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Japan's anti-monopoly watchdog puts Apple, Google on high alert

Smartphones are displayed at a Bic Camera outlet in Tokyo's Shinjuku district.

TOKYO -- Japan's anti-monopoly watchdog has sent a warning to the country's mobile carriers, calling them out for questionable practices related to smartphones. More subtly, it has let internet titans Apple, Google and Amazon know that their practices are now under the microscope. 

The Japan Fair Trade Commission aired its concerns in an Aug. 2 report titled "Issues regarding competition policy in the mobile phone market." While the title may not be especially exciting, the report received wide newspaper coverage. Many of the stories focused on how the watchdog appears to think that the country's three largest mobile carriers -- NTT Docomo, KDDI and SoftBank Group -- are hindering healthy competition by making it difficult for new players to enter the smartphone market.

Specifically, the document cited such practices as the "two-year bind" typically incorporated in the carriers' plans -- discounts given for two-year subscriptions, and cancellation fees for anyone who ends their subscriptions outside the designated four-week window 24 months after signing the dotted line. The report also listed as problematic the practice of offering "zero-yen handsets," which involves selling customers expensive new handsets and then reimbursing the entire amount in monthly installments to subscribers who sign up for a minimum designated period.

The report warned that such practices "may become a problem."

Foreign shores

But beyond this obvious fact -- the communications ministry has already issued a similar warning -- is a potentially larger message: Japan's anti-monopoly watchdog may soon increase its scrutiny of U.S. internet giants.

Though no companies were specifically named, one potential target may be Apple and the U.S. company's impact on Japan's market for used smartphones.

The report pointed out that the country's market for secondhand smartphones remains extremely underdeveloped, with only 2.27 million units in circulation in fiscal 2014, or just 8% of new handset shipments.

Very few of the used smartphones that the big three carriers collect as trade-ins are resold in Japan. These companies keep only a limited number of such units on hand to loan to customers while their handsets are being repaired. Otherwise, they sell most of the rest to overseas buyers.

The report suggested that if the three carriers are seen to be acting in ways that prevent the reselling of used handsets in the domestic market, that may be a violation of the anti-monopoly law. It was clear that the commission was pointing its finger at Apple, who is enjoying massive success in Japan with its iPhone.

Reading between the lines, the commission's message appears to be: "We have yet to learn the details of the agreements between Apple and the three carriers regarding the handling of used smartphones, but we see many problems with the current situation, in which these companies are suppressing the distribution of used products so that they can sell more new handsets. We are going to step up our monitoring of their activity."

Another potential target is Google, to which the watchdog appeared to be referring when it discussed the app market in the report.

The U.S. internet titan provides its Android operating system for free to handsets makers, which offer their products loaded not only with the OS but also other Google apps, such as the Maps app, either at cost or for free. The report warned that the practice may impede competition with rival app makers.

The implication here is that Google may be to the smartphone market what Microsoft was for the PC market in the past.

Microsoft, once the uncontested leader in PC operating software with its Windows products, leveraged its dominant position to eliminate rival Netscape Communications in the battle for web browser dominance. The U.S. Department of Justice sued the company for violating U.S. antitrust law.

The Japanese watchdog, in its latest report, appears to be saying that it will be closely monitoring Google's practices to avert a similar situation.

This warier stance was highlighted Monday, when Japanese media outlets widely reported how the commission had recently conducted an on-site inspection of Amazon Japan's headquarters in Tokyo. The underlying assumption is that the company may have violated the anti-monopoly law by requiring vendors to set prices for their products on its e-commerce site below those on other sites.

Dual nature

There are two sides to the giants of cyberspace, such as Apple, Google and Amazon. One side is the company that makes our lives and work more comfortable and enjoyable by offering excellent devices, services and software. Another side is the dominant power that has gobbled up an overwhelming share of its respective market. They have also accumulated huge amounts of personal information on users, including their interests and locations, through search functions and global positioning systems.

This has given rise to a growing wave of caution in the West, with European antitrust authorities increasingly challenging Google and U.S. Congress investigating allegations that Facebook may have screened out conservative views in news shown on user pages.

That wariness is likely to grow in Japan, as well. The latest report by the Japan Fair Trade Commission may just be the start.

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