Transcript: US prosecutors take a bite out of Apple

This is an audio transcript of the FT News Briefing podcast episode: ‘US prosecutors take a bite out of Apple’

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Sonja Hutson
Good morning from the Financial Times. Today is Friday, March 22nd, and this is your FT News Briefing.

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Reddit’s market debut got an upvote from investors, and the US hit Apple with an antitrust lawsuit. Plus, we hear why Hertz couldn’t get customers buzzing about electric vehicles. I’m Sonja Hutson, and here’s the news you need to start your day.

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Reddit shares hit the market for the first time yesterday, and the hotly anticipated initial public offering delivered on its promise. Shares jumped almost 50 per cent. That’s a pretty good vote of confidence for the IPO market, which has really been struggling the past two years.

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The US Department of Justice sued Apple yesterday. It accused the company of building a smartphone market monopoly. This case is the Biden administration’s first major antitrust action against Apple. The lawsuit is coming at a time when regulators are really focusing on Big Tech. I’m joined now by the FT’s Stefania Palma. Hi, Stefania.

Stefania Palma
Hi, Sonja.

Sonja Hutson
So, Stefania, can you explain the case that the DoJ is making here?

Stefania Palma
So this is a sprawling complaint. Essentially, the US government is accusing Apple of illicitly using monopolistic power in the smartphone sector in order to make it harder for consumers to switch devices, and also basically crafting contracts that put developers in worse positions and in turn essentially undermining innovation.

Sonja Hutson
So, Stefania, the DoJ held a press conference about this yesterday. What they have to say?

Stefania Palma
I mean, one thing that was highlighted, even during the press conference itself, is the way that Apple allegedly asserted power over their so-called access points. And in practical terms, with this sort of some of the examples that the DoJ gave was, say around messaging and the fact that iPhone users, for example, see when sort of the infamous screen bubble, when someone is writing from Android devices, or the fact that videos are apparently more grainy when you have two different people speaking to each other from two different types of devices, things like that, and what the DoJ is alleging is that this was essentially done on purpose in order to quash competition from rivals.

Sonja Hutson
How has Apple responded to the lawsuit?

Stefania Palma
So Apple is saying that the complaint is wrong, essentially both in terms of law and facts. It is going to sort of a step further, saying that it could potentially threaten who they are as a company. They argue that if the DoJ is in fact successful, it could also hamper their own ability to continue developing technology that they say people do expect from Apple. But in addition to that, this could also become, in their word, sort of a dangerous precedent for the sector at large. And what it means when the government can potentially have that kind of power when it comes to tech development.

Sonja Hutson
And how does this fit into what’s happening with tech regulation in the US more broadly?

Stefania Palma
So this lawsuit is not coming sort of in a vacuum. Generally speaking, in the Biden administration, there’s been a very strong effort to really come through with much tougher enforcement stances when it comes to antitrust. And one sector that has been targeted is Big Tech. So in terms of other cases that are ongoing, the DoJ has filed a case against Google last year, accusing it of, again, having monopolistic control of the digital advertisement space. And there is also a separate trial that remains ongoing over Google’s market power for internet search. And that was inherited from the Trump administration, actually. Separately, the Federal Trade Commission has also sued Amazon. It was the landmark case. The FTC is also pursuing quite a long-standing case against Meta in terms of trying to get them to unwind acquisitions of WhatsApp and Instagram.

Sonja Hutson
All right, well, do we know what changes the DoJ actually wants these Big Tech companies to make?

Stefania Palma
So we know the potential remedies that the DoJ could seek. And that ranges from more structural remedies, like breaking up some of these companies, to things like forcing them to change how they operate or ordering them to change how they craft contracts. But for a lot of these challenges, we still don’t know exactly even what the DoJ would want to pursue as remedies, because that is determined by sort of the findings that are established in the first phase of litigation. So it’s a very long answer to say there can be quite extreme consequences, but we just don’t know what some of the prosecutors are even going to be able to pursue. We just have to wait for litigation to run its course.

Sonja Hutson
All right. Well, we’ll be watching, and I’m sure you will, too, Stefania. 

Stefania Palma
For sure. 

Sonja Hutson
Stefania Palma is the FT’s legal and enforcement correspondent. Thanks, Stefania. 

Stefania Palma
Thank you.

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Sonja Hutson
The rental car company Hertz has been going through a lot lately. Its CEO abruptly resigned after just two years on the job. Hertz shares fell 60 per cent during his tenure, largely because of a failed pivot to electric vehicles. I’m joined now by the FT’s Wall Street editor, Sujeet Indap. Hi, Sujeet. 

Sujeet Indap
Hi. Great to be here.

Sonja Hutson
Great to have you. So, tell me a little bit about what’s been going on with Hertz lately. How did it get into such bad shape?

Sujeet Indap
Yeah. So in 2021, Hertz had come out of bankruptcy. They’ve filed for bankruptcy very early in the pandemic. Obviously, it was hit very hard when travel just stopped in March 2020. And more importantly, (inaudible) auto prices collapsed as well. So by the time they came out of bankruptcy, the travel boom, the so-called revenge travel phenomena, had taken over and they were very valuable and had these two new private equity owners who had bought the company with the view that they would differentiate themselves by having this very aggressive EV strategy. They ended up buying a thousand EVs. They hired Tom Brady as a pitchman, and they made a big bet on demand for electric vehicles, picking it up right away.

Sonja Hutson
And what was the thinking behind that pivot to EVs?

Sujeet Indap
Well, there has been a broader view that EVs eventually will replace gas or combustion engineering traditional cars. And so this was a bold bet that that movement was going to take hold much more quickly. There would be demand for EVs from corporate customers who wanted to adhere to, like net zero pledges. And then, particularly in high gas expensive markets, they’d partnered with rideshare companies to rent cars to Uber drivers, let’s say, who would be interested in EV to avoid high gas prices. So it was a very kind of forward thinking bet. But in the last few months of 2023, it became clear that strategy was just too forward thinking for the moment.

Sonja Hutson
Yeah. What happened? Why did it not pan out?

Sujeet Indap
Yeah. First, the cars that were EVs that they had rented, particularly to rideshare drivers, there was a lot more damage to the cars than they had expected. And so those charges to repair the cars was elevated. And the actual damage itself was just more expensive than they thought. The other thing that happened was there was a price war Tesla had started amongst EV companies, and so the value of electric cars as a baseline had just come down quite sharply. And that’s important for rental car companies, because a big chunk of their value comes from what they can resell of their fleet at after cars have been used for couple of years, and they need to replenish the fleet. And the other thing is the demand from customers just wasn’t there. And as a person who rents cars from time to time, I was hesitant to ever take one because it was new and I didn’t know about how the charging worked and whether I’d find a charger. And that kind of customer adoption just wasn’t there just yet.

Sonja Hutson
Yeah. What do these problems at Hertz, specifically that demand for EV, tell us more broadly about EV adoption in the US?

Sujeet Indap
Well, obviously, there’s a large political and social push to get towards mass adoption of EVs. Some states have even said in the next decade that they won’t even have traditional combustion engineering, gas-powered cars anymore for sale. But what’s happened amongst consumers is that they’ve noticed EV prices are relatively elevated, even if there are some subsidies. And so the actual demand, while it’s growing pretty quickly, it’s not as quick as some had forecast or some wanted. And in Hertz’s case that is caught up with them. It’s a very sensitive business to demand and purchase prices, resale prices. And if you’re off by just a little bit, it ends up getting magnified in the ultimate profit and loss statement.

Sonja Hutson
Sujeet Indap is the FT’s Wall Street editor. Thanks, Sujeet.

Sujeet Indap
Thanks for having me.

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Sonja Hutson
Before we go, one last reminder that you can still get access to the special sale we’ve got going on. That’s up to 40 per cent off a standard FT digital subscription. There’s more details at ft.com/briefingsale. That link is also in the show notes.

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This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Kasia Broussalian, Fiona Symon, Marc Filippino and me, Sonja Hutson. Our engineer is Monica Lopez. We had help this week from Zach St Louis, Kyra Assibey-Bonsu, David da Silva, Michael Lello, Peter Barber and Gavin Kallman. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.

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