The European Commission said Tuesday it had opened an antitrust probe into allegations that Apple's iTunes and major record companies were unfairly restricting the choice and costs of online music consumers can download from the U.S. company's European music stores.
The Commission alleged distribution agreements Apple has signed to sell music on the iTunes online stores in EU countries "contain territorial sales restrictions which violate" European Union competition rules because consumers can only download singles or albums from the iTunes store in their country of residence.
Downloaders have to provide a credit card issued by a bank with an address in the country where they live.
"Consumers are thus restricted in their choice of where to buy music and consequently what music is available, and at what price," the Commission said in a statement.
"Lots of people like to buy music from iTunes and they should be entitled to buy the music they want from iTunes and they should be entitled to shop around for a different price," EU spokesman Jonathan Todd said.
EU regulators had been gathering evidence on Apple's deals with top record labels like Sony BMG Music Entertainment, Universal Music Group, Warner Music and EMI Group PLC for the past two years, after Britain's Consumers' Association filed a complaint with the Commission in 2004.
Todd said regulators had built up a "very strong case" against Apple before sending out an official notice to Apple and "major record companies" that it was launching a full investigation.
He said the main focus of the probe was the distribution agreements which restrict how Apple can sell downloads of music it gets from the top record labels.
"Our current view is that this is an arrangement which is imposed on Apple by major record companies and that we do not see a justification for it," Todd said. "The effect in the market place is a problem, the effect of the imposition of these restrictions restrict sales between member states and denies consumers choice."
The "statement of objections" EU regulators sent to Apple does not allege the Cupertino, California-based company is in a dominant market position.
Apple however insists it has done nothing wrong, and has tried to get record labels to lift copyright restrictions on setting up a single iTunes store for all of Europe.
"We don't believe Apple did anything to violate EU law," Apple spokesman Steve Dowling said Monday. "We will continue to work with the EU to resolve this matter."
EU officials pointed to what they called unfair pricing policies used by iTunes, with British consumers paying the most out of the 15 iTunes stores operating within the 27-nation bloc. Apple currently does not sell music online in any of the EU's eastern European countries.
Downloading a single in Britain costs 79 pence (EUR1.17 or US$1.56), or about 18 percent more than in countries using the euro like Germany and Belgium, where a single costs 99 euro cents (US$1.32). Downloads of singles in Denmark costs 8 kroner (EUR1.07 or US$1.44), while in Sweden it costs only 9 kroner (96 euro cents or US$1.28).
Consumer groups welcomed the EU's move against the U.S. technology giant.
"Consumers should be able to access shops in different countries, this is an access to service issue ... there is very often a segmentation of the market in order to pursue price discrimination," said Cornelia Kutterer, senior legal adviser at European consumers' group BEUC, an association representing consumer lobbies across Europe. "As I can go from the U.K. to Germany to go into the shop to buy a CD there, which is cheaper or more expensive than in the U.K., I should have the same opportunity online; that is what we are asking for."
The Commission said Apple has two months to answer questions issued in the letter. If found guilty of violating EU competition rules, the company could face fines of as much as 10 percent of its worldwide annual revenue.
The investigation comes amid moves by European consumer rights groups in Germany, France, the Netherlands and Nordic countries to force Apple Inc. to change the rules it imposes on customers of its online music store.
The groups are demanding Apple lift limits denying consumers the ability to play their downloads on digital players other than Apple's iPod. In February, Norway, which is not a member of the EU, declared those limits illegal and gave Apple until Oct. 1 to change its compatibility rules or face legal action and possible fines.
Apple has said it is willing to open iTunes to players other than iPods if the world's major record labels moved to change their anti-piracy technology.
Apple and EMI announced a deal on Monday that would allow EMI's music to be sold on iTunes minus anti-piracy software that limits its use on some players. The move is expected to be watched - and likely followed - by other record labels.