Special Report Apple’s secret deals with mobile operators are squeezing smaller companies out of the market and driving up costs even for those who don’t use their products, according to Register sources across the industry.

“In my opinion Apple are in a grey area,” one legal expert with first hand experience of the contracts told us.

The contracts that operators sign with Apple are confidential. But we spoke to several sources who have seen the terms first hand, across multiple markets. Apple’s terms include rigid and non-negotiable purchase commitments which commit an operator to making a given number of sales of a forthcoming Apple handset, typically without even seeing the handset first, say our sources.

Apple does not give the operator a choice of refunds or returns.

“You simply have to buy them,” a source familiar with operator deals told us. If an operator doesn’t make the sales target then they must swallow the difference.

And the sums are staggering. Hints surfaced this summer, when industry analyst Craig Moffett warned Verizon investors of liabilities arising from the company failing to fulfill its purchase commitment with Apple. Moffett estimated that Verizon had committed to $23 billion worth of iPhone purchases, but had fallen short on sales, by around $12bn to $14bn.

Chilling effect

The rigid purchase commitments have two major impacts on the market. One is that mobile subscribers ultimately pay for the unsold iPhones – they pay an Apple tax whether or not they own an Apple product. The second is on the supply side: the impact is felt by smaller manufacturers when an operator realises it won’t make the target – which is happening all over the industry today, as Apple’s iPhone 5C fails to stir the market.

“There is a chilling effect on the market, and this is when it comes in, when the volumes aren’t being met,” an operators source told us. “Rival manufacturers are told to shove off.”

Manufacturers are often reluctant to spell them out. But off the record, a source at one well-known brand said it was often seasonal and industry wide. This summer, as operators sought to meet Apple’s targets for the iPhone 5C and with a new model anticipated for an autumn release, rivals saw the squeeze first hand.

Read More: http://www.theregister.co.uk/Print/2013/11/29/revealed_the_secret_apple_deals_that_squeeze_rivals_and_tax_you/