AT&T and Verizon are being investigated by the Department of Justice (DOJ) over whether they colluded in order to prevent customers from easily switching carriers.
The antitrust investigation, reported by The New York Times yesterday, relates to the eSIM (embedded SIM) technology that is used instead of regular SIM cards in cellular-capable Apple Watches and other devices such as the Google Pixel 2. eSIMs are supposed to let customers switch carriers without changing to a different SIM card or device, but AT&T and Verizon are accused of "try[ing] to establish standards that would allow them to lock a device to their network even if it had eSIM technology," the Times report said.
The DOJ began investigating about five months ago after complaints from Apple and an unidentified wireless carrier, the article said.
Information demands sent to carriers
"In February, the Justice Department issued demands to AT&T, Verizon, and the GSMA, a mobile industry standards-setting group, for information on potential collusion to thwart" eSIM's ability to let customers switch carriers, the Times report said.
The DOJ sent "civil investigative demands" to the GSMA and all four major US carriers, including Sprint and T-Mobile, The Wall Street Journalreported. But the DOJ's recent examinations of SIM cards and phone portability have focused mostly on AT&T and Verizon, the two largest carriers, the Journal report said. The Times report said that "the investigation may also include other major American carriers" but didn't name any specific ones.
Verizon and AT&T are the two biggest mobile carriers in the US, but they face wireless competition from Sprint, T-Mobile, regional carriers, resellers, and cable companies such as Comcast.
A Washington Post article today said that Obama-era DOJ antitrust officials "conducting a similar probe in 2016 found little evidence for the claim and ultimately dropped the inquiry." But a DOJ letter to the GSMA at the time said that the investigation could be reopened in the future depending on how the GSMA proceeded with the eSIM specification.
GSMA puts work on hold during the investigation
When contacted by Ars, the GSMA said it is working on a new "universal standard" for eSIM that would be deployed globally.
"This standard contains a wide range of features, including the option for the eSIM to be locked," the GSMA said in its statement. "In the United States, consumers would have this option; however, they would need to explicitly consent to this under specific commercial agreements with their mobile operator, for example when purchasing a subsidized device."
The GSMA said it has put its development of the specification "on hold pending the completion of an investigation by the United States Department of Justice," and that it is "cooperating fully" with the DOJ. The GSMA was working with carriers, device makers, and SIM manufacturers worldwide on the standard.
AT&T told Ars that it is cooperating with the DOJ investigation. "We are aware of the investigation into GSMA's process for developing eSIM standards that provide a better experience for consumers," AT&T said. "Along with other GSMA members, we have provided information to the government in response to their requests and will continue to work proactively within GSMA, including with those who might disagree with the proposed standards, to move this issue forward."
Ars contacted Apple and will update this story if we get a response.
Verizon: This is “much ado about nothing”
A Verizon spokesperson described the investigation as "much ado about nothing," telling Ars that it boils down to "a difference of opinion with a couple of phone-equipment manufacturers regarding the development of eSIM standards."
"We've been proactively and constructively working with the Department of Justice for several months regarding this inquiry, and we continue to do so," Verizon told Ars. "As we have from the outset, we will continue to work with federal officials and others in the industry as we strive to find a mutually acceptable solution."
Verizon told The Washington Post that "The government looked at this issue once before. Their findings were quite clear then, and we're confident the outcome will be the same this time… the reality is that there's nothing to substantiate it. It's time to move on."
Consumer advocacy group Public Knowledge applauded the investigation, however. "[I]t has been disturbing to learn that major carriers may be colluding behind closed doors to make eSIMs benefit themselves instead of consumers," Public Knowledge Senior Counsel John Bergmayer said. "The two major wireless carriers—AT&T and Verizon—stand to benefit if device portability becomes more difficult. No one else does."
Standards-setting bodies like the GSMA are influential and "create an opportunity for collusion" for incumbent companies, Bergmayer said.
The DOJ hasn't confirmed the investigation publicly, but the Times said its report was based on information from "six people with knowledge of the inquiry."
"In a private meeting of a task force called GSMA North America this year, AT&T and Verizon pushed for the ability to lock phones to their networks, bypassing the purpose of eSIM technology," the Times report said. "Verizon has said it needed to be able to lock down phones to prevent theft and fraud."
DOJ antitrust chief Makan Delrahim said in a speech this month that the department is concerned about "collusive conduct" in the context of standard setting. When it comes to antitrust, "We will be inclined to investigate and enforce when we see evidence of collusive conduct undertaken for the purpose of fixing prices or excluding particular competitors or products," Delrahim said. In another speech last year, Delrahim warned that competitors working together raise the risk of "naked cartel-like behavior."