French watchdog scratches Orange's iPhone contract

France's competition authority has stopped Orange's exclusive contract with Apple's to provide its iPhone to French consumers.

The Competition Council ruling is the first time an exclusive iPhone agreement has been overturned Europe. The ruling means that iPhones sold in France can no longer be locked into the Orange network.

Rival operator Bouygues Telecom, France's third largest operator, filed the complaint against the deal between Orange and Apple, on the ground that smartphones are driving mobile traffic's growth and that Apple's exclusive relationship in effect cut the others out.

The French decision could lead to other challenges in countries where Apple has exclusive deals with operators - the US, Germany and the UK, but, as the Financial Times reports, but there must be serious doubts about how will case this will translate elsewhere.

For one thing, the Council said its decision was partly shaped by concerns about the French mobile market, which it believes is less competitive than others. In particular, the Council felt the length of the exclusive deal - five years - was far too long.

In 2007 Vodafone took T-Mobile in Germany to court in an attempt to  outlaw its exclusive deal with Apple, but didn't succeed.

The Council has ruled that all existing and future exclusive sales agreements between Apple and Orange in France must also expire after a maximum of three months.

The FT report says Orange has sold 450,000 iPhone 3G handsets and 150,000 models of an earlier version. Half of these sales were to customers who had switched from other operators. Orange is arguing that a three-month limit on exclusivity would not allow justify the investment it needs to make to upgrade its network to support rapidly increasing levels of mobile data.

The Council estimated that Orange's sales of the iPhone 3G amounted to €222m (US$320m) from its launch on July 18 to the end of September. It said that only €16.5m of investments by Orange could be attributed directly to the iPhone's launch, the FT said.

The Competition Council concluded that an exclusive agreement was against consumers' interests because competition between operators was likely to encourage them to provide bigger subsidies for handsets.