be drawn from the agency's approval of Google's purchase of AdMob. "I think that's the way they're thinking," Shinder said, citing comments the FTC made after the AdMob deal. "Mobile advertising is separate because it's leveraging where and who consumers are. That's something you can't get anywhere else."
The fact that Google likely made that argument during its talks with the FTC - and that that line of reasoning could be used against Apple, Google's rival in mobile operating system development - wasn't lost on Shinder.
Apple could counter that it has built its smartphone market position, and by association the mobile advertising business, on the back of popular, high-quality products, said Shinder. Or it could simply delay, figuring that the longer the investigation goes on, the more ad market it could grab.
"One Apple defence would be to say, 'We are leading because our products are terrific, and we have every right to maintain the integrity of our products, or prevent rivals from free-riding,'" Shinder speculated. "Or they could just play for time."
An investigation could take as long as a year, giving Apple the opportunity to build an even stronger position in smartphones and mobile advertising. At that point, it could conceivably give in to the government's demands, allow AdMob onto the iPhone, but because it had had a year to strengthen its own iAd network, be in an unassailable spot.
Apple could also point to the rapid growth of Google's Android mobile platform as a sign that it doesn't dominate the smartphone market. Nielsen pegged Android-powered smartphones with a 9% share of the market, up two percentage points since the end of 2009.
"Time is on Apple's side, and that's huge," said Shinder. "But the government has signalled their interest in watching the company. I don't feel Apple is being unfairly targeted, because I see a pattern here."
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